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The quick answer? It will also depend on supply.
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Having a car is one of those things many people can’t compromise on. If you live in an area without public transportation, then chances are, you’ll need a vehicle to commute to work, run errands, and just plain function.
Meanwhile, if you’ve been in the market for a new car for quite some time, you’re no doubt aware that vehicles have been expensive to purchase the last few years. But will things change in 2023? Well, that depends on one key factor.
It’s all about supply
Chip shortages earlier in the pandemic, among other factors, brought vehicle production to a halt in 2020 and 2021. That’s led to a massive shortage of new cars — and a classic case of demand exceeding supply.
In case you didn’t take Economics 101, or you slept through it, any time you have a situation where the supply of a given good isn’t robust enough to meet buyers demand, its price tends to rise. That explains why so many recent car buyers have taken on tremendous auto loans in the past year — car prices have just been that high.
But things could change in the course of the next 12 months. First of all, those supply chain issues and chip shortages are apt to resolve eventually, and 2023 could be the year when the supply-demand gap is nicely bridged. Also, there are already signs that supply is catching up to demand — even though we’re not at the point where we can call cars “affordable” overall.
Edmunds data reveals that the average transaction price for new vehicles was $47,681 in November 2022 — a record high. However, that was the first month since July of 2021 where the average transaction price for new vehicles came in below the average MSRP (manufacturer’s suggested retail price). And this past November, the average MSRP dropped to $47,696.
Now, it’s worth noting that the aforementioned drop in price is concentrated across larger trucks, SUVs, and luxury vehicles. And again, the reason likely boils down to demand. There’s generally less demand for these types of vehicles than for smaller and lower-priced vehicles. But still, we can take this as a sign that supply may be picking up. And that could lead to lower car prices in 2023.
How to save money on a car purchase
A good 14.8 million new cars will be sold in 2023, according to an Edmunds projection. If you plan to buy a car this year, it’s important to set a budget. Take a look at your savings account balance to see how much you can afford to put down on a vehicle purchase, and then crunch the numbers to see what auto loan you can afford.
If money is tight, there are also steps you can take to save in the course of buying a car. First, shop around. Compare prices at different dealerships, and also, compare auto loan rates across different lenders.
Next, skip the bells and whistles — or at least make a list of priorities and avoid pumping money into features that aren’t so important to you, or that you’re unlikely to get a lot of use from. The people who sell cars tend to be very good at talking up those add-ons. But if you’re able to avoid the temptation to upgrade your vehicle, you might walk away with a car purchase that actually doesn’t break the bank.
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