2022 was the worst sales year since 2009 for many automakers.
Inflated vehicle prices mean many of them made more profits than before.
Raising inventories and interest rates could bring prices back closer to pre-pandemic levels.
2023 could see a reduction in car prices in the United States and Canada due to rising inventories and interest rates.
Since the supply crisis in the automotive industry began in early 2021, car prices have soared to record highs, and many dealerships started asking over MSRP for their more popular vehicles.
About a year ago, 80% of car buyers in the United States paid over the manufacturer’s suggested price. This premium averaged $700 USD in the spring of 2022, but by December, the situation had already reversed.
Indeed, the looming recession has made interest rates almost double and an improvement in the availability of electronic chips has made it possible for vehicle inventories to grow over the past year.
This has brought prices back down, with US buyers paying $300 less than MSRP on average, except for popular new models and many electric vehicles, which still require a waiting list.
This is an improvement from the consumer point of view, but the situation is not back to pre-pandemic levels quite yet since, on average, buyers paid $2,600 under MSRP in 2019.
Things are similar in Canada, where automakers currently offer around 5% of the MSRP in incentives, compared to 15% before the pandemic.
Analysts warn that automakers will have to cut their prices or raise their incentives to avoid a further slowdown of sales in 2023 as buyers can’t afford payments that get inflated by higher interest rates.
Prices may not go down as much as they did during past recessions however since the demand for new vehicles is still quite strong due to many buyers holding off buying a new car in 2021 and 2022 due to dealer markups.
In addition, many dealerships saw record profits last year despite it being the worst sales year since 2009 due to higher MSRPs and their added markups.
This could continue in 2023 for some automakers since inventories are still low for some brands, mainly Asian ones. Conversely, American automakers have some of the fullest inventories at the moment, which suggests rebates could be more generous.