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Used car supply will prevent prices from ‘taking drastic plunge’: Analyst

Edmunds Executive Director of Insights Jessica Caldwell joins Yahoo Finance Live to discuss new and used car prices, interest rates for new cars, and EV market share nationwide.

Video transcript

[AUDIO LOGO]

SEANA SMITH: We want to stick with cars, with the auto sector. Average prices for new and used cars, they're up on a year over year basis. New car prices up over 3% since just a year ago. They've been plagued by supply chain issues.

And the Fed's fight to get inflation under control has caused interest rates on vehicles to skyrocket. Our next guest though, sees some signs of hope on the horizon in terms of inventory and pricing. We want to bring in Jessica Caldwell, Edmunds executive director of insights. Jessica, it's great to see you again. So why should we be optimistic in terms of what we'll likely see over the coming months?

JESSICA CALDWELL: Well, for anybody out there that has been trying to buy a car for the past few months and either can't find one, not getting the selection that they want, or are just appalled by some of the prices that they have been seen, we are seeing inventory get a little bit better from the supply crunch. And that has had a real effect on prices.

Prices are getting a little friendlier. I'm hearing people are getting calls back from dealers saying, hey, we have that vehicle rather than never hearing back again. And we knew this was going to happen. We knew that there would be a turning point at some point.

So not everything is back to where it was pre-COVID. But we are seeing climbing inventory numbers for the past few months versus the falling ones that we had been seeing. So I feel like there is finally light at the end of the tunnel for people shopping for a car.

DAVE BRIGGS: Just zooming in there on the supply chains, how much are they improving, the chip shortage, given the China COVID lockdowns? What's been the impact there? And if I could tag on used car prices, what are we seeing there?

JESSICA CALDWELL: Mm-hmm. Yes, I mean, used car prices are still relatively high. At the end of the year, we typically see them fall little because these are used vehicles. So they're getting a little bit older. So every month, they technically should be falling. But there still is a lot of demand.

I think what's hurting both new and used are interest rates right now. We know that the Fed has been raising interest rates. And for used, that really does have a profound impact because people are paying regular interest rates. They're not necessarily getting any subsidies from automakers in the form of incentives. And although they're not generous on the new car side, it still makes a difference if you're getting 4%, per se, versus 7%, especially if you're financing these vehicles that are upwards of $50,000. It will make a bit of a difference.

SEANA SMITH: Yeah, Jessica, JPMorgan's predicting a plunge of up to 20% in used car prices next year compared with a maximum of a 5% dip in new car prices. Is that in line with what you're expecting to see over the next 12 months?

JESSICA CALDWELL: We still see that there is going to be a lot of demand for used cars. I don't know about such a drastic dip in prices because the thing about it is that the used supply is definitely under a lot of pressure. We didn't see a lot of rental vehicles being sold during the pandemic or through the supply crunch.

A lot of people are opting to buy out their leases at the end of their term. So those vehicles aren't going back into the used supply. So I think while used prices could get friendlier to consumers, the supply of used cars is what's going to prevent it really from taking a drastic plunge.

DAVE BRIGGS: We got some big numbers in today from some foreign automakers. Want to zoom in on three in particular, Hyundai, 43% pop, Kia 25%, Mazda 31%, how do you account for that type of rise?

JESSICA CALDWELL: Mm-hmm. Well, the South Korean automakers have been doing fairly well through this supply crunch. I do think that if you look back to where they were at last November, you're not necessarily looking at a really tough comp. You're comparing year to year. And that was not a great time for the auto industry.

So the improvement that we are seeing in inventory is allowing these numbers to get better. But I will say, particularly for Hyundai and Kia, they have really come out on a product offensive. Their SUVs are hitting the right note. They've had a lot of success with EVs. The Hyundai Ioniq 5, hard to get out there for consumers. So while I think they're getting better from inventory, they're also seeing a lot more demand for consumers, which inevitably are going to help these numbers.

SEANA SMITH: Jessica, let's talk about Tesla because we were just talking about it with Pras earlier in the show. But S&P Global Mobility out with a report saying that Tesla is still a top-selling EV brand in the US, but more affordable rivals are starting to chip away at their dominance in terms of market share. What do you think this means just in terms of Tesla's future here in the US? And who should they be most worried about?

JESSICA CALDWELL: Yeah, I mean, up to this point, Tesla has been the big fish in a relatively small pond. They got a lot of cache from being kind of the first very bold, very brash. Maybe now, with all that's going on in Twitter, I think that may be kind of hurting them just a little bit.

But all of a sudden now, we have multiple automakers coming out with more compelling, interesting EVs with great range. And these automakers are long-established. They have big marketing budgets. They have databases and rosters of consumers they can contact for these vehicles. So the competition is starting to heat up a little bit.

And I think for Tesla, they've just been alone in this pool for so long that of course, this is going to greatly affect them, especially their vehicles, they're a bit old. I mean, they've had some technology updates. But if you look at a Model 3 and a Model S, It doesn't look all that different from five-plus years from when these vehicles came out.

So it definitely feels like it's time for the brand to get a bit more refresh. And they're not just getting the-- just kind of riding that wave of anyone that's interested in an EV don't really have a lot of options because that is starting to change.

DAVE BRIGGS: Jessica, it's December 1. We start seeing those ads where people have a giant ribbon on a car because of course, everyone buys their spouse a car for Christmas. You have a couple of tips for us quickly on if you are shopping for a car at the holidays.

JESSICA CALDWELL: Yeah, that's right. One thing we are talking about right now a lot is definitely shop the interest rate. It's so much fun to shop for a vehicle. I mean, who doesn't like that? Who doesn't want the big red ribbon, right?

But the interest rate is becoming so much more important. So not only should you get pre-approved, look at what interest rates are out there maybe from your credit union, maybe from banks, from the automakers themselves, the dealers, but also really do the math. If you have an interest rate that is perhaps a bit lower, but the vehicle price is a little bit more, maybe it kind of works out to be a bit moot.

Also consider perhaps a lower loan term. I know that's painful to think about a car, paying it off in three to four years. But if you can get a much lower APR for that range versus extending it to six, seven years, which is very common, try to do that if possible. But really focus and hone in on that financial element of it because I think right now, it's really important, and it's easy to overlook.

DAVE BRIGGS: All right, Edmunds' Jessica Caldwell, good to see you. Thanks for the tips, appreciate that.