Beth Weaver, who runs a Buick GMC car dealership in Erie, Pa., is witnessing this summer something that hasn’t happened since 2020: Demand is weak enough that she and her competitors are overbooked. discounted some cars to move them to their lots.
The cars have been in hot demand and in short supply for years, thanks in part to production disruptions during the pandemic. But inventory is gradually improving, and people are becoming less frantic to buy new cars. That means that instead of rising relentlessly, price increases on cars are finally moderating.
“It’s different from the last few years, and even different from the fall,” Ms. Weaver. “Interest rates have certainly weighed on demand.”
Autos were a key driver of inflation when it began to rise in 2021, and prices have remained volatile since then: After slowing last year, used car prices fell to a wholesale level in early 2023. But they are declining again, which may help to weigh down inflation significantly.
“My outlook on automotive right now — and what we expect over the next few months — is normalizing,” said Jonathan Smoke, chief economist at Cox Automotive. “We are rapidly approaching a point where demand and supply are becoming more balanced.”
Omair Sharif, founder of Inflation Insights, expects used cars to post a notable price drop in June – helping to lower overall inflation. His expectation is that new car prices will be flat in June, though he is not ruling out an outright decline.
In the opinion of Mr. Sharif, the slowdown in new car prices may take some time, although it may become more noticeable later this year. But used cars remain a wild card, as there are still few to go around. Companies didn’t make as many cars in 2021 and 2022 amid production hiccups stemming from shortages of semiconductors and other components, meaning fewer pre-owned cars are available today.
“We are still short of supply and we are not seeing any improvement,” said Mr. Sharif. “So, with prices expected to decline over the next three to four months, we may see consumer prices fall again, similar to what happened at the beginning of 2023.”
said Ms. Weaver said he already sees some differences between the two markets. Used car buyers are still trying to buy, often out of desperation: A company needs a bigger fleet, or someone is looking to replace a vehicle that failed inspection. New car buyers are largely in wait-and-see mode.
“The fact that there is inventory creates less of a sense of urgency,” he said, explaining that last year he would have a car of a certain model on his lot and it would sell immediately. This year, he may have six, and little interest.