What’s driving car prices ever higher?
The market for cars has calmed down quite a bit since earlier in the pandemic, when the chip shortage constrained inventory. But the price of new cars is still pretty high.
A new report from auto research site Edmunds says the entry-level price for a new vehicle — once $20,000 — is now $25,000. And the average buyer is spending much more.
During the car shortage over the last couple of years, automakers used their very limited supply of semiconductor chips for their newest, shiniest, fanciest cars.
“‘Cause if they can’t sell as many, they want to sell the more expensive versions of them,” said Mike Ramsey, an automotive analyst at Gartner.
Somewhere along the way, he said companies stopped focusing on more affordable sedans altogether: “The Ford Fiesta, the Ford Focus, the Ford Fusion.”
The Mustang is the only car Ford has not discontinued. Most automakers are focusing on trucks and SUVs — and it feels kind of like a chicken and an egg thing. Are people buying bigger vehicles because that’s what’s available? Or are companies making them because that’s what people want?
“All of the above,” said Jane Ulitskaya, an editor at Cars.com. “I think automakers definitely turn to the most popular models.”
Trucks and SUVs made up nearly 80% of new car sales in March, she said. And auto research site Edmunds says of those large SUVs, more than 90% cost more than $60,000.
“The new car buyer is a fairly affluent buyer,” said Michelle Krebs, an analyst at Cox Automotive. “And those buyers tend to want big sport utility vehicles with the fancy features, and the luxury part of the market has really grown.”
Krebs expects the trend to stay, which means average vehicle sale prices aren’t likely to return to pre-pandemic levels.
“It’s like gas prices,” she said. “The prices go way up, but they don’t come back down to where they used to be. And we just get used to it.”
One bit of relief: The sticker price is not always what you pay. As interest rates rise, incentives like rebates and lease deals are returning.