Car Market Outlook: What To Expect In 2023

Thanks to the Covid-19 Pandemic, the past three years have seen more disruption to the car market than any time since the production shutdowns of World War II. In contrast, 2023 may be a year of relative stability. It won’t, however, look like the past.

What will be more normal? Supply chain woes will ease a bit, and rising vehicle supply will mean less pressure on the prices of older used cars. New-vehicle markups and used-vehicle wholesale prices have both eased since their peaks this past spring. Falling prices are only just reaching the retail level, but inflation-stretched used car shoppers may find some relief in 2023. 

On the other hand, rising interest rates mean auto loans and leases are costlier, which may soon mean that buying a new car (where interest rates are lower) would be more cost-effective than a 2- to 3-year-old one. That, and the possibility of a recession in the first half of the upcoming year, is driving down demand, hence slackening prices.

But even if used car prices continue to ease (albeit slowly) and new car sales climb, 2023 won’t be a year of bargains. The whole car market is being reshaped, as are how cars are ordered and sold. Here are four stories we see on the horizon in 2023.

Despite Challenges, EV Adoption Will Continue To Grow

In 2019, Americans purchased just under 326,000 electric vehicles. In the first eleven months of 2022, they bought 724,000, according to data from Motor Intelligence. Even then, organic demand is such that those numbers would be higher if not for supply chain issues.

Long waitlists aren’t going anywhere for new EVs like the Ford F-150 Lightning or popular electric SUVs like the Tesla Model Y and newcomer Rivian R1S. A growing list of new models from established brands—and even new brands like VinFast and Fisker—can make an EV purchase more mainstream and manageable. But high prices and policy changes limiting subsidies for EVs could temper excitement.

Lingering supply chain troubles and material sourcing are keeping new vehicle costs high, especially for EVs. Only the Chevy Bolt EV and EUV made drastic price cuts this year, outliers in a sea of spiking MSRPs as the price of metals like lithium, cobalt and nickel have spiked. According to a report from Bloomberg New Energy Finance (BNEF), lithium-Ion battery pack costs rose to $151/kWh in 2022, up 7{7b5a5d0e414f5ae9befbbfe0565391237b22ed5a572478ce6579290fab1e7f91} year over year.

Then there are the chips. Automotive industry principal Peter Maithel at cloud computing firm Infor told Forbes Wheels the ongoing chip shortage could affect up to 3 million vehicles next year, a disproportionate number of them EVs. Electrics can use 30{7b5a5d0e414f5ae9befbbfe0565391237b22ed5a572478ce6579290fab1e7f91} more chips than gas-powered vehicles, Maithel added.  

President Joe Biden’s Inflation Reduction Act also changed the calculus for potential discounts on all “clean” cars, not just battery-powered options, starting in January.

The former blanket federal subsidy of $7,500 is now based on various factors (buyer income, car or SUV purchase price and North American-based manufacturing and sourcing)—not just sales numbers, which Tesla and General Motors both capped in 2018. As soon as the calendar flips to 2023, as many as 70{7b5a5d0e414f5ae9befbbfe0565391237b22ed5a572478ce6579290fab1e7f91} of the electric and plug-in hybrid vehicles formerly eligible for the existing tax credit will lose that incentive because of strict rules concerning battery sourcing and vehicle price caps.

Still, hot new models and the allure of low energy costs amidst record gas prices could spur more first-time EV buyers (or at least more fuel-efficient hybrids and plug-in vehicles), especially if 2023 sees another summer of pain at the pump. As gas prices spiked last July, an American Automobile Association (AAA) poll revealed that 25{7b5a5d0e414f5ae9befbbfe0565391237b22ed5a572478ce6579290fab1e7f91} of Americans would likely choose an electric vehicle for their next car purchase.

Speaking of refueling, drivers can also expect improvements in public charging stations. At the moment, Tesla’s opening Supercharger network is the best and most reliable charging network, but many more fast-charging plugs are coming online from Electrify America, EVGo, ChargePoint and others. With improved infrastructure, the apprehension to recharge away from home should lessen even within the next 12 months. 

Used Car Prices Will Fall in 2023, but Older Cars Will See the Biggest Declines

After reaching absurd highs in early 2022, used vehicle prices have already fallen. They’ll continue to ease in 2023, just not by as much as consumers would hope. Also, cars over 4 years old will ease more than those that are 1 to 3 years old.

In November 2022, used vehicle prices fell for the fifth straight month and declined year-over-year for the first time since the start of the pandemic, according to Tom Kontos, chief economist for wholesaler ADESA. Indeed, according to ADESA’s data, the average price of all vehicles wholesaled at Adesa was $15,254 in October, down 12.3{7b5a5d0e414f5ae9befbbfe0565391237b22ed5a572478ce6579290fab1e7f91} from its peak in May. The bad news? That’s still up 37{7b5a5d0e414f5ae9befbbfe0565391237b22ed5a572478ce6579290fab1e7f91} from November 2019. 

The aforementioned chip shortage is keeping all new car prices high, and in the past two years, high new car prices have sent buyers flocking to used models. In 2023, analysts expect new- and used-vehicle prices to diverge. In a November report, J.P. Morgan researchers opined that new car prices were likely to fall no more than 5{7b5a5d0e414f5ae9befbbfe0565391237b22ed5a572478ce6579290fab1e7f91} in 2023 while used vehicle prices could contract by 10{7b5a5d0e414f5ae9befbbfe0565391237b22ed5a572478ce6579290fab1e7f91} to 20{7b5a5d0e414f5ae9befbbfe0565391237b22ed5a572478ce6579290fab1e7f91}.

Pat Ryan, CEO of car shopping app Copilot, agrees with that analysis. “We’ve already seen prices start to fall on older cars and they’ll continue to ease in 2023,” Ryan told Forbes Wheels. The main reason? Consumers just weren’t willing to pay as much as dealers were asking. “Part of the decline is due to economic uncertainty, but it’s primarily consumer resistance to those prices.” Copilot’s data says that the prices of 4- to 7-year-old cars have fallen 13{7b5a5d0e414f5ae9befbbfe0565391237b22ed5a572478ce6579290fab1e7f91} since January, and 8- to 13-year-old cars have fallen by a similar percentage since April.

Late-model cars, however, face much more pressure. Big production cuts during the pandemic and a big decline in new vehicle leasing since 2020 mean there are just fewer of them, which will keep prices high.

Meanwhile, Ryan adds, the supply of new vehicles began rapidly improving in September, and he expects that to continue in 2023. Though automakers have talked about limiting production and therefore incentives on new vehicles, once supplies are flowing he feels they’ll be unlikely to hold back on production. The result could be attractive financing deals on new 2023 vehicles, while 2020 through 2022 models are still costly. “It’s a better time to buy a slightly older car than a nearly-new one,” he adds. 

Rising interest rates are also a factor, Ryan says, but with loan terms now averaging 5 to 7 years, it’s less of a problem than basic supply. It could also make new vehicles more attractive since they usually qualify for the lowest rates even if all rates are higher.

Although Ryan feels “normal” conditions probably won’t return until 2026, lower prices at the older end of the market is good news for many buyers. That cars are so well made now (the average age of vehicles on the road is 12.2 years according to IHS Markit) also means buying older cars is less risky. Notably, Honda and Acura extended their certified pre-owned programs to vehicles up to 10 years old this year.

In compiling our list of the best used cars under $10,000 for 2022, we found that many of the cars on our list of the best $5,000 used cars for 2021 were now selling in the $7,000 to $9,000 range. To find suitable $10,000 models, we had to search all the way back to 1999. In compiling our update for the best $15,000 cars for 2023, we’re already seeing considerable moderation of used vehicle prices.

More Modern Retailing

Nowhere has the drop in used car prices been illustrated more dramatically than the decline of online used car retailer Carvana. Just 16 months ago its share price was $360, this week it was less than $5. Carvana’s meteoric rise was a case of “right time, right place and right product.” Car buyers have rarely loved the dealership experience, and 2020’s Covid-19 lockdowns made the conventional in-store experience much more difficult.

Founded in 2012, Carvana’s years of online retailing experience made it exceptionally well-placed to take advantage of the lockdowns, though it would later have administrative difficulties with the logistics of titling and managing many thousands of cars. The decline in car prices has left Carvana holding lots of expensive inventory (which, if the company does go bankrupt, could drive down used car prices), but digital sales are the future.

Conventional dealerships were slowly embracing a more online-centric model in 2019, but they were already aware of how many customers prefer to order a car online, even if they still want to test drive it.

Tesla’s online sales model not only proved that such transactions could be accomplished, even if it meant legal battles with certain states, it also proved that customers actually like buying cars this way. Notably, Lucid, Rivian and VinFast have followed Tesla’s lead.

Even before the lockdowns, some dealerships began adding more digital components to their sales processes, including some which created end-to-end portals. That soon extended to the big retail chains, like Sonic Automotive. After Covid-19, adoption of these practices spread quickly. “The pandemic forced dealers to adopt and engage on digital channels,” Jody Stidham, managing director at consulting firm Deloitte told Forbes Wheels in 2021. Not long after, OEMs began to respond with their own digital portals.  

This summer, Ford CEO Jim Farley announced at the automaker’s annual shareholder meeting that the brand would sell all of its electric products online, and that they would all have no-haggle, non-negotiable prices. Dealers could refuse to participate in this idea, but they would also lose the ability to sell electric products on January 1, 2024. The plan also included costly requirements for supporting EVs.

A major change to the way Ford dealers have worked for more than a century, many in the industry expected significant pushback, but in late November Farley announced that 1,920 of Ford’s 2,968 U.S. dealerships have agreed to the plan so far. 

At the June shareholder’s meeting, Farley talked about the advantages for Ford, namely that Tesla has a $2,000 cost advantage in distributing cars, and how the plan would narrow that gap. But it will also mean a much more streamlined and easier process for car buyers.

GM CEO Mark Reuss announced a less ambitious plan for regional EV distribution centers in November, aimed at cutting costs and complexity, but such a move also reduces a dealer’s pricing leverage. Volvo has also floated a plan to sell EVs online with no-haggle pricing. 

Expect more manufacturers to lean on their dealers for a more modern purchasing process.

New Models Will Move Markets And Change Perceptions

Although the ongoing supply-chain issues have delayed some models, a set of serious game-changers are on the horizon, and three of them are from South Korea. We think these will be the most important vehicles to arrive next year. Although some very good gas-powered cars will soon reach the market, including the delectable BMW M2 and cool Alfa-Romeo Tonale, the vehicles we think will have the most influence are all EVs:

Kia EV9: Though a 2024 model, the EV9 should go on sale in the second half of 2023. Why is it important? Currently, there are only three electric seven-passenger SUVs on the market (the Mercedes-Benz EQS SUV, Rivian R1S and Tesla Model X) and all cost more than $90,000. The EV9 will offer the same layout as the popular Telluride but in an even more stylish package for between $50,000 and $65,000. Family SUVs are big business, and the EV9 is the first relatively affordable EV in the segment.

Kia EV6 GT: We’re already big fans of the regular EV6, which depending on your perspective is either a very tall hatchback or a very low-slung SUV. Either way, it offers lots of space, style and performance with up to 310 miles of range. But the GT is a different kind of Kia. With a massive 576 horsepower and a variety of performance upgrades, it aims to take on the Tesla Model 3 Performance directly, and it can deliver that level of performance. It’s only weakness? Range falls to a so-so 206 miles.

Hyundai Ioniq 6: The ultra-aerodynamic Ioniq 6 sedan follows on the success of the angular Ioniq 5 crossover that debuted for 2022. Another Tesla Model 3 fighter, the 6 may be a Hyundai but it’s more luxurious inside than the Tesla, and, more importantly, it is promised to offer real-world range and performance comparable to—or better—than the (non-Performance) versions of the Tesla. Although the pricey BMW i4 also compares well to the Model 3, it doesn’t surpass it, and the Ioniq might, all at a lower price.

Lucid Air Pure: Luxury EV startup Lucid will kick off 2023 with the entry-level trim of its ultra-luxe Air sedan. The $87,400 Pure is the most affordable Lucid after the Dream Edition’s arrival in early 2022, but the record-breaking 520-mile range drops to 410 on the metal-roofed base. With a max 480 horsepower, it’s well positioned to take on the ever-increasing starting price (currently nearly $105,000) of the Tesla Model S. 

Volkswagen ID. Buzz: While the ID. Buzz concept first appeared in 2017, Volkswagen has been taking concept-vehicle stabs at a revived bus since 2001. Now it’s nearly here. Already on sale in Europe in slightly smaller two-row form, the three-row production ID. Buzz will arrive in the fall of 2023 as the first fully-electric minivan on the U.S. market. Having now been in several preproduction prototypes, it looks and feels more luxurious than conventional entries, it should start in the mid-$40,000 range and offer 260 miles of range.

Chevrolet Silverado EV: While Ford’s F-150 Lightning has already found huge success, several other fully-electric pickups are waiting in the wings to challenge the blue oval, chief among them the Chevrolet Silverado EV. Announced in early 2022, the first production electric Silverados will reach customers in the fall of ‘23, even though they’ll be counted as 2024 models. Based on the same architecture as the Hummer EV pickup, the Silverado EV will be quite different from the very conventional F-150 Lightning or Rivian R1T, but expect high consumer demand.