New Car Market Crash in 2022: Trends and Predictions

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Edgar Moulton.

09/09/2022

Edgar Moulton. Car Expert

So you decided to buy a car, but then were unpleasantly surprised by the car market in 2022. Yes, prices have indeed gone up. The cost of a new car right now is higher than ever. So do you buy a new car now, or do you wait until prices go back down? 

The purpose of this article is to help you make the right decision when to junk a car and buy a new one. You will find an overview of today’s market prices. We will try to understand the reasons behind this change in the price for both new and old cars. And we will also look into research on the car market forecast to see when prices will start to go down and when you can expect cars to become more affordable.

Car market overview: what changes do new car buyers face in 2022?

First, let's take a closer look at what is happening in the car market today. For comparison, let’s take the prices from May 2022 and the prices of one year before, May 2021. Over the year, new car prices were rising gradually, about 1% each month. As of May, new car prices in the United States averaged at $47,148. That's up from a year before by $5,613, or 13.5%. Slightly more expensive prices were seen in December 2021. The average transaction price (ATP) was at about $47,202 back then.

The number of cars produced has declined in recent months. At the same time, customer demand has remained unchanged. So dealers are selling inventory, but at a price higher than the manufacturer's suggested retail price (MSRP). During 2022, almost all cars were sold at an elevated price compared to 2021.

But there are some differences in the luxury and non-luxury car segments of the retail market. It's worth noting that a year ago, non-luxury vehicles were selling below the MSRP. This year, buyers of new non-luxury vehicles are paying an average of $43,338 per new car. That's about $1,030 above the sticker price.

The demand for luxury cars is quite high. Luxury vehicles now make up 17.3% of all sales in the automobile market. This is much higher than a year ago. In May 2021, the luxury vehicles market share was 15.9%. Before the COVID-19 pandemic, it was 13.1% of all sales. Today, the average value of a luxury car is $65,379. That's $1,071 above the MSRP. A year ago, the average cost of a car was lower than MSRP by about $1,300. But still the cost of cars in the luxury segment, as opposed to non-luxury cars, is decreasing each month.

There is an interesting trend in the electric car market. The average cost of an electric vehicle in 2022 is gradually decreasing. This is primarily due to the emergence of more budget-friendly models of electric cars, which offset the expensive luxury models. But still, the average cost of an electric vehicle is about $64,000 at the moment.

A very high increase in prices is observed among trucks, SUVs, and vans. For example, the ATP of trucks today is $56,216. That's $888 more than the previous year. The average SUV is up $526 and now equals $46,073. The cost of vans has increased by $726 over last year. Consumers will now pay an average of $48,671 for a new van.

As you can see, the situation in the market is not very positive. And the car market outlook isn’t very optimistic either. But what is the reason for this increase in vehicle prices in 2022? In the next section, we will look at the factors that have had a tangible impact on the changes in the car market.

Why are car prices so high in 2022?

Three factors are responsible for the price increases in the American new car market: the shortage of microchips, the COVID-19 pandemic of 2020, and Russia's attack on Ukraine in 2022. Let's take a look at each of these factors, how they have shaped car prices, and whether the current situation could lead to a car market crash.

In 2020, the world was hit by a pandemic. This event had a huge impact on the automotive industry. Because of the lockdown, many companies completely or partially shut down their operations. The workforce was cut down on. Therefore, starting from 2020, the production of cars and their parts has been much lower.

The second reason for the rise in prices of new cars is the shortage of microchips. The reason for this shortage is also connected to the pandemic and the increased demand for electronic devices that use microchips. Because of COVID-19, the production of chips has decreased. At the same time, people working remotely started using electric devices more often than before the lockdown. Regardless of what kind of cars a manufacturer puts on the market – electric cars, hybrids, or conventional internal combustion engines – microchips are used in all units: engine start systems, driver assistance, navigation, and multimedia. Modern cars are equipped with many sensors and all of them are controlled by microprocessors. Consequently, the production of new cars has slowed down, which has had a negative impact on their price.

The war in Ukraine also had a strong negative impact on the car market trends 2022. Factories in Ukraine were producing important electrical parts. Because of the shutdown of those factories, some automotive companies such as Volkswagen, BMW, and Porsche have been forced to slow down or even close down their production.

Some automakers have decided to suspend the production of cars and car parts in Russia. For example, BMW decided to halt the work of its factory in Kaliningrad.

The shrinking sales market has caused negative economic consequences for these companies. For example, Volvo has also stopped selling its cars in Russia. Therefore, the company has lost a part of its trade area.

On the other hand, the production of car parts in Ukraine has stopped. For example, the German factory Leoni, which produces wiring systems, stopped its operations in the cities of Stryi and Kolomiya because of the war. Despite the fact that Ukraine is not a major producer of cars and car parts, the closing down of even small factories has led to a significant shortage of parts for major German manufacturers.

COVID-19 and the war in Ukraine will come to an end at some point. But will car prices return to pre-COVID levels so quickly? Analysts say it will take several years. You can read a more detailed car market forecast in the next section.

Car market trends and forecasts: will the car market get better in 2023?

Will the situation change for the better? Or does it make no sense waiting, and you would be better off buying a car now? In this section, let’s consider some car market predictions.

The main reason for the increase in car prices in 2022 was a decrease in car production with unchanged demand for cars. We have already discussed what factors led to the decrease in the car supply. In order to balance the situation in the car market, car manufacturers need to be able to produce the necessary quantities of new cars again.

The good news is that the semiconductor chip shortage is starting to go down. This means that the production of new cars will soon be on the rise again. Let's see what the experts think about it.

For example, Rebecca Rydzewski, research manager of economic and industry insights for Cox Automotive, believes that new and old car prices are beginning to stabilize. In her opinion, new-car prices will begin to decline within a few months. "However, no one should expect price drops, as tight supplies in the new market will hold prices at an elevated level through 2023," she states.

Slightly more pessimistic are the predictions of Stephanie Brinley, principal analyst at IHS Markit, who also believes that car prices will level off when the offer approaches demand. But she predicts that automakers will not be able to produce the required number of cars until late 2023 or early 2024.

As you can see, a decline in the price of new cars is still expected during the year. At this point, you should be patient if you plan to buy a car.

Consider selling your car to JunkCarsUS

Car prices in the U.S. have really increased a lot in recent years. Buying a new car has become a more difficult decision. When is the best time to buy a new car? Where can you buy a new vehicle for a reasonable price? Do you even need a new car? Is it worth it to fix your car and put off buying a new one? Employees of our company will help you find answers to these questions. 

Our friendly and professional staff will help you to estimate the condition of your car and tell you if it can be repaired or you are better off scraping it. You can also sell your old car to us to cover part of the cost of buying a new one. We buy both trucks and small cars, in different conditions and with different degrees of damage. Just leave your request by phone or on our website, and a representative of our company will come and collect your old car within 24 hours.

FAQ

Is the car market going to crash in 2022?

Several factors influenced the changes in the car buying market 2022. These include a reduction in the production of microchips necessary for a car to function, the COVID-19 pandemic, and the war in Ukraine. These factors still continue to affect the car market. That is why at the moment it is hard to predict the decrease in prices for cars. But some analysts believe that car prices will start to decline in the second half of 2022.

When will the car market crash?

The cost of a new car in 2022 has gone up a lot. This was due to a crisis in the automobile industry caused by various factors. Because of the rise in the price of new cars, the demand for used cars has increased. New car prices will return to their previous level gradually. In the second half of 2022 and the first half of 2023, a car market crash deepening is expected.

Edgar Moulton.

09/09/2022

Edgar Moulton. Car Expert

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