Car Dealers Say High Prices Are Scaring Off Buyers
A spike in the price of new cars has both buyers and auto dealers worried.
As The Wall Street Journal (WSJ) reported Saturday (Feb. 4), some dealers say customers were already hesitant due to high prices and a shortage of affordable cars. Rising interest rates and a drop in used car prices have made things worse.
“My concern is that if supply doesn’t return, then new cars will be priced out of the reach of middle-class households,” JP Garvey, dealer principal at Garvey Group, a chain of dealerships in upstate New York, told the WSJ.
The report notes that dealers anticipate that pressure on new car buyers will hinder sales until supplies improve, leading car makers to offer more discounts. Inventories are coming back but remain below pre-COVID levels, and car companies say supplies will be tight all year.
Last year saw American car sales drop to 13.7 million, their lowest level in more than a decade. A forecast earlier this year by J.D. Power/LMC Automotive projected sales will remain below pre-pandemic levels of 17 million this year.
And recent reporting doesn’t paint the used car market in a healthy light either.
“After a huge run-up in 2021, last year was a reality check,” Chris Frey, senior manager of economic and industry insights for Cox Automotive, told The New York Times last month. “The used market now faces a challenging year as demand weakens.”
Cox found used vehicle values falling 14% last year, with an added 4% drop projected for this year. The Times report says this shift will force dealers to sell some cars at a loss.
Recent research by PYMNTS shows consumers purchasing fewer vehicles overall as Americans readjust their buying strategy due to inflation.
Fifty-five percent of consumers said they did not purchase a car in 2022 and likely won’t again this year, according to “New Reality Check: The Paycheck-to-Paycheck Report: The Economic Outlook and Sentiment Edition,” a collaboration between PYMNTS and LendingClub.
That drop comes as consumers are scaling back on an array of nonessential items such as vacations, electronics and appliances, the study found. Just 35% of the people surveyed plan to spend on leisure travel in 2023, and a little under a quarter of consumers (24%) say they plan to buy expensive electronics or appliances.
Even sectors long thought essential have felt the pain, PYMNTS research shows. December sales data found that grocery stores missed a much-needed holiday boost. And consumers who live paycheck to paycheck are now putting off financial planning as well, with 57% saying inflation has reduced their ability to reach their long-term financial aims.