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Car prices are rising, and there’s no sign of them slowing down

by GFeed News Desk
June 12, 2021
0
Car prices are rising, and there’s no sign of them slowing down

Car dealership lots typically have only a fraction of the new and used vehicles that they normally have. This is causing prices to soar to new highs and raising the country’s overall inflation rate.

And the price hikes aren’t finished yet.
According to JD Power, the average new car price hit a new high of $38,255 in May, up 12% from the same month a year ago.

In May, nearly two-thirds of car buyers paid within 5% of the sticker price, with some even paying more.

According to other JD Power data, wholesale prices for used cars sold at auction have increased by 39% since the beginning of the year. In the same time period, retail used car prices have increased by a more modest 20%. That’s a significant increase for this time of year, and higher wholesale prices indicate that more increases are on the way.

“That puts wholesale used prices at the highest level they’ve ever been,” said David Paris of JD Power. “And we are seeing used retail prices accelerating rapidly.”

Consumer prices in the United States have risen at their fastest rate in nearly 13 years, with used car prices accounting for a third of the overall 5 percent increase in May.

It’s a 180-degree turn in the market from a year ago, when the pandemic forced many car dealerships to close or limit their services to service and maintenance. Auto sales fell 30% in the second quarter of 2020, the biggest quarterly drop since the Great Recession, due to massive job losses and a shift to working from home.

Sales are now booming, with the seasonally adjusted sales rate for new car sales to consumers in May rising 34% year over year and 10.6% higher than the more normal sales month of May in 2019.

However, the resurgent demand comes at a time when auto plants all over the world are shutting down or reducing production due to a computer chip shortage. According to Cox Automotive, new car production in North America fell by about 3.4 million vehicles in the first three months of this year. Furthermore, most automakers reported that second-quarter production was even lower than the first.

The used car market is similarly tight, with some supply and demand indicators in the sector showing the highest levels of scarcity on record.
The price increase is being fueled by these two factors: strong sales and limited supply.

“It’s a perfect storm,” said Charlie Chesbrough, senior economist for Cox Automotive. “If you’re not willing to pay near sticker price, there’s someone behind you who is. These issues will likely be with us through at least the rest of this year.”

The shortage of computer chips is just one factor limiting the number of vehicles available. Experts say that other auto parts, such as tires and resins, are starting to run out.

The used car market is feeling the effects of the new car supply shortage. Rental car companies, which sold off about a third of their fleets last year to raise cash and weather the downturn, are now experiencing their own car shortages just as travel is picking up.

The shortage of computer chips is just one factor limiting the number of vehicles available. Experts say that other auto parts, such as tires and resins, are starting to run out.

The used car market is feeling the effects of the new car supply shortage. Rental car companies, which sold off about a third of their fleets last year to raise cash and weather the downturn, are now experiencing their own car shortages just as travel is picking up.

Because of the chip shortage, automakers don’t have an excess supply of new cars to sell at a discount to rental companies.

“The [rental car companies] typically buy 2 million vehicles a year, and that’s how many cars they typically sell into the market,” said Ivan Drury, senior manager of insights for Edmunds.com. “With the automakers not able to sell to them right now, that turnover of one- and two-year old vehicles just isn’t happening right now.”

As offices reopen, workers who had been working from home are resuming their commutes, fueling demand for automobiles even more.

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