(January 3, 2023) SANTA MONICA,  Calif. — The car shopping experts at Edmunds expect pent-up consumer demand and rising inventory levels to support new vehicle sales, forecasting that 14.8 million new cars will be sold in 2023. The forecast, drawn from Edmunds data, represents a 7% increase from their estimate of 13.8 million new vehicle sales in 2022.

"2022 was a mixed bag for the entire automotive industry. Sales were severely dampened by limited inventory, but automakers and dealers were able to rely on a dichotomy of affluent car shoppers and individuals making necessity-based purchases to keep things afloat — and the vehicles that they could sell commanded some hefty price tags," said Jessica Caldwell, Edmunds' executive director of insights.

"Although inventory levels have been slowly picking up toward the end of the year and should help meet pent-up consumer demand through 2023, a number of headwinds such as rising interest rates, inflation and economic uncertainty are likely to hinder a speedy recovery."

Edmunds experts have put together their list of the three biggest industry trends that they predict will shape the road ahead in 2023, which they've separated into three categories — the good, the bad and the ugly — along with some direct consumer shopping tips.

The Good: New vehicle prices are expected to cool, with average transaction prices dipping below MSRP for the first time in more than a year.

    •    Edmunds data reveals that the average transaction price (ATP) for a new vehicle hit a record high of $47,681 in November 2022 — but this was also the first time since July 2021 that the ATP came in below the average MSRP. In November 2022, the average MSRP dropped to $47,696.

    •    Edmunds experts note that the drop in price is concentrated across larger trucks, SUVs and luxury vehicles, whereas there is still increased demand for lower-priced mainstream vehicles. According to Edmunds data from November 2022:

       ◦    The average MSRP for a large truck was $62,287 compared to an ATP of $61,076, offering a $1,210 discount on average. The average MSRP for a luxury midsize SUV was $74,161 compared to an ATP of $73,430, offering a $731 discount on average.

       ◦    The average MSRP for a compact SUV was $35,137 compared to an ATP of $35,427, which reflects a $290 markup on average. The average MSRP for a compact car was $25,696 compared to an ATP of $26,398, which reflects a $703 markup on average.

    •    Consumer shopping tip: If you've been sitting out of the market in the past year due to higher prices or lower selection, now might be a great time to jump back in. If you're a cash buyer, you're going to be in a good position to make a purchase. And if you have a trade-in, shop around for appraisals on sites like Edmunds to maximize its value before prices drop further.

The Bad: Leasing will continue to be out of reach for consumers as deals grow harder to find.

    •    Edmunds analysts say that leasing, once a popular option for American consumers, has grown increasingly more expensive as inventory is slow to recover and interest rates remain high. Edmunds data reveals that the average monthly lease payment climbed to $583 in November 2022 compared to $471 in November 2019.

    •    Edmunds data reveals that lease penetration fell to 17.4% in November 2022 compared to 28.3% in November 2019, and Edmunds experts expect the gap to continue widening.

    •    Consumer shopping tip: Before you lease make sure you weigh the total cost of the lease against all other options including purchasing new, used, or certified pre-owned (CPO). And make sure to read the fine print before getting too invested in a lease deal: Most lease promotions today have extremely restrictive terms that did not exist previously, such as requiring lower mileage caps or limiting offers to existing customers with a trade-in.

The Ugly: Interest rates are skyrocketing, making financing increasingly more expensive for consumers.

    •    Edmunds experts note that lower interest rates (which were often subsidized by automakers) and longer loan terms helped Americans buy the bigger, feature-heavy vehicles that they love over the past decade. However, that trend is reversing and consumers are paying more than they ever have to finance new and used vehicles.

    •    According to Edmunds data from November 2022, the average interest paid over the life of a new car loan climbed to an all-time record of $8,436, and the average interest paid over the life of a used car loan climbed to an all-time record high of $10,204.

    •    Consumer shopping tip: Think of the total amount of interest that you'll be paying over the course of your loan as a stand-alone value that's a separate cost on top of your vehicle purchase — it could make a difference of up to thousands of dollars. Search for promotional APR offers in your area, because more automakers are offering to subsidize auto loans with lower interest rates — the caveat is that most of these offers require that consumers agree to shorter 36- or 48-month loan terms.

"With yet another Fed rate hike expected to be announced today, rising interest rates are increasingly top of mind for consumers in all aspects of life, including auto loans," said Ivan Drury, Edmunds' director of insights.

"Even rates that are near or slightly below average can rack up thousands more in interest paid compared to years past, as vehicle prices have also shot up. Researching the total price of a vehicle with interest paid might show that obtaining a promotional APR on one vehicle versus another can be a deciding factor of what is affordable — and what isn't."