Experts seem split on the notion that the U.S. is in a recession, and the effects of record-high inflation on car buyers could be wide-ranging. Historically, it may be reasonable to expect car prices to drop in a recession. However, there may be other factors that could significantly affect your ability to get a deal on the car you want.
What Is A Recession?
According to the National Bureau of Economic Research, a recession is a time between the peak of economic activity and its lowest point. A separate, often-cited definition of a recession is that one is likely underway when the Gross Domestic Product (GDP) is negative for at least two consecutive financial quarters.
So are we currently in a recession? That may depend on who you ask. In a recent statement by Federal Reserve Chairman Jerome Powell, unemployment rates are still near 50-year lows. However, with the national inflation rate at around 7% as of this writing, we're still well above the Fed's official target of 2% inflation.
To fight inflation, the Fed has raised interest rates multiple times to cool down the economy. These actions have faced criticism for causing higher mortgage rates, higher auto loan rates, and effectively reducing the average consumer's everyday purchasing power. Some assert that the rate hikes may trigger a recession.
Do Car Prices Go Down In A Recession?
Car prices typically go down when supply exceeds demand. However, unlike in past recessions, some automakers are making permanent changes to how they do business. For example, Ford unveiled a plan earlier this year to stock up to 80% fewer car configurations at dealers and encourage buyers to place orders instead.
Similarly, Honda may normalize low inventory levels to boost its profitability by reducing overhead costs. As a result, predicting whether or not car prices will go down in 2023 may prove difficult. For now, a chip shortage is still wreaking havoc on car production, resulting in big variations in car prices across the U.S.
But that's not all. Amid record-high transaction prices, we're also seeing some brands completely eliminate some of their most affordable vehicles. For example, Hyundai recently discontinued the Accent, one of the cheapest cars to buy. Honda also discontinued the Civic LX, the ever-popular sedan's entry-level trim.
Earlier in the pandemic, production stoppages at new car factories helped cause a surge in demand for used cars. According to J.P. Morgan, prices show signs of starting to drop and may have peaked earlier in 2022. However, it may be too soon to tell if and when things will ever get back to normal for car buyers.
There may already be a reason to rein in some of this possible early optimism. That's because, down the line, the lack of new car sales and leased vehicles around 2020 may result in a shortage of used cars around 2023 or 2024. This reduction in supply could result in high used car prices in many parts of the country.
For now, it may be best to accept that your results may vary if you're looking to get a deal. For example, not every dealer charges markups over MSRP. Still, other dealerships may compensate for a lack of sales with pricey add-ons or higher interest rates. We recommend shopping around to get the best price possible.
Sources: NBER, J.P. Morgan
FAQs
If a recession weakens the demand for cars, it may drive prices down slightly, but it won't be a massive decrease in car prices like we saw in 2008 and 2020. If you're thinking about selling, you should decide sooner rather than later.
Is a recession a good time to buy a vehicle? ›
A recession might spur some relief, but given the low supply of new vehicles, it's not likely consumers will see any “bargains.” Also, don't expect brands to return to zero-percent financing even if the economy takes a dive.
Do prices get cheaper during a recession? ›
During recessions, of course, consumers set stricter priorities and reduce their spending. As sales start to drop, businesses typically cut costs, reduce prices, and postpone new investments.
How would a recession be likely to affect the market demand for new cars? ›
During a recession, economies experience increased unemployment and a reduced level of activity. How would a recession be likely to affect the market demand for new cars? Demand will not shift, but the quantity of cars sold per month will decrease.
What not to buy during a recession? ›
Don't: Take On High-Interest Debt
It's best to avoid racking up high-interest debt during a recession. In fact, the smart move is to slash high-interest debt so you've got more cash on hand. Chances are your highest-interest debt is credit card debt.
Should I buy a new car in 2024? ›
"2024 is probably the best year since the pandemic to buy a new car," Mark Schirmer, director of industry insights at Cox Automotive, told ABC News. "2021 and 2022 were really difficult years. Dealers are talking about discounts again ... this was not happening 18 months ago.
How do car sales do in a recession? ›
Decline in sales: During a recession, people tend to cut back on spending, and expensive purchases like cars are often delayed or forgone altogether. This can result in a significant decline in sales for automotive dealerships.
Will cars be more expensive during a recession? ›
Prices fall when there's too much supply and not enough demand. Dealers have to lower prices to convince consumers to buy the product. But when demand is high and supply is low, dealers can set prices higher because someone will pay the higher price to get what they want.
Should you buy or sell during a recession? ›
A good investment strategy during a recession is to look for companies that are maintaining strong balance sheets or steady business models despite the economic headwinds. Some examples of these types of companies include utilities, basic consumer goods conglomerates, and defense stocks.
Who benefits from a recession? ›
Lower prices — A recession often hits after a long period of sky-high consumer prices. At the onset of a recession, these prices suddenly drop, balancing out previous long inflationary costs. As a result, people on fixed incomes can benefit from new, lower prices, including real estate sales.
People tend to continue spending money on their pets, including products, medical services and grooming, even during tough times. People still wear clothes during recessions. Clothing, underwear, socks and shoes wear out. If your business carries necessary clothing items, it will likely do OK in tough times.
How long do recessions last? ›
According to the National Bureau of Economic Research (NBER), the average length of recessions since World War II has been approximately 11 months. But the exact length of a recession is difficult to predict. In general, a recession lasts anywhere from six to 18 months.
Do cars sell during recession? ›
During a recession, auto sales typically fall, often significantly. Many buyers will back out of the market until the economy recovers.
Are cars going to become cheaper? ›
Car Prices Will Likely Continue To Decrease
“Last month, the average price for a new vehicle was [$47,936] — a [1.4%] dip from last year, according to the latest KBB data. This suggests that new car prices might drop in 2024.” One factor that could lead to price drops is an oversupply of new cars.
Will car prices drop in 2024? ›
In October 2023, the average new car price sat at $47,936. Data showed a 1% decrease from 2022, and prices continuously went down 3.5% since December 2022. Predictions hint at further declines in 2024, yet certainty remains uncertain. An oversupply of 5 million vehicles may prompt price reductions.
Will new car prices drop in 2024? ›
Prices on new cars are expected to drop in 2024 as the industry moves beyond the supply-chain issues that pushed up auto prices during the pandemic, which will gradually ease the prices on used vehicles as well. That's welcome news for car shoppers who have faced record-high prices over the past couple of years.
Are used car prices going down in 2024? ›
Retail used car prices are falling slowly in 2024
In early 2024, used car prices are holding steady, even as new car prices drop quickly. Hybrid and EV prices remain elevated above the overall market, but the gap is narrowing.
Will car loan rates go down in 2024? ›
Auto loan rates are expected to stop rising and possibly start descending in 2024, but they'll likely remain elevated in comparison to recent years (alongside the broader interest rates environment).
