Will Car Prices Return to Normal Soon, or is There a New Normal to Settle Into Now?

The concept of a “new normal” was a reassurance for many in the face of the long-lasting pandemic – but for some, it became an annoyance, a reason to excuse new and reversible changes.

Many consider the automotive industry’s increased vehicle prices and supply and demand issues to be the latter part of the new normal.

But the tides are finally starting to slowly turn – let’s talk about how and what this means for dealers and customers.

What’s Slowly Bringing Car Prices Back Down?

What changes in the past year have helped to bring car prices back down?

Vehicle supply and demand changes, combined with high interest rates, have made the prices of the last few years unsustainable.

Higher Supply and Lower Demand Shift Car Prices in Customer’s Favor

At the beginning of the pandemic, a microchip shortage and warehouse shutdowns reduced the number of new vehicles being manufactured, which crippled the car supply for years.

The supply is recovering this year, and dealer showrooms have near-normal availability.

At the same time, the high prices and economic downturn in 2022 decreased demand for vehicles. These market changes have helped lower car costs by as much as 1% between December 2022 and January 2023.

High Interest Rates to Bolster the Economy Have Negative Results for the Auto Market

To combat rising prices and economic issues, the Federal Reserve raised interest rates – increasing used car loan prices at U.S. dealer locations.

This priced out many used car customers and also decreased demand. The fewer cars dealers could sell, the more they had to lower their prices to continue bringing in revenue.

But with all these reasons to lower vehicle prices, why haven’t they returned to normal?

Why Aren’t Prices Dropping to the Pre-Pandemic Normal?

To put it simply, prices will always stay high if automakers and dealers are making a profit. While the prices of the last two years aren’t sustainable long-term, the auto industry now knows that the market can sustain higher prices than what was seen pre-pandemic.

This means that while the cost of a car is and will continue to drop this year, it won’t return to normal.

Instead, we need to find a way to embrace the new normal as automakers, dealers, and customers.

The New Normal for the Automotive Industry – Maker and Dealer Changes and Tips for Customers

Automakers and dealers are finding ways to deal with the new normal – focusing on electric and hybrid vehicles, offering incentives, and making it easier to pre-order or purchase cars online.

As for customers, here are some tips straight from Karl Brauer, executive analyst for iSeeCars.com:

Be open to all markets – new, used, and certified pre-owned options are all on the table as prices decrease. Also, be willing to expand your search; the 25 miles outside your home may be convenient, but the dealer 50 miles away from you may be cheaper.