Updated: Jan 24
These are unprecedented times. The plummet in car sales caused by the Great Recession in 2008 had many thinking nothing this chaotic could ever happen again to the car industry. Then we had the pandemic in 2020 and 2021. Low rates and inventory shortages caused the opposite effect and there were not enough cars to go around. Again, nothing this chaotic could ever happen to the car industry again. Now we are coming into 2023 with high interest rates, a supply chain that is still recovering and the threat of a recession looming. With this backdrop, you as a consumer may be wondering “is this the best time to buy a car or should I wait”. Below I have listed some pros and cons that may help you make that decision. Let’s start with why you shouldn’t buy in 2023.
Before I got into insurance, I sold cars for 12 years. I started out by buying cars from different sources, making minor cosmetic repairs, and then flipping them. I did this for about 2 years, then I and some partners opened a small car lot in 2008. If 2020 hasn’t overshadowed your memory of 2008, then you’ll remember that was probably the worst time ever to open a car lot. We operated the car lot for about a year and then closed it down. I then began selling cars for a local GMC and Chrysler dealership. I worked as a car salesman for them about 9 years until I opened my insurance agency. I still have contacts with the local market, especially since I write policies for some of their clients.
1. Why you shouldn’t buy in 2023.
Everything is higher including cars. We have been experiencing a steady rise in inflation since the onset of the virus in 2020. This has been more pronounced in the auto market because of the chip shortage. This caused a shrink in demand, therefore increasing the price of new and used cars alike.
These issues are starting to abate but the prices are still historically high. More chips are being made. More cars are hitting the lot. These things are becoming better.
If you’ve been keeping up with the news, there is supposedly a recession on the way. Depending on the depth of the recession we can see low to high job losses in 2023. In such times you tend to want to hold on to your finances.
Spending this type of money during this time could be an issue for your personal budget. Now this could be a blessing to the public because two things that help counter a recession is home sales and car sales. You could be very well doing your part to stave off a recession by buying a new ride.
c. Supply Chain Issues & Supply Demand issues continue
You may wonder how a chip shortage on new cars affects the price of used cars. There is no used car factory. Used cars are not made they become. So, if there has been a shortage of new cars, the demand spills over into the used cars.
Soon the bubble in the lack of new cars has to make its way through the used car market. There will be less new cars to become used cars. This will keep the price of newer used car historically elevated for quite some time. The price of cars may go down compared to last year, but they will be historically higher than previous years.
Another issue is that those who bought new cars in the past few years bought them at elevated prices. As prices began to normalize, they are going to find it hard to trade out of those cars for 3 to 4 years. This will result in even less new cars becoming used cars.
d. Higher Interest Rates
Don’t fight the Fed. If you have been watching any business news you have heard this said multiple times. To slow down the economy and tackle inflation the feds will continue to raise interest rates. When you look over the history of America, rates are not historically high, but we have been in a 0-interest environment for the last 15 years so many people haven’t experienced current rate levels. Also, the pace of the change has been jarring. Many people hope the Fed changes their stance soon and therefore you may be able to buy at a lower rate. In other words, if you can hold out for about a year you may be able to finance more car for the same payment.
e. Car Quality
Another thing to consider is the quality of the cars being made. I don’t know if you have noticed but the things I have purchased from groceries to home goods have diminished in quality, with the reasons ranging from having less employees, inconsistent run times, issues with supplies etc. There were many cars that sat unfinished waiting on parts, who knows what effect if any this could have on the cars that have rolled out from the manufacturer between 2020 and 2022. Decreased manufacturing quality coupled with increased prices creates a disparity in value.
Enough of the doom and gloom, let’s look at reasons to buy a car in 2023:
2. Why you should buy
a. You have no choice
The first reason is that you have no choice but to buy. As I said before, many people have been delaying the buying process for 2 to 3 years due to the pandemic, high prices, and uncertainty in the economy. Either what you have is getting unfeasible to continue repairing or it is just time to add a vehicle to the family. One or more of your children have reached driving age and another car is needed. I have personally experience this. My youngest child began college last year. My wife and I tried getting around with one car so she could go back and forth to college in the other. It became too much of a burden, so we bit the bullet and bought one.
b. Higher Rates to come
The good news with all that is going on in the economy is that the job market is still strong. The bad news is that job market is still strong. If people are able to go and buy what they want even at these elevated prices, inflation will continue to rise. Thus, the fed will continue to raise rates at least for another quarter or two. Therefore, if you must buy, now maybe the best time before the fed does another rate hike.
c. Possible Deals
As much as you want to buy a car in the coming year the dealerships and manufacturers want to sell one. With rising rates, the pool of qualified buyers will begin to shrink. Less buyers means less sales. For someone that can afford to buy and has the credit to buy, you will begin seeing more rebates and deals on new cars. Tesla has for the first time cut the price on some of its line of vehicles. Therefore, a well-qualified buyer may find deals that the average person may not be able to obtain.
d. More Available Vehicles
The supply chain is getting better. More vehicles are coming off the line. Whereas you found it difficult to buy a new car or truck last year because they were not available, now at least you can find one and even have options in color and features instead of hearing “this is what we got, take it or leave it”. Please forgive me, a car salesman would never say that.
e. Switching to Electric
You want to switch from gas to electric. There are more electric vehicles available today made by more companies than ever before. I admit that I have always thought the Teslas were cool but a bit out of my range and besides that, where would get it serviced when needed. But now we have Ford and Chevy making electric trucks that look like regular trucks. The prices are reasonable for a truck. If you’re tired of the rollercoaster gas prices, this may be your time to get off the rollercoaster and get into an e-truck. Not sure if that’s the correct term, but it sounds good.
I hope this helps you make an informed decision when it comes to buying your next vehicle.
Layforn Profice Jr.
Profice Insurance & Financial Service, LLC