Jeanna Smialek
July 12, 2023, 5:01 am ET

Credit…Brittany Greeson for The New York Times

Beth Weaver, who runs a Buick GMC car dealership in Erie, Pa., is witnessing something this summer that hasn’t happened much since 2020: Demand is weak enough that she and her competitors are deeply discounting some cars to move them off their lots.

Cars have been in hot demand and short supply for years, thanks in part to pandemic-era production disruptions. But inventory gradually recovered, and people are becoming less crazy about buying new vehicles. That means that instead of shooting steadily higher, car prices are finally moderating.

“It’s different from the past couple of years, and even different from the fall,” Ms. Weaver said. “Interest rates have definitely weighed on demand.”

Cars were a major driver of inflation when it took off in 2021, and prices have remained volatile since then: after slowing last year, used car prices surged by. wholesale level in early 2023. But they are coming down again, which could help significantly weigh on inflation.

“My view on auto right now — and what we expect over the next few months — is normalizing,” said Jonathan Smoke, chief economist at Cox Automotive. “We are rapidly approaching a point where demand and supply are more balanced.”

Omair Sharif, founder of Inflation Insights, expects used cars to post a notable price drop in June – helping to lower overall inflation. His expectation is that new car prices will be flat in June, although he does not rule out an outright decline.

Mr Sharif believes the new car price slowdown could continue, although it may become less dramatic later this year. But used cars remain something of a wild card, as there are still relatively few to go around. Companies did not produce as many cars in 2021 and 2022 amid production walls stemming from shortages of semiconductors and other parts, meaning there are fewer pre-owned vehicles available now.

“We are still very short on supply and have not seen much improvement,” Mr Sharif said. “So, with prices expected to fall materially over the next three to four months, we may see the lower prices pull consumers back, similar to what happened in early 2023.”

Ms. Weaver said she already sees some divergence between the two markets. Used car buyers keep trying to buy, often out of desperation: a company needs a bigger fleet, or a person is looking to replace a vehicle that failed inspection. New car buyers are more in wait-and-see mode.

“The fact that there is inventory creates less urgency,” she said, explaining that last year she would have one car of a certain model on her lot and it would sell immediately. This year, she might have six, and little interest.

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