Car makers anticipate excess inventory to bring prices down in 2023

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An April 3 report by UBS revealed that car shoppers may see some good news this year. Thanks to an aggressive production schedule that was designed to keep up with demand, the bank anticipates that there will be an excess of 5 million cars hitting the market in the latter half of 2023. 

Heavy Production Will Bring Down Car Prices In Late 2023

According to the UBS report, this “glut” of inventory will put downward pressure on the market price of new vehicles, providing some relief for consumers who have seen sky-high prices on dealership lots since the COVID-19 pandemic first began interrupting the supply chain. 

“Given the bullish production schedules, we see high risk of overproduction and growing pricing pressure as a result. The price war has already started unfolding in the EV space, and we expect it to spread into the combustion engine segment,” the company said in a note it sent out to clients.

UBS anticipates car production to exceed sales by as much as 6 percent, which would have a significant impact on how much vehicles sell for. Some manufacturers, such as Tesla, have already begun slashing prices in order to ensure that the inventory hitting the market gets sold at an acceptable pace to avoid inventory buildup. 

Although prices for vehicles still remain historically high, the average purchase value of a new vehicle has dropped for three months in a row, a trend which could be foreshadowing the price drops to come in the latter half of the year. 

Experts were concerned in late 2022 that fears of an impending recession and two years of inflated car prices could lead to “demand destruction,” or a significant fall in the number of people looking to purchase a new vehicle. Coupled with the anticipated oversupply in mid to late 2023, this could result in slashed prices for vehicles hitting the market. 

Supply Chain Struggles Upturned Car Market In 2020

Beginning with the COVID-19 pandemic in early 2020, interruptions to the supply chain — particularly interruptions to the microchips that are vital for many modern vehicles today — severely limited the number of vehicles that automakers could put on the market. 

The majority of microchips for vehicles at the time of the pandemic were produced in Taiwan and China, where the pandemic began. Severe lockdowns meant that the semiconductor industry necessary for vehicle manufacturing essentially ground to a halt, freezing most manufacturer’s abilities to put out finished products. 

As a result, the new car market saw a serious shortage of inventory, requiring dealerships to add major premiums to the manufacturer’s suggested retail price (MSRP) in order to bring in enough profit to stay open. 

As much as 10 million cars slated for production were canceled in 2021, and another 4 million slated for production were canceled in 2022, which meant that consumers had an extremely limited supply of inventory to choose from.