The law of supply and demand is Econ 101 and basically says that if there is low supply and high demand, prices will also be high. There is no better example of this than the skyrocketing prices of used cars following the COVID-19 pandemic. Lockdowns created a global semiconductor chip shortage, which new cars rely on.
This caused a glut in new vehicle manufacturing and sent prices through the roof, but it also created a high demand for used cars, which also got more expensive. All of this chaos led to vehicles being overvalued and dealers tacking on premium markups. Now however, the supply chain is normalizing, the pandemic is over, and the economy is slowing, so vehicle values are about to drop. Some more than others.
Vehicles That Will Tank In 2023
Car reviewer and YouTuber Ben Hardy, recently made a video to warn about some disturbing industry trends that will greatly affect vehicle values this year. His overall point is that too many people are paying well over MSRP price on new cars, mostly because dealers can still get away with it for now. Combined with the normal depreciation associated with driving a new car off the lot, consumers are figuratively flushing money down the toilet. Overpaying for a car that was overvalued to begin with and trying to sell it couple of years later can result in a loss of tens of thousands of dollars.
Hardy mentioned a few vehicles he feels will lose the most value in 2023, and pretty much everything from Ford came up. More specifically, Hardy figures the Ford Maverick and the Ford Bronco are radically overpriced, and as the market normalizes, they will lose value very quickly. With the Bronco, there is a high demand and long waiting lists with consumers, so dealers are charging a premium, but as those orders catch up with customers, demand will fall and so will the value. Another one to look out for is the F-150 Raptor, which is going for $40,000 over MSRP, because the market for those has essentially bottomed out.
Toyota's TRD Pros also made the list of cars Hardy thinks will lose value. According to him the used market for 4-Runners, Sequoias, and Tundras is far below the dealer-inflated prices of new ones, and so anything over MSRP is money that is gone for good. The Honda Civic Type-Rs and CR-Vs are a couple other models Hardy thinks you should avoid because they are selling way over MSRP and the value will be lost on the secondhand market.
The major takeaway is that supply chain issues created artificially high values for both new and used cars. With things going back to normal, dealers won't be able to mark up vehicles and actual depreciation will return, which means car values are dropping back to realistic levels. Overpaying for something now means losing money on resale later.
More Vehicles That Will Lose Value This Year
Ben Hardy's Formula is that MSRP markups plus depreciation equals money lost, so there are a few more vehicles that should be avoided. Automotive research group, iSeeCars.com, looked at new car sales from February 2022 through 2023 and made a list of the most overpriced models:
- Genesis GV70 - 27.5% over MSRP
- Jeep Wrangler - 23.9% over MSRP
- Mercedes-Benz GLB - 22.9% over MSRP
- Porsche Taycan - 22.7% over MSRP
- Jeep Wrangler Unlimited - 21.9% over MSRP
- Cadillac CT4-V - 21.1% over MSRP
- Genesis GV80 - 21.0% over MSRP
- Porsche Macan - 20.6% over MSRP
- Cadillac CT5 - 20.3% over MSRP
- Lexus RX 350h - 20.3% over MSRP
The national average for all new car sales over the last year was 8.8% over MSRP, so these are significant markups. For the record, GMC/Chevrolets were the best value with the Silverado 1500, Sierra 1500, and Malibu all selling at or below MSRP on average.
iSeeCars.com also did a study on the vehicle models with the worst Five-year depreciation:
- BMW 7 Series - 56.9%
- Maserati Ghibli - 56.3%
- Jaguar XF - 54.0%
- Infiniti QX80 - 52.6%
- Cadillac Escalade ESV - 52.3%
- Mercedes-Benz S-Class - 51.9%
- Lincoln Navigator - 51.9%
- Audi A6 - 51.5%
- Volvo S90 - 51.4%
- Ford Expedition - 50.7%
FWIW, the Jeep Wrangler and Jeep Wrangler Unlimited top the list of vehicles with the lowest depreciation value, 7.3% and 8.7% respectively, so those dealer markups aren't as much of hit for these two.
Used car prices have been dropping for the past six months, reflecting a return to their actual value. This is significant if dealers continue to jack up the prices of new vehicles, because it wides the value gap.
The Value Of Every Vehicle Might Tank In 2023
Besides the semiconductor shortage of the past few years, one of the biggest reasons vehicle prices, both new and used, went crazy is because of unprecedented demand. During most of the pandemic, the Fed kept interest rates at or near 0%, which was the perfect time to get a car loan. Also, the U.S. Government was mailing out checks to everyone, and it was a great time to splurge on luxury items like a new set of wheels. Now however, inflation is bad, and the Fed is raising interest rates to combat it, making this a terrible time to buy anything big. A poor economy always negatively affects home, car, and big-ticket item sales.
The housing market is already in shambles, and it is entirely possible that the auto industry is going to bottom out as well. Automakers could be in looking at a brutal year if people simply can't afford to buy a car. On the flip side of the law of supply and demand is that too much inventory and low demand means lower prices, which translates into every car on the road losing value. The only positive from this is that it would be a good time to pick up a classic car as long as you can pay cash, as financing anything is out of the question.