Why are cars so expensive now?

Why are cars so expensive now?

Here’s why cars are so expensive now

As of June 15th, the wholesale cost of used cars (the prices dealers pay when they buy used cars) was up by 39% over pre-pandemic prices. That’s raised the retail price of used cars by 21% over last year. The retail price of used cars went up a full 10% in April 2021 alone! New car prices went up 2% in the same period. That’s incredible when you consider that the yearly inflation rate over the last 12 months is around 4.2%. So what’s driving the increase that’s making used cars so expensive and also making new cars so expensive? These are the 8 factors that have combined in a perfect storm to make all cars so expensive now.

#1 New cars are more expensive now because the computer chip shortage has shut down many new car and truck assembly lines. The shortage of new cars and trucks has allowed dealer to stop discounting prices. In fact, most new cars are selling for full sticker price or sticker price plus a premium. The higher prices for new cars has forced some new car buyers into the used car market, making used cars more expensive now.

#2 There’s been a huge drop in the number of used cars and that drop in supply, along with an increase in demand is why used cars are expensive now. Car rental sales and lease terminations were the source of used cars for most dealers. However, st the beginning of the pandemic, car rental companies sold off the bulk of their fleets to stop hemorrhaging cash during the lock-down. Those cars sold immediately and the car rental companies didn’t replace them. So the supply of car rental vehicles entering the used car market has dried up completely. At the same time, due to the shortage of new vehicles and the higher prices of new vehicles, more lease holders are opting to purchase their vehicles at the end of their lease, rather than turn them in and get a new vehicle. That has also reduced the number of vehicles coming into the used market.

#3 The economy is rebounding from the pandemic. The 2nd half of 2020 saw the U.S. economy grow by 33% in the third quarter and another 4.3% in the fourth quarter. In 2021, the U.S economy grew at 6.4% and is projected to grow at 10% in the second quarter.

That rapid growth is putting pressure on raw materials supplies and suppliers, which is causing rapid price increased on both raw materials and semi-finished components.

#4 Tax cuts have put more money in consumers’ pockets, which is now fueling some demand for new or replacement vehicles.

#5 Growth in wages. Wages were up by 4.4% in 2020 and are expected to grow even faster in 2021. That’s allowing more households to purchase new or replacement vehicles.

#6 Federal unemployment subsidies have allowed unemployed workers to keep their heads above water, and in some cases to have enough money to purchase a replacement used car. The current $300 per week federal subsidy expires on July 31, 2021.

#7 The Covid stimulus checks have put money into consumers’ pockets, allowing them to replace their used cars and trucks. That has increased demand for used cars and trucks.

#8 The car life cycle has changed. Owners are keeping their cars longer and are willing to pay for repairs rather than purchase a new higher priced vehicle. The average age of a car now is 11.9 years, up from 11.4 years in 2014.

©, 2021 Rick Muscoplat