Easier? Probably not. Cheaper? Also, probably not.
- In 2022, car buyers faced waiting lists and higher prices for new and used cars.
- Auto loan rates are up and likely to stay that way through 2023.
- Chip shortages are beginning to ease, but modern cars (and especially electric cars) require more of them.
Buying a car used to be a fairly simple process. You’d have to do some research, pick some makes and models to test drive, and head to your local dealership (or search the Internet, in the case of many used cars).
But 2022 was a bad year to need to buy a car. Whether you’ve had your eye on a brand new shiny showroom car or a solid and serviceable used car, you’ve likely faced long waiting lists, higher prices, and a lot of compromises. This is due to high demand, supply chain issues and microchip shortages. In real numbers, new car prices rose 8.4% between October 2021 and October 2022, according to the most recent Consumer Price Index Summary.
The auto industry spent 2022 still reeling from the global disaster that was the COVID-19 pandemic. Some people forgo buying a new car and instead choose to repair or maintain an old car. This is often a more wallet-friendly choice, but it can still be daunting if you have your heart set on a new car (and were in good shape to afford it). Will 2023 be different? Unfortunately, the new year is unlikely to bring drastic changes for the better.
Interest rates have gone up
In addition to higher prices, consumers also face higher interest rates on credit cards, mortgages and auto loans. That’s due to consumer lenders raising interest rates in response to actions taken by the Federal Reserve in 2022, which include multiple increases in the federal funds rate, or the rate at which banks and credit unions borrow from each other. US News & World Report notes that in November 2022, the average interest rate for a borrower with a credit score of at least 750 was 9.31% for a new car. If you have very good or excellent credit, you may be able to find a promotional rate or other incentive from your dealer, but if your credit is a little shaky, you’re likely looking at a higher interest rate on your auto loan.
Lack of chips is still an issue
Since the start of the pandemic, the main problem with access to cars has been the lack of chips. According to JP Morgan research, this is starting to ease, but there have also been problems with semiconductor supply for a long time. Chips available now and in 2023 may also not be the right types for every car in demand. Another point to remember is that modern cars require a lot more chips and the demand for electric cars is also increasing and they require more.
Insurance rates are going up
Finally, another obstacle to making car buying easier and cheaper next year is the rising cost of auto insurance. Costs are rising due to labor shortages, higher car prices and even higher accident rates since the start of the pandemic. So even if you do manage to buy a car, you’ll likely spend more to keep it insured.
Overall, it doesn’t seem likely that the car buying process will be much easier or less expensive in 2023. One possible advantage for you as a buyer is that if you are willing to pay more and have a high credit score, you may have less competition from borrowers who are not in the same position as you. If you hope to buy a car in 2023, be patient and don’t lose hope.
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