Will It Be Easier to Buy a Car in 2023?

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  • In 2022, car buyers faced wait lists and higher prices for new and used cars.
  • Interest rates on auto loans are up and will likely stay that way into 2023.
  • The chip shortages are starting to ease, but modern cars (and especially electric cars) require more of them.

Easier? Probably not. Cheaper? Also probably not.

Buying a car used to be a fairly straightforward process. You'd do some research, choose some makes and models to test drive, and head to your local dealership (or search the internet, in the case of many used vehicles).

But 2022 was a bad year to be in the position of needing to buy a car. Whether you had your eyes on a brand-new shiny showroom vehicle or a sturdy and serviceable used car, you likely faced long wait lists, higher prices, and a lot of compromises. This is thanks to high demand, supply chain issues, and microchip shortages. In real numbers, the Consumer Price Index Summary's most recent data saw new car prices up 8.4% between October 2021 and October 2022.

The car industry spent 2022 still feeling the effects of the worldwide catastrophe that has been the COVID-19 pandemic. Some people gave up on buying a new car, and elected instead to fix or maintain an older vehicle. This is often the more wallet-friendly choice, but it can still be a bummer if you had your heart set on a new car (and were in a good position to be able to afford one). Will 2023 be any different? Unfortunately, the new year is unlikely to bring dramatic changes for the better.

Interest rates are up

In addition to higher prices, consumers are also facing higher interest rates on credit cards, mortgages, and auto loans. This is due to corresponding rate hikes by consumer lenders in response to the actions taken by the Federal Reserve in 2022, which includes multiple increases in the federal funds rate, or the rate at which banks and credit unions borrow from each other. U.S. News & World Report noted that in November 2022, the average rate for a borrower with a credit score of at least 750 stood at 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 rate on your auto loan.

Chip shortages are still an issue

A major problem in car access since the start of the pandemic has been the chip shortage. According to research from J.P. Morgan, this is starting to ease, but for a long time, there were also supply issues with semiconductors. The chips available now and into 2023 also might not be the right types of all vehicles in demand. Another point to keep in mind is that modern cars require a lot more chips -- and demand for electric vehicles is also up, and they require even more.

Insurance rates are rising

Finally, another hurdle to making car buying easier and less expensive next year is the rising cost of auto insurance. Costs are up due to labor shortages, the rising cost of cars, and even higher accident rates since the start of the pandemic. So even if you manage to buy a car, you're likely looking at spending more money to keep it insured.

Overall, it doesn't seem likely that the car-buying process will get much easier or less costly in 2023. One possible silver lining for you as a buyer is that if you are prepared to pay more, and have a high credit score, you may have less competition from borrowers who aren't in the same position as you. If you're hoping to buy a car in 2023, be patient and don't lose hope.

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