Things are just starting to turn in favor of car buyers. Lenders are tightening financing for new car sales, which are experiencing accelerated depreciation and rapidly declining values. That means your car is much more likely to flip over. Banks don't want to keep a bag for a car worth less than a loan. The bottom line is, higher interest loans are now the norm to reduce risk.
How big is the drop in new car sales?
RAM car outside a RAM dealer | Artur Widak/NurPhoto
So far, car sales have fallen by nearly 20% this year. Some car owners see it as a cue to sell their car. The result is a flood of new cars suddenly hitting the market. It's very disappointing to see wholesale prices on some cars drop by 10% in just a few days.
The big news, according to industry veteran Ben Hardy, is that dealers are seeing new-car order banks going sideways. When the pandemic began, ordering a car over the phone or over the internet became the preferred method of buying a new car. From there it was handed over to a buyer or picked up at a local dealer. Pretty seamless and simple.
However, many of these buyers have not yet completed their purchases. They get their deposit back and walk away. These special order vehicles are therefore now the responsibility of the dealer. But with fewer buyers, it's getting harder and harder for dealers to sell anything.
What about ordering a new car online?
Nissan Leaf SV electric car in parking lot | The Boston Globe via Pat Greenhouse/Getty
Worse, they are bespoke cars, so they may have many options, few options, or be unpopular. Too many options make it difficult to sell these because the prices are so high. And fewer or, say, rarer options are also turn-offs. As a result, these cars are starting to pile up and are less likely to catch the common buyer.
With fewer customers ordering cars, dealer order banks are significantly lower than they were a year ago. It's not just because of this that dealers' order rates are declining, they're just ordering fewer cars because they're piling up with pre-ordered cars. All this comes down to pressure from the manufacturer, as there are very few cars in the order bank. It's also a problem for dealers.
Finally, with economic uncertainty and Americans pulling in more spending, the market has reverted to affordable economy cars. It is a fuel efficient car. That is, vehicles with large loads began to sit.
Should I buy a car now?
A line of new Ford trucks is displayed at a Ford dealership.Getty
The bottom line is that the market is adjusting. It's clear that sales are starting to fall off a cliff. New and used cars are still expensive. High prices are falling, coupled with bad loans. The question for buyers is when that will happen. Not now, and probably not anytime soon.
So it might make sense to hold off on buying a vehicle until the market calms down a bit. Or if you really need a car or have the cash, you can avoid high interest loans. Private car sales now have better prospects at better prices.
In 2023, car sales will be a roller coaster again.
