After nearly two years of inflated new- and used-car prices – with car dealers asking consumers to pay thousands of dollars over MSRP – the U.S. industry is primed for a reset to previous competitive norms.

A combination of industry factors and macroeconomic conditions could trigger a potentially bloody battle for market share this year, according to an analysis by S&P Global Mobility. Automakers and dealers will see a return to traditional conditions of accumulating showroom inventories and the need for incentives to move the metal.

Already there are signs of increased new-car inventories and declining used-car prices – though not yet to pre-COVID levels.

“Things will heat up this year when the first tranche of COVID-sold vehicles starts returning to market,” predicts Dave Mondragon, vice president of product development for S&P Global Mobility. “These vehicles are all underwater. They were sold at record-high prices with no discounts, and there will be little to no equity to roll into a new vehicle.” 

It’s not so much the volume of vehicles coming back – new-vehicle sales cratered in 2020 when production lines slowed due to supply chain snarls. But the practice by many dealerships of using vehicle shortages to sell at inflated prices means nearly every vehicle coming back has massive negative equity – with the customer owing thousands of dollars more than the vehicle is worth at trade-in.

“That’s when discounting starts up again,” Mondragon says.

With supply chain snarls easing, an S&P Global Mobility analysis of inventory data shows a 91% increase in advertised new-vehicle dealer stock at the end of December 2022 compared to February, a sharp 43% uptick compared to August 2022, and a 21% jump compared to October.

“We’re in the formative stages of inventory rebuilding following six months of year-over-year increases that ended 35 months of year-over-declines in July 2022,” said Joe Langley, associate director of research and analysis for S&P Global Mobility. “Stellantis is the closest to having normalized inventory. They are going to have to ask themselves, ‘What do we do next?’”

In December, Ford, Chevrolet, Ram, and Jeep had about 300,000 units of leftover 2022 models advertised as available for sale. Those four brands accounted for 71% of 2022 advertised inventory listed by mainstream brand dealers - and 66% of all dealer-advertised inventory when including luxury marques. Among luxury brands, Mercedes-Benz and Lincoln still showed the most remaining 2022 vehicles in dealer advertised inventory, according to the S&P Global Mobility analysis.

“The surprise of 2023 will be vehicle availability,” Langley said. “It will still be well below industry norms, but inventory for the spring selling season will be up 50-70% from 2022 levels.”

Another element that could factor into increased consumer power in the new-car arena: A softening in inflated used-car values.

One potential easing of a price crash: A momentary drop-off in off-lease cars coming back during the three-year anniversary of the COVID shutdown, when sales cratered for several months in 2020. A shortfall in the certified, pre-owned segment might resume demand pressure on the new-car side and temporarily hold prices steady.