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You know the story behind car prices: they're higher than ever. New or used, nearly every car is selling for more than it used to.
According to the U.S. Bureau of Labor Statistics' Consumer Price Index Summary, new vehicle sales prices shot up by 12.6% in May 2022 compared to the spring of 2021. Many used cars are worth as much — or more — than they were new.
Edmunds.com reports that 82% of new-car buyers in January 2022 paid more than the MSRP on their vehicle—a whopping 80% increase over a year. And these astronomical car prices are not likely to come back to earth anytime soon.
Here are five reasons why you'll be paying top dollar for a vehicle for at least the next year or two — or more.
Silicon chips are still in short supply
As you may have heard, modern vehicles use a shocking number of silicon chips and onboard computer processors. Everything from memory seat functions and engine management systems, to the infotainment screen playing "Running Up That Hill" for the 524th time this week, needs these hallowed chips. Without them, there is no Kate Bush and no perfect seating position.
COVID-19's market disruption knocked the wind out of these chip production facilities. According to Sam Abuelsamid, principal analyst at Guidehouse Insights, says that while production is increasing, the industry is still months away from having what they need. Even if the manufacturers were able to get enough chips by early 2023, that means there still won't be enough cars to satisfy demand until late 2023 and going into 2024 — and possibly beyond.
Thus, while the chip shortage looms over the world like the Shadow Monster, so will high vehicle prices.
Dealers are changing their business models
Though inventory has suffered, dealers and buyers alike know low inventory means little negotiation.
According to Stephanie Brinley, principal analyst at IHS Markit in an interview with Car and Driver, "Automakers and dealers have come to understand through [today's challenges] that a leaner inventory situation makes them more profitable. We're likely to see dealers carrying less inventory."
What does this mean for the would-be car buyer? You can expect that even when the chip shortage is over, dealerships are likely to never carry the massive inventories they once did before 2020, which means non-negotiable prices for their vehicles becoming more commonplace.
Demand is still high…
Among the other factors perpetuating high vehicle prices is the age-old law of supply and demand. And when some new vehicles have waiting lists 17 years long (not kidding), new and used car prices are bound to stay high, reports The Drive. People need new cars and even more, people want new cars, which means that the old 2006 Honda Accord in your driveway is going to be worth more in the foreseeable future than it has been in years.
…and inventory is still low
As of just a few months ago, dealership inventory had fallen to less than one-third of what they normally have on the lot, according to an NBC News article. And you can see it, too. Drive by a dealership lot and take a look at how many new cars they have for sale. Chances are they only have a few.
"Inventory is low, demand is high, so prices are high," said Michelle Krebs, senior analyst with Cox Automotive in an interview with NBC News. "Consumers should expect to pay MSRP [the Manufacturer's Suggested Retail Price] or higher."
Dominoes have fallen
Everything is connected when it comes to vehicle production. Not only does your 12.3-inch infotainment screen need semiconductor chips to function, but so does the machine that is making the screen in the first place. The supply chain is real and can be easily disrupted, resulting in circumstances like the industry is facing today.
So what can you do? Be patient. Work with a Ken Garff dealer. You might have to put in a factory order and wait for delivery of your new car, but at least you'll be sure to get the one you want — and for a great price. Prices are not falling anytime soon, and the great folks at Ken Garff can be sure you get in a car you love. Visit their website, KenGarff.com today!
