Recession, by definition, are periods of time between the peak and trough of economic activity. Recessions are said to be in progress when GDP has been negative for a least two consecutive financial quarters for most economies.
So are we currently in a recession? With inflation at all historic highs and interest rates rising, it may seem so—or, soon inevitable.
How do recessions affect used car prices?
We’ve seen throughout the past three years how economic events affect car prices. For example, the COVID-19 pandemic and ensuing supply chain shortages affected supply and demand causing car prices to spike. Similarly, when there is an oversupply of vehicles, prices will drop.
Cargurus used car index price data shows how prices have cooled in the latter half of Q4 2022 as supply for new cars increased from an inflection earlier in the year.
Other unforeseen economic factors may affect price as well. A recession may cause the job market to shrink affecting consumer buying power and a drop in purchasing of new and used cars. This would figuratively cause supply to increase and automakers and used car sellers to mete their price expectations.
How will an impending recession affect car prices?
North America has gone through some tough economic times over the past twenty years. From the 2008 recession to the recent pandemic, economic instability has been a recurring theme. That being said, leading auto manufacturers are taking heed and moving more in step with actual demand from the market.
For example, Ford earlier this year disclosed a strategy to carry up to 80% fewer car configurations at dealers while urging customers to put in orders. Honda announced a strategy to normalize production-levels in order to decrease overhead costs.
Shortages in semi-conductor chips is also ongoing and the politics around them have greatly influenced demand for new cars.
Because of this, projecting and increase or decrease in automobile prices 2023 is challenging.
It seems as though the market for new cars will continue to be limited as manufacturers adjust production for what should be decreased demand. This might, however, influence a shortage of supply in the used car market causing prices to increase. However, a recession would ultimately lower purchasing power across both new and used markets causing prices to drop.