Brace For A Car Price Crash Of Unprecedented Proportions As Auto Market Collapse Intensifies! - Epic Economist

A car market crash of unprecedented proportions has started to unfold, and the price declines we’ve seen so far in 2023 are nothing compared to what is coming next. According to analysts at UBS and Cox Automotive, an oversupply of vehicles is causing a price war that can trigger a crash much worse than the collapse witnessed during the financial crisis. Many car dealers are already facing a train wreck right now, but that also means American motorists will finally see some relief after years of hefty increases that kept vehicles increasingly unaffordable and pushed average payments to record highs. 

2023 is going to be the year that prices finally drop, analysts say. Many models have already lost up to 25% of their value as automakers introduce major price cuts to increase sales volume even if that impacts their profitability. The latest data released by auto wholesaler Manheim revealed that April was the second month in a row that the average transactions on new cars fell below retail prices in nearly two years, and manufacturer incentives increased. There was a year-over-year decline in April, too, continuing an 8-month-long series of such declines, the data showed. 

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At this point, the used car bubble has already burst. But new car prices are set to face a much more dramatic reckoning in the months ahead. On one hand, the downward trend is likely to restore affordability for would-be buyers, but on the other hand, “that’s causing a train wreck now for car dealers,” Howard exposed.  

In May, the inventory of new cars rose to its highest level in two years. And a recent report from UBS estimates that car production will exceed sales by 6% this year, leaving an excess of 5 million vehicles that will require deep price cuts to get sold off of lots. Those price cuts are expected to intensify from this month on, and many automakers are already bracing for a price war and slashing prices to get rid of inventory. 

As new car inventory continues to climb across the board, we can expect a sizable correction by December. Plus, buyers may be able to strike a deal with desperate dealerships as manufacturer incentives increase. When wholesale used car prices go down, retail prices typically follow. The company says that it might take between six and eight weeks before we start effectively seeing declines in retail car prices. For those in need of a new ride, that may be the opportunity they needed to finally purchase a new vehicle.

But it’s important to wait before you buy because the downward trend has only just begun, and the new vehicle bubble has a lot further to fall before the market stabilizes. For once, consumers may be benefitted from the car market crash. In contrast, manufacturers and dealerships will bear great financial losses due to the oversupply problem. Just as it happened with retailers a few months back, the glut of unsold inventory will trigger some painful profit losses and throw some struggling companies into disarray. We shouldn’t be surprised to see an uptick in dealership bankruptcies in the latter half of 2023, especially as the recession sets in. 

Everything that goes up eventually comes down. It’s just hard to tell by now how fast and how profound this crash is going to be, but it will certainly be significant enough to put major brands in danger of a collapse during the downturn that is now upon us.

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