Latest News
Volvo: Safety Beyond the Star RatingsWhy Are Car Prices So High?
Car prices are up. No, wait! They’re down. They’re back up again! We’re taking a look at all the reasons behind higher automobile prices right now.
Current Car Prices
If you’re buying a car, new or used, you may notice prices that are trending higher than normal. You wouldn’t be wrong. We saw last year that prices somewhat stabilized. The average cost of a new or used vehicle did actually dip a little bit in February. However, the average price of a new vehicle is close to $50,000. Used car prices are around $26,000.
Of course, there are tools you can use to get the best deal possible. Our list of New Car Incentives, updated monthly, provides the latest lease and finance offers. Another positive sign is that manufacturers have also started cracking down on dealer markups., but we have to go back to the original question: why are car prices so high right now? In many ways, it’s been a perfect storm of unusual circumstances. Let’s take a deeper look at those circumstances and some of the ways to counteract them.
Ongoing Supply Chain Shortages
When production slowed in 2020, fewer cars rolling out of manufacturing facilities pushed the prices of available cars up. Those new cars have now become used cars, so there are some very nice, higher end used vehicles available right now, but they also cost more than others. Many people who would normally lease a vehicle before trading it out for a new model are now buying out those leases and keeping their vehicles instead.
Before new cars can be made, though, automakers need the supplies to put those cars together. That’s the problem many of them are facing today. We’ve previously mentioned production problems for the 2021 and 2022 Ford Mustang Mach-E along with the 2022 Ford Bronco, but those same supply chain shortages of 2020 are still lingering. Some of the Dodge Last Call models were delayed, too. The semiconductor chip shortages, parts shortages, and even raw material shortages all add up to a larger problem right now.
Building is a Long Process
There is some good news. Nearly all major car companies are working quickly to gather the materials and components required to build vehicles, but it can be a long process, especially with electric vehicles. You have to find the raw materials, build the batteries, and then build the cars.
Chrysler, GM, and Ford have all joined forces to create more lithium batteries for their current and future electric vehicles. Honda announced an EV Hub in Ohio to accelerate its production, too. Working with LG, Honda plans to produce batteries near Jeffersonville, Ohio. General Motors and Vale, a mining company, are partnering to supply North America with the nickel needed for its EVs.
Meanwhile, Stellantis and Samsung are working on their own EV battery-producing facility in Kokomo, Indiana. They broke ground in March 2023. Stellantis is investing $155 million in three Indiana plants to help support its electrification goals throughout North America.
Even though car companies are battling shortages by actively building plants, or securing the financing to do so, they still have to build the facility, hire workers, and then only build the car. The current plans that Ford, Nissan, Hyundai, Honda, and others have in place are still several months, if not years, out.
Labor Shortage
Automakers can invest as much money as they want in developing cars and building manufacturing facilities, but, even with advanced technology and assembly lines, they still need people to work there. The automotive industry is one of several that are having a hard time hiring enough workers to keep production rolling at a steady pace. Textiles is another. Suppliers are having a hard time getting components to car companies, too.
The good news is that companies are working on that problem. Ford, for example, is currently investing $700 million in Louisville, Kentucky as it looks to hire 500 additional hourly workers to build all-new F-Series Super Duty pickups. It also announced in March 2023 that it will provide $1 million in scholarship funding to help students pursue careers as automotive technicians. Other companies are putting a lot of money out to hire workers at all of their new plants that are planned across the Midwest.
Pricier Cars Are Prioritized
Let’s say that materials are sourced, labor is in place, and companies can start rolling out vehicles. There’s still another issue: cheaper cars aren’t first on the production list. Since automakers aren’t able to build all the vehicles they normally would, they are focusing on models that have a better profit margin. The result? Cheaper cars getting the ax.
Nissan reduced production of Versa, Sentra, and Kicks (three of its cheapest cars), but boosted production for Pathfinder and Altima. Nissan isn’t the only company doing this. Several others have done the same, making the new car market more of a luxury car market.
That’s, in part, because more and more people want the tech that comes with higher trim levels and more expensive cars. Consumers want the 360-degree camera, heated and cooled seats, ambient lighting, and large touchscreens. Automakers will have to be shown a clear benefit before they start making cheaper models in larger numbers again.
Automakers Are Keeping Inventory Low
Finally, another reason car prices are higher than usual right now, is that automakers are intentionally keeping inventory low. Not only are higher-priced vehicles prioritized, but dealers just aren’t making as many vehicles. Manufacturers sold about 13 million vehicles to U.S. customers in 2022. That’s down around 8% from 2021. It’s actually the lowest sales year in the past decade. Automakers didn’t lose money, though.
Ford made about $10 billion more in 2022 than it did in 2021. GM made a record $14.5 billion. Stellantis also reaped the benefits of less product and higher prices. It made €16.8 billion in 2022, a record for the company. Honda? It saw a 3.49% increase from 2021.
Automakers are no longer mass-producing vehicles and then offering discounts to clear out the dealer lots. No, instead, they’re supplying less vehicles, resulting in increased demand and prices. It’s unclear whether they’ll shift their strategy again going forward, but, for now, that’s what’s happening.
Ways To Save
Despite the challenges, people are still buying cars. It is a sellers’ market right now, so, before you buy your next vehicle, make sure you get the best possible price you can. We have multiple articles you can use to help you save before signing on the dotted line.
For example, there’s an article explaining What the New EV Tax Credits Mean for Buyers. We’ve got even more used car-buying tips, like How to Read a Vehicle History Report, How to Identify a Flood-Damaged Car, and What to Look for When Buying a Used Truck.
With more than half a dozen straight interest rate hikes, securing a good interest rate is important, too. You don’t have to be a financial expert to maneuver that situation. Take a look at our Dealer or Third-Party Financing and How to Get the Best Auto Loan Rate articles before you sign paperwork, too.
