Both new and used cars continue to be more expensive due to ongoing inventory shortages and high interest rates according to Edmunds.

Both new and used cars continue to be more expensive due to ongoing inventory shortages and high interest rates according to Edmunds.

If you are considering buying a new or used car, auto industry analysts say if you can wait, then you should. But how long? They don’t know.

“Is now the time to buy? It depends,” Chris Hopson, principal analyst at S&P Global Mobility, told The Tennessean. “Is the car market better than it has been? Yes. Is it the same as pre-Covid? No.”

Hopson compared the car-buying market right now to the crazy, unprecedented weather happening across the country.

Edmunds consumer insights analyst Joseph Yoon added, “It’s the wild, wild west if you are in the market for a car.”

But why is that?

It’s driven by a perfect storm of skyrocketing interest rates, lingering post-pandemic car inventory shortages that aren’t rebounding like they were expected to after semiconductor production ramped up and car prices that keep going up.

A recent Edmunds report showed a record number of car buyers are paying in excess of $1,000 a month in car payments. For the second quarter of 2023, 17.1% of car buyers had a payment at $1,000 ore more. That’s up from 4.3% in 2019, according to Edmunds.

Yoon told The Tennessean new cars becoming so expensive has caused the used car market to also skyrocket.

“New cars are more expensive than they’ve ever been and by nature, that’s pushing people out of the new car market into the used car market,” Yoon said. “These are people that three to five years ago would have bought a new car. They are buying up all the one-to-three-year-old cars.”

He said in June 2020, the average used car costs $20,000 to $21,000. Now, Edmunds estimates the average used car is $29,500. “Used car prices have gone up $10,000 in three years,” he said. “I don’t know how many people can conjure up an extra $10,000 in their car-buying budget.”

A 2022 Mini Signature Cooper SE all-electric used car sits at Motor City Mini in May 2023. Many new car dealerships are supplementing their inventory with used cars.

A 2022 Mini Signature Cooper SE all-electric used car sits at Motor City Mini in May 2023. Many new car dealerships are supplementing their inventory with used cars.

Cars are expensive, money is even more expensive

If car inventory shortages aren’t enough, car buyers have to factor in the cost of borrowing money to finance the car. Interest rates are making it more expensive than ever to get a car loan and outside financing isn’t necessarily cheaper anymore.

Based on rough math, Yoon estimates that if a car buyer financed a $30,000 used car for six years at 11% interest, that buyer would pay almost $11,000 in interest over the life of the loan.

Even a savvy consumer who has a good trade-in and tier-one credit will still be at the mercy of a 7% for a new car or 11% for a used car interest rate, Yoon said.

“Even if all the conditions are right, the money is so expensive,” Yoon said. “If you account for all the interest you have to pay for the duration of your loan, you aren’t getting a good deal at all.”

While car dealers will offer lower interest rates in the 3% to 5% range, those rates only exist for shorter-term loans such as 36 or 48 months.

“Some people are taking a shorter-term loan with a better APR so they don’t pay the higher interest rate over time,” Yoon said. “But basically to do that you have to double your budget for a car. If our monthly average car payment is $736, can you afford to pay $1,500 a month to save on interest? Most people can’t.”

Japanese imports: ‘Fast and Furious’ vibes: What is a JDM car and are they legal in Tennessee?

Is Nashville a car town? Exclusive: Lamborghini Americas CEO talks Nashville, luxury super sports cars, the future

Wholesale car prices are coming down

A recent Manheim Used Vehicle Value Index showed wholesale used vehicle prices decreased 4.2% from May to June which represents a 10.3% decrease over 2022.

Chris Frey, senior manager of Economic and Industry Insights for Cox Automotive, said in the report that these numbers represent the largest decline since the start of the pandemic in April of 2020.

Hopson said from an analyst’s perspective, car prices are coming down, but not by a lot.

“Can I say it was a good time to buy? I wouldn’t say it’s a great time, but it is better than a year ago, yes. If you need a car, you can probably find something now easier than you could have 12 months ago, but it’s not great. It’s getting better. Things are just slow to adjust.”

The 2023 Capital One Car Buying Outlook reveals top factors impacting car buyers and dealers.

The 2023 Capital One Car Buying Outlook reveals top factors impacting car buyers and dealers.

Production shortages are still a thing

Hopson said while the semiconductor shortage of 2022 isn’t ravaging the auto industry like it did last year, the industry is still “production restrained.”

“There are more vehicles coming out of the facilities, but not fast enough to build back inventory enough to bring prices down in a major way,” he said. “Inventory is progressing, but it’s not strong enough that incentives will be there.”

David Norton, board president of the Tennessee Independent Auto Dealers Association, said he is seeing the supply chain issues starting to soften a little bit, but there’s a bigger issue at hand.

“For independent dealers, since new car stores can’t get inventory from manufacturers, they’ve been forced to supplement their inventory with used cars,” Norton said. “That is hurting the smaller, independent one-rooftop dealers.”

Inside at GM Spring Hill Manufacturing in Spring Hill , Tenn., Monday, Jan.  23, 2023.

Inside at GM Spring Hill Manufacturing in Spring Hill , Tenn., Monday, Jan. 23, 2023.

Relief on the horizon? Maybe.

Yoon said at the beginning of the year, analysts predicted some level of relief in the car-buying market by the end of 2023. “Now, I am not sure I can confidently say that. Inventory levels aren’t improving fast enough.”

He added that car dealers don’t feel pain enough to offer discounts yet, which will be a positive indicator when it happens.

“How long will that take? We honestly have no idea. We thought by Fall we’d see some kind of movement, but we’re just still seeing car prices going up which is not great news for the buyer.”

Melonee Hurt covers growth and development (and cars!) at The Tennessean, part of the USA TODAY NETWORK — Tennessee. Reach Melonee at [email protected].

This article originally appeared on Nashville Tennessean: Buying a car in Tennessee: Is now the right time?