We are in a time when owning a car is more expensive than a luxury. Besides the looks of admiration and awe from having an exotic car, owning one has little to be gained. Cars, in their different brands and sizes, turn out to be liabilities rather than assets, and in the long run, car owners are at the service of their cars.
Vehicle transaction prices have climbed rapidly in the last three years. According to statistics from the Bureau of Labor, vehicle transaction prices are at their highest in more than 35 years. The transaction prices for new cars have risen higher since 2019. On the other hand, inflation prices of used vehicles have plummeted since December 2022.
According to data from automobile website Edmunds.com, the average price of a new car has jumped nearly $12,000 in the past five years. The average transaction price for used vehicles is still almost $9,000 higher than in February 2018. The Director of Insights at Edmunds.com, Ivan Drury, said;
“[Prices are] coming down a bit, but not coming down nearly as fast as one would hope. If you look back, or if you’ve ever done a transaction before in your life, all of these numbers are bad.”
According to data from the Bureau of Labor Statistics (BLS), the average price of a new car in the United States increased from $29,154 in January 2019 to $37,877 in June 2021, representing an increase of 30%.
The rising prices of new cars have also affected the prices of used vehicles. According to Edmunds, the average cost of a used car in the United States was $21,558 in the first quarter of 2021, up from $20,942 in the same period in 2020, which shows an increase of 2.9%.
The COVID-19 pandemic significantly impacted the global economy, including the automotive industry. There has been a disruption in the supply chain of cars, leading to a shortage of vehicles in the market, increasing car prices worldwide.
The pandemic also disrupted global supply chains, leading to computer chip shortages, critical components in modern cars. As a result, some automakers have been forced to reduce production, leading to higher prices for both new and used cars.
There is also a shortage of semiconductor chips, essential components in producing new cars. The pandemic has caused a significant slowdown in the production of these chips, which has reduced the number of vehicles that can be made. With fewer new cars available in the market, the demand for used vehicles has surged, increasing their prices as well.
Moreover, there is a decrease in consumer confidence and spending, which has affected the overall demand for cars. With fewer people buying new cars, manufacturers have reduced their production capacity, further exacerbating the shortage of new cars in the market. The low demand has created a situation where consumers are willing to pay a premium for available cars, pushing prices up.
Another factor contributing to the increase in car prices is the rise in the cost of raw materials such as steel, aluminum, and plastics. The pandemic disrupted supply chains, causing a shortage of these materials, leading to a price rise. Producing cars has become more expensive and has been passed on to consumers through higher prices.
In recent years, there has been a growing preference among American consumers for SUVs and crossovers, which offer more space and versatility than traditional sedans. As a result, demand for these vehicles has increased, and manufacturers have shifted their production towards them. This demand has led to higher prices for SUVs and crossovers as supply struggles to keep up.
However, sedan preferences have shifted, leading to lower prices for sedans as manufacturers have had to reduce production and offer incentives to entice buyers.
Similarly, changes in consumer preferences for certain features, such as electric or hybrid engines, advanced safety features, and infotainment systems, can also affect car prices. As more consumers seek cars with these features, manufacturers may charge a premium for them, leading to higher prices. Conversely, as these features become more common and expected by consumers, they may become standard, and prices may decrease.