‘Auto makers are building more expensive vehicles’: Why you should not buy a new car in 2023

“We see a challenging auto end-market globally into 2023E, driven by high interest rates, energy prices and financing rates affecting affordability,” analysts Mizuho Americas, led by Vijay Rakesh, wrote on Dec. 19.

Cox Automotive Executive Analyst Michelle Krebs says auto inventories have been increasing, but that Toyota
TM,
-0.50%
 
7203,
-0.30%
and Honda
HMC,
-0.99%
 
7267,
-1.17%
still have low numbers of new cars for sale. One reason for the high prices is that “auto makers are building more expensive vehicles because the new car buyer tends to be more affluent.”

“While the inventory situation has improved modestly in the fourth quarter, supply remains well below the level at which consumer demand for new vehicles can be met,” Thomas King, president of the data and analytics division at J.D. Power, said this month.

“New-vehicle transaction prices continue to rise — albeit at a slower pace than earlier this year. The average price in December will set a record of $46,382, an increase of 2.5% from a year ago,” he added.

The Cox Automotive/Moody’s Analytics Vehicle Affordability Index hit a new low in November, with a median 43.3 weeks of income needed to pay for the purchase of a new light vehicle. Higher interest rates are also pushing some borrowers with lower credit scores out of the market, according to Krebs.

Taking a longer view, Burt Hurvich, executive vice president at Mount & Nadler, a public relations firm in New York and a self-described car enthusiast and collector, says that because of the improvement in quality and durability, it’s a bad idea for anyone to buy a new car, even high-end buyers.

He suggests buying a certified preowned car from a dealer directly affiliated from the manufacturer. Go to a Ford dealer for a used Ford, etc. He cited examples in which he or family members purchased vehicles that were two years old with low mileage, saving more than 50% from the original new-car price.

Taking this idea further, Hurvich emphasizes the importance of human relationships, if you want to keep maintenance and repair costs down. Chances are you will go to the dealer for service on a modern car, because increasing complexity makes it more difficult for individual mechanics to afford diagnostic equipment. To keep repair costs down, “the key is to develop a rapport with the service people at the dealer. Then they will do more for you than for someone else,” he says.

Krebs points out that in the current car market, you might have difficulty finding a late-model used car at an attractive price.

All of this boils down to the need to wait to buy your next new or used car, if possible, because it may take another year for the car market to settle. It may cost much less to maintain or repair your new car for another couple of years.

If you must dive in, “you need to compromise,” Hurvich says.

“If you have to buy a car, you need to expand your research,” Kebs says. “Be more flexible in terms of brands and vehicles.”  She adds that buyers who had insisted on SUVs have been looking at cars again, in part because of higher gas prices. That has been difficult because Ford
F,
-1.63%,
General Motors
GM,
-1.06%
and Stellantis N.V.
STLA,
-0.57%
unit Chrysler have shied away from cars in favor of SUVs and pickup trucks.

All of this boils down to another difficult year for car buyers. Can you wait? Is your old car running well? Do you really need to make this huge financial move in 2023? Waiting another year can help you to save up a larger down payment for your next car, setting up an easier purchases in what may be a vastly improved market in 2024.

Also read: Buy shares of only the strongest companies to make money in 2023, including ‘the kings of cash flow,’ says this five-star fund manager