Analysts expect to see car prices drop in the coming months as automakers overproduce in the face of declining demand.
A report by UBS predicts that car manufacturers will build more vehicles than they can sell by the end of the year, leaving the industry with a surplus of five million units. To address this discrepancy, automakers will need to cut car prices to find buyers. An excess would also force car values down naturally by reversing inventory shortages and overstocking dealership lots.
Car prices may also fluctuate under the influence of OEM competition. Seeing demand soften over the current quarter, automakers are likely planning to strengthen their market share over other brands, especially in the electric vehicle sector. While brands have been hesitant to lower MSRP values in recent months, the success of Tesla, which has discounted its lineup on multiple occasions this year, has probably changed their minds.
Even without these conditions, car prices were already in decline before demand ever began to weaken. New and used vehicle values slipped in April, according to reports by Cox Automotive. Electric vehicles have seen the highest reductions in price since the start of the year, driven primarily by Tesla’s discounts, with supplemental cuts made by Ford and Lucid.
Although affordability is still an issue affecting many buyers, the news that car prices are coming down may successfully push customers back to the dealership. Retailers, on the other hand, may feel less pleased as the business becomes more difficult and less lucrative. However, even with substantial cost reductions, vehicle values are still inflated far above their pre-pandemic average, meaning dealers are likely to see the favorable winds continue for some time.