Why are cars so expensive right now?

Navigating the Shift: Understanding the Current Landscape of Car Ownership in the U.S.

As the U.S. grapples with the aftermath of the pandemic, the landscape of car ownership has undergone significant transformations. The convergence of several factors, from supply chain disruptions to economic policy shifts, has reshaped the dynamics of purchasing and maintaining vehicles across the country.

Find out what prices look like from your local dealerships here. 

1. Rising Costs of Car Ownership: The effects of the pandemic, compounded by supply chain disruptions and inflationary pressures, have led to a notable surge in the cost of owning a car. Researcher Cox Automotive reports that by December, the average sticker price for a new car in the U.S. reached $48,759, translating to approximately $770 a month for financing. Ouch!
   

2. Impact on Monthly Payments: Prior to the pandemic, the average monthly payment for a car hovered around $400. However, by December 2022, this figure had nearly doubled, reaching a record $788 per month. Despite a slight decrease in new car prices from their peak, higher interest rates, implemented by the Federal Reserve starting March 2022, have contributed to sustained high monthly payments. Additionally, used car prices have also experienced a significant uptick, with an average monthly bill of $561 in November, up 37% from late 2019. Supply and demand, where more and more people cannot afford a new car they turn to used.
   

3. Challenges in Affordability: Escalating prices and soaring loan interest rates have rendered car ownership increasingly challenging for many Americans. The proportion of subprime auto borrowers falling behind on their loans has reached historic highs, with implications for financial stability. To find the most affordable new cars in your area, get inventory and quotes from local dealerships here.
   

4. Supply Chain Dynamics: While supply chain disruptions and semiconductor shortages have alleviated, the replenishment of inventories by car manufacturers has been sluggish. Dealers are still holding about 70 days’ worth of inventory, leading to elevated prices and limited incentives for consumers. Despite recent improvements, cars remain approximately $10,000 costlier on average than they were in 2019.
   

5. Used Car Market: The used car market has also experienced turbulence, characterized by fluctuating supply and demand dynamics. While prices have slightly declined from their peak, challenges such as parts production disruptions continue to exert pressure on the market.
   

6. Electric Vehicle (EV) Market: The adoption of electric vehicles faces hurdles, primarily due to high prices compared to conventional gasoline-powered cars. Although EV prices have decreased, they still command a premium, limiting widespread adoption. Additionally, the lack of variety in affordable EV models further impedes market growth.
   

7. Future Outlook: While challenges persist, there are signs of improvement on the horizon. As new-car inventory gradually returns to normal levels, the market is expected to shift away from being solely advantageous for sellers. Moreover, anticipated reductions in interest rates by the Federal Reserve in 2024 could potentially alleviate financial burdens associated with car ownership, making it more accessible to a broader range of consumers.
   

In navigating these shifts, consumers and industry stakeholders alike must remain vigilant and adaptable to effectively navigate the evolving landscape of car ownership in the U.S.

Find out what prices look like from your local dealerships here.