In a report by the Bureau of Labor Statistics in the United States, the price of new cars has increased by 12.2 percent from previous years. The same goes for used cars, as they have risen to 40.5 percent compared to their old prices. The advent of the pandemic changed every aspect of the world's economy, and the automobile industry is no exception.
The reason for the recent car price increase: What happened?
The rise in car pricing has been majorly attributed to the advent of the covid-19 pandemic. The pandemic halted the production of silicon chips; silicon chips control virtually all the essential functions of vehicles. One car part could use 500 to 1,500 chips, depending on the complexity of the part. Silicon chips are used in automobiles and everyday products such as laptops and gaming consoles. The slowdown of chip production has created a bottleneck, impacting the number of cars that can be produced, therefore creating a lower inventory for car dealerships everywhere, which means higher prices for consumers.
When might prices return to normal?
Industry experts have tried to speculate when prices will return to normal, and the overall consensus is that costs may never return to 2019 levels. It is estimated that the chip shortage will continue to impact production until early 2023 and create a ripple effect in the automobile industry for the next few years. In addition, the impact of the Ukrainian war with Russia is currently hitting the European auto industries. For instance, assembling Volkswagen, BMW, and Porsche formally done in Ukraine would no longer be possible.
Even though prices remain high - buyers are still willing to pay premium costs. Cox Automotive research shows that 66% of new car buyers are happy with their shopping experience despite the record-high prices giving dealers few reasons to drop their prices.
What does this mean to you?
To be direct, if you can wait to purchase a car, you should. The increasing cost of new cars has created a domino effect. Buyers who can not afford new cars are looking for used cars to fulfill their car needs, further limiting the used car inventory.
If you can hold off on buying a new or used car but want to save on monthly expenses, it may be worth considering a refinance. Interest rates have dropped, and many people have lower car mileage due to COVID travel restrictions. See how much you can save today by getting a quote with RateWorks! Getting a quote is quick, easy, and won't impact your credit score.