Beth Weaver, who runs a Buick GMC car dealership in Erie, Pa., is witnessing something this summer that has not happened much since 2020: Demand is weak enough that she and her competitors are deeply discounting some cars to move them off their lots.
Cars have been in hot demand and short supply for years, thanks in part to pandemic-era disruptions to production. But inventory has been gradually recovering, and people are becoming less frantic to purchase new vehicles. That means that instead of shooting relentlessly higher, price increases on cars are finally moderating.
“It’s different from the past couple of years, and even different from the fall,” Ms. Weaver said. “Interest rates have certainly weighed on demand.”
Automobiles were a major driver of inflation when it started to take off in 2021, and prices have remained volatile ever since: After slowing last year, used car prices popped at a wholesale level early in 2023. But they are coming down again, which could help to meaningfully weigh on inflation.
“My view of automotive right now — and what we’re expecting over the next few months — is normalizing,” said Jonathan Smoke, chief economist at Cox Automotive. “We’re rapidly approaching a point at which demand and supply are coming more into balance.”
Omair Sharif, founder of Inflation Insights, expects used cars to post a notable price decline in June — helping to pull down overall inflation. His expectation is that new car prices will be flat in June, though he is not ruling out an outright decline.
Mr. Sharif thinks the new car price slowdown could last, though it may become less dramatic later this year. But used cars remain something of a wild card, because there are still relatively few to go around. Companies did not make that many cars in 2021 and 2022 amid production snarls arising from shortages of semiconductors and other parts, which means that there are fewer pre-owned vehicles available now.
“We are still very short on supply and haven’t seen much improvement,” Mr. Sharif said. “So, with prices expected to fall materially over the next three to four months, we might see the lower prices pull in consumers again, similar to what happened at the start of 2023.”
Ms. Weaver said that she’s already seeing some divergence between the two markets. Used car shoppers are still trying to buy, often out of desperation: A company needs a bigger fleet, or a person is looking to replace a vehicle that has failed inspection. New car buyers are more in wait-and-see mode.
“The fact that there’s inventory is creating less of a sense of urgency,” she said, explaining that last year she’d have one car of a certain model on her lot and it would sell immediately. This year, she might have six, and little interest.
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