Potential Price Drops for Vehicles in 2023

If you’re among the many potential vehicle shoppers wondering when prices will finally decrease, there is some good news. The vehicle market appears to be stabilizing, which suggests that the cost of both new and used vehicles in Canada could potentially experience significant drops in the coming months.

If the price of cars drop in the near future, this also means that the market price of your current vehicle may drop as well. The prices of used vehicles have been inflated for the last 1-2 years due to many factors in the market.

There are several driving factors behind automotive prices, including supply and demand dynamics, supply chain issues, shipping costs, inflation, and consumer and manufacturer incentives. The past few years have witnessed global political and economic uncertainties that have led to price increases across various industries, including the automotive sector.

However, there are indications that vehicle prices could decrease this year. The cost of new vehicles escalated due to supply chain challenges, inflation, and chip shortages. Unfortunately, this increase in demand and cost also impacted the used vehicle market. Nevertheless, recent months have shown signs of stability in the vehicle market. In Canada, auto sales in January 2023 were 7.5% higher than in January 2022, and April 2023 sales were 2.3% higher than in April 2022, as per Mark Lines’ auto sales volume report.

Although prices haven’t experienced a sharp decline, there have been some fluctuations. According to Statistics Canada, the cost of used vehicles dropped by 1.9% in February and rose by 0.6% in March. These shifts indicate a potential stabilization of auto costs and the possibility of gradual decreases throughout the year.

Here are some key reasons why vehicle prices could drop in 2023:

1. Improved supply chain: As the global supply chain recovers from disruptions, including semiconductor shortages, auto manufacturers may be able to source parts more easily, leading to increased production and potentially lower prices.

2. Market stabilization: As the demand for new and used vehicles reaches a more balanced state, prices could adjust accordingly. If fewer people are in the market for vehicles or choose to hold onto their current vehicles, it could contribute to a decrease in prices.

3. Economic factors: Changes in the broader economy, such as interest rates, employment rates, and consumer spending, can impact vehicle prices. Favorable economic conditions could create a more competitive market, prompting automakers to offer better pricing to attract buyers.

While these factors suggest the possibility of lower vehicle prices in 2023, it’s important to stay informed about the latest market trends and closely monitor the automotive industry for any significant developments. 

A SUFFICIENT SUPPLY OF FRESH AUTOMOBILES

In recent years, there has been a scarcity of new vehicles in the market, particularly impacting electric vehicles (EVs) and luxury/sports models. Buyers often faced lengthy waiting lists when attempting to purchase high-end vehicles.

The mismatch between supply and demand caused significant price surges.

Fortunately, the situation seems to be improving this year with regards to automotive inventories. According to Statistics Canada, total inventory in Canada rose from 2.38 million vehicles in November 2022 to 2.57 million vehicles in March 2023. As consumer competition for new vehicles decreases, costs are gradually returning to normal, and waiting lists are becoming shorter. 

INCREASED AVAILABILITY OF SEMICONDUCTOR CHIPS

The shortage of semiconductor chips severely impacted the new vehicle market throughout 2021 and 2022, leading to increased demand and higher prices. Car manufacturers had warehouses full of vehicles ready for delivery, but without the necessary chips, these vehicles were essentially inoperable.

Although the chip shortage continues, analysts at JP Morgan have indicated that supply is growing, which potentially allows auto manufacturers to ramp up production worldwide. 

REDUCED FUEL EXPENSES

The global automotive market relies on the transportation of vehicles and parts through overseas shipping. Ships depend on diesel fuel to power their massive engines. In 2022, crude oil prices experienced a significant spike, rising from an average of US$68.17 to $94.53 per barrel, resulting in a 38.7% increase.

As fuel costs escalated, so did international shipping expenses, leading to higher automotive prices across the board.

As of May 23, 2023, the average price per barrel stands at $73.81, representing a substantial decrease from the previous year. This reduction has made shipping and transportation more affordable for both auto manufacturers and dealers who rely on ground freight deliveries.

IS IT AN OPPORTUNE TIME TO BUY OR SELL MY VEHICLE?

Considering that auto prices are stabilizing, it may be a favourable time to explore buying a new vehicle, or selling your current one. However, it is important to keep in mind that interest rates and inflation remain high, which could result in unfavourable auto loan terms.

If you are planning to purchase a new vehicle this year, it is advisable to consider trading in a vehicle with a high trade-in value or making a larger down payment to reduce your financing and interest expenses. Also, if you have been thinking of selling your vehicle, now may be better than later given the potential for a drop in the used car market.