If you’re in the market for a new car right now, you may have noticed that automobile prices are higher than you would expect. Even used cars are appreciating in value, whereas the normal pattern is for their value to depreciate. We’re here to show how significant these increases are and shed light on some of the causes.
Supply and Demand affect the market
The primary reason why car prices are up is that demand is outstripping supply.
This is permeating every aspect of the market, with the prices for an electric vehicle up by 15% year-on-year, as well as prices for a hybrid increasing by 18%.
Car dealers are being swamped with orders that they can’t fill, particularly when it comes to popular hybrid and electric models. Rising material costs are affecting in particular the production costs of these types of cars as well as the essential components of car batteries: lithium, nickel, and cobalt.
The average price forused cars has risen the most
When it comes to used cars, the jump in cost is particularly eye-watering.
CNN Business cites Edmunds (a reliable source for car information), who found that the average price for a used car increased by 27% year-on-year in June 2022, compared to a 5% increase in the prices of new cars.
Why is demand currently higher than supply?
The unique set of conditions created by the pandemic has a lot to do with this. About 40% of US households buy a car every year, but the halting of the markets in 2020 means that now there is a backlog of demand for new cars.
We are also witnessing a shortage of cars available to sell, occurring simultaneously with this increase in demand.
Rental companies were hard hit by the pandemic, selling about a third of cars from their fleets to give themselves the funding needed to survive it. They are now struggling to rent and sell the volume of cars required by consumers in a world where travel is rebounding and workers are returning to the office, requiring cars more than ever.
These companies are also reluctant to sell much of their existing fleets, due to supply chain issues thatare making it harder for them to buy replacement cars.
Additionally, there is a worldwide shortage of computer chips, caused by automakers reducing their orders for these when the pandemic first hit. Demand bounced back sooner than expected and, with the average car having between 50-150 chips in it, car production is still occurring at a slower rate than pre-pandemic times.
Are prices expected to drop any time soon?
Research by J. P. Morgan shows that the prices of used cars peaked in early 2022 and are slowly starting to moderate. However, new vehicles are subject to inflationary pressures which mean that their prices are likely to stay elevated for longer. If you’re hoping to purchase a car sometime soon but are waiting for market conditions to be more favorable, it wouldn’t hurt to start getting your savings in order now.Whichever type of car on which you’ve got your eye, saving in a deliberate, consistent manner is one of the best ways to make sure that the higher car prices don’t lead to you missing out.