Why car prices are still so high — and why they are unlikely to fall anytime soon

Both fresh and pre-owned costs have ceased soaring. In reality, both declined slightly in February.

As per Kelley Blue Book, the mean price of a brand-new automobile transaction is currently $48,763. Prior to the outbreak of the pandemic, the typical new vehicle was sold for $37,876.

Grabisch India and Noah of Laurel, Md., Were looking at new SUVs at an auto show this year, but they liked the Chevrolet Suburban, which had a price tag of $86,000.

Well ….

“It appears pleasant,” India Grabisch remarked. “However… No.”

The secondhand automobile market also does not offer much respite. The average retail price for pre-owned vehicles is now $26,510.

After a decline in the previous year, closely observed wholesale prices, a vital gauge of market patterns, are presently undergoing a rise once again.

What are the causes behind the persistent high prices? Here are a couple of explanations.

Supply chain challenges are still causing repercussions.

The semiconductor shortage has greatly improved since 2021, but it hasn’t completely disappeared. Periodic disruptions continue to cause snarls in the supply chain.

Due to these supply chain issues, the worldwide automotive sector has manufactured millions fewer automobiles than it would have otherwise.

It’s fundamental economics: Increased prices, reduced availability. Nevertheless, those millions of “missing” vehicles are still absent, yet the availability of new vehicles is beginning to enhance.

Which vehicles are currently in production? Not the inexpensive ones.

When automakers can’t make as many vehicles as they would like, they prioritize their most profitable cars. Cheap ones get the boot.

It is worth considering what occurred at Nissan, as the Sentra and the Kicks, two additional affordable models, also experienced decreased sales. In response to the continuous supply chain difficulties it encountered throughout 2022, Nissan reduced production of its most inexpensive vehicle, the Nissan Versa, by 78%.

Nissan increased production of larger, slightly pricier vehicles such as the Altima and the Pathfinder.

According to Judy Wheeler, the vice president for sales and regional operations at Nissan U.S., The reason was not due to a shortage of customers looking for affordable options.

She informed NPR through electronic mail, ‘within the consumer base, this particular category is showing signs of growth, as evidenced by the increased search volume observed for Nissan’s Kicks, Sentra, and Versa models during the last month’.

She mentioned that Nissan plans to manufacture additional entry-level automobiles when the supply chain allows.

Furthermore, automakers across the board have been focusing on making vehicles more expensive, luxurious, and bigger, which also tends to result in higher prices. Nissan is just not one of them.

A reduced number of automobiles — and increased costs — are highly lucrative.

The change in the market has been remarkable, and car manufacturers are not eager to change direction.

The total sales of new vehicles decreased by nearly 4%, dropping from 13% to approximately 78% – primarily due to the affordability of new cars priced under $25,000. These figures, analyzed by Automotive Cox, highlight the significant shift in sales from December 2017 to December 2022. It is important to consider the substantial impact this change has had.

In the meantime, there was a significant surge in the sales of new vehicles priced above $60,000. The sales of these cars increased from 8% to 25% of the overall automobile market, surpassing the annual earnings of the average American.

EVs are investing heavily because they are focused on big volumes instead, particularly on fat margins. This shift is very lucrative for car companies, especially because vehicles priced over $25,000 are significantly more profitable than those priced at $60,000.

In the previous year, General Motors Chief Financial Officer Paul Jacobson informed investors during an earnings call that running the business to generate cash flow is essential to support our progress in the electric vehicle revolution. He also mentioned that the current pricing situation has been highly favorable and strong.

The cars that were new yesterday are now considered used cars…

The increase in prices has caused more shoppers to enter the market. This has led to an increase in the number of shoppers in both the used and new car markets. The higher prices have resulted in fewer new cars being sold. Both the used car and new car markets were impacted when production lines started to slow down three years ago.

Over time, fresh automobiles inevitably transform into pre-owned vehicles — thus, the predicaments faced by new cars also had a postponed impact on the pre-owned car industry.

The top segment of the market is thriving, and even the pre-owned market includes some very nice cars that were manufactured in 2021, including all those high-end cars from the top-of-the-line.

Meanwhile, as automakers reduce the production of inexpensive, basic sedans, individuals seeking more affordable late-model used cars are now unfortunate.

According to Jonathan Smoke, the chief economist at Cox Automotive, “and this is directly a result of the events that have occurred in the previous three years,” we are currently experiencing a highly constrained market for pre-owned vehicles.

Ideally, specifically those vehicles that are still covered by a warranty, Lonnie Smith, the president of the nonprofit organization On the Road Lending, strives to assist working families in obtaining affordable loans for reliable pre-owned vehicles.

According to him, we usually seek vehicles that are considered to be a modest kind, with a mileage of less than 60,000 miles, and are between two to four years old.

The few cars that met the requirements were quickly purchased from dealer lots — enabling it to acquire vehicles through auctions, On the Road obtained a license to operate as an auto dealer due to the increasing scarcity of such vehicles.

And the typical loan for those vehicles, which was $13,000 a decade ago, has now increased to $24,000.

Because, you know, that’s simply the cost of a humble pre-owned vehicle in the United States these days.

However, there is a glimmer of hope: Electric vehicle prices may decrease

However, do not anticipate an overwhelming influx of $15,000 automobiles. With the alleviation of the chip shortage, car manufacturers express their desire to produce a greater number of vehicles for individuals who are unable to afford high-end, full-sized SUVs.

According to Ed Kim, the main analyst at AutoPacific, “We don’t anticipate witnessing a revival of low-cost gasoline-powered vehicles.” “Focusing on introducing more cost-effective plug-in vehicles to the market is truly the direction in which the industry is heading.”

In fact, electric vehicle prices are decreasing on an annual basis, driven by Tesla’s proactive reduction in prices. As per the most recent data from Kelley Blue Book, they have declined by 7.5%, and this is prior to considering federal tax credits (including those for pre-owned vehicles).

Tesla recently disappointed investors when they unveiled a vehicle that promised to be cheaper and long-awaited, but did not deliver. Prices have a long way to fall before they can truly be considered affordable. Many car buyers will consider purchasing an electric vehicle before the charging infrastructure is widely available, despite the daunting challenges that exist.

They will be powered by many batteries, but it will take them a long time to get here. The vehicles are cheaper along the way.