New car sales have slowed amid higher prices and interest rates

New car sales slumped in February, according to monthly data from the Bureau of Economic Analysis — down 5% from January.

There’s more inventory available now because automakers have pumped up production. But high prices and rising interest rates are eating into sales.

A year ago, demand for new cars was high while the supply on dealer lots was really low.

Ned Hill, a professor studying the auto industry at The Ohio State University, was looking for new wheels back then, and he said it was definitely a seller’s market.

“Bought a Toyota Highlander Hybrid and was told what color I was going to get it in, and how much I was going to pay for it,” he said.

One year later, Hill said, supply chains have cleared up and dealers have more variety on their lots.

But higher borrowing costs, and rising prices, are a challenge for middle-income consumers, said Morningstar auto analyst David Whiston.

“It seems buying a new vehicle is the domain of the wealthy right now,” Whiston said.

The average price of a new vehicle is nearly $50,000.

And prices are likely to keep going up. Along with higher interest rates, that’s likely to keep sales significantly lower than they were before the pandemic.