As the market started to recover from Covid-19 implications like supply-chain issues and chip shortages, a new variant of the virus has hampered the recovery process. And the trend of rising new car prices continues into 2022, reaching a record high of $47,100. As usual, a lot of this can be blamed on the rising demand for new cars with limited supply; but a lot of modern technologies and safety features have also caused this sudden rise in prices. To learn about the latest car prices, refer to car-selling websites that offer the latest review and information on all the latest models.
The last couple of years has been like a rollercoaster for the auto industry. From factory shutdowns to skyrocketing demand, several factors came together to create the perfect storm to disrupt the whole market. Adding to the pressure is the shift to zero-emission vehicles, which are becoming popular nowadays. When the Covid-19 pandemic started, the whole world was caught by surprise, leading to sudden lockdowns and economic disruptions. The Auto industry was also affected by the lockdown as customers suddenly resorted to working from home, seemingly decreasing the demand for new cars.
In the current market, a lot of buyers are finding it hard to get their hands on new vehicles, despite visiting several dealers. Even if you find the right car, negotiations are also harder, as dealers have plenty of buyers lined up to buy new cars. As expected, because of their high demand, cars have become an investment rather than a depreciating asset. Automakers and dealers are also making record profits, selling off all their stock without any discounts.
According to J.D.Power, the average new car price has hit a record high of $38,255 in May 2021 and has been rising steadily, going up by almost $10,000 since then as we enter 2022. Wholesale prices have also gone up by 20%, increasing used car prices even further. Similar to the new car market, the average used car price has also crossed $20,000 and currently stands at $27,500, the highest ever recorded.
On the flip side, if you’re planning on trading in your old car, now might be the best time to do it.
Trade-in values of trucks and crossover are higher than ever, and you might get a better deal even without discounts because of the trade-in value. Even older vehicles with more than 100,000 miles on the odometer are fetching record-high prices, rising by around 31% according to Edmunds. Almost all models from crossovers to SUVs to pickup trucks have been appreciating in value. Because of the sudden surge in used car sales, dealers like Carvana have reported a 28% rise in car sales compared to 2020 and a similar rise in 2021.
So let’s take a step back and try to understand why prices of new cars have suddenly skyrocketed.
The demand/supply conundrum
As the pandemic ravaged the car market, the demand for new cars suddenly rose as more and more people preferred personal transportation as a way to avoid the virus. But, because of the limited production of new cars, the market couldn’t match the sudden rise in demand. The chip shortage must also be blamed for the limited supply of new cars since most modern offerings rely on hundreds of semiconductors and chips to function properly. This shortage has also led to manufacturers shifting production to high-profit models to increase their margins. As expected, this has affected average new car prices, forcing buyers to opt for higher trim levels and expensive options. Since lower-spec models are hardly found on car lots nowadays, manufacturers are making a tidy profit on every model leaving the showroom floor.
Another factor at play here is the lack of discounts on new cars by the dealers. Usually, before the Covid situation, all dealers used to provide several discounts and offers on new cars to get them moving off the lots. Because of the high demand in the current market, buyers are lining up to buy new cars and are ready to pay a premium just to get their hands on one, causing dealers to roll back their discounts and even sell some models at a premium.
According to Kelley Blue Book, dealer incentives even at the end of the year are at a five-year low. Unfortunately, we can expect the current situation to continue as we enter 2022 and the situation will get worse before it gets better.
According to a recent survey, the US new-vehicle inventory took a nosedive since the start of 2020, going down from 3.5 million units to under 1 million as of September 2021, revealing the scale of the issue. Because of this high demand, customers are forced to buy whichever variant they can get their hands on instead of choosing the ones they like.
The shift to crossovers and SUVs
In recent years, another trend has been rising steadily among new car buyers. Because of the practicality and space on offer, customers have been flocking towards crossovers and SUVs instead of low-cost sedans in the modern car market. Most customers are also looking for the latest and greatest technologies in cars including modern driver assistance technologies like automatic braking, adaptive cruise control, and even semi-autonomous driving. As expected, a lot of these technologies require an array of sensors and computers to work, boosting prices even further.
Stricter emission norms
To curb pollution levels, manufacturers are forced to develop stricter emission control units on the latest cars, using advanced technologies and components. Just recently, in December, the government revealed its most aggressive fuel economy standards, emphasizing the importance of EVs and their benefits. Usually, a comparable EV will cost a lot more initially than an IC car, increasing average costs even higher. Relatively new companies like Rivian currently have a market cap of over $90 billion, which is higher than big players like Ford and General Motors, revealing the booming EV popularity.
The new car market in 2022
Because of the new Covid-19 variant dubbed Omicron, we can expect the market to continue the trend and used car prices to rise even higher before recovering. All the pandemic-related changes like increased online shopping will also continue for 2022. There’s a long road ahead before things start to normalize and get back as they were before the pandemic.