The cost of a new car won’t go down as fast

Cars hit record prices last year and they won’t be coming down anytime soon.

In December, the average price of a new vehicle in the United States reached US$47,077, an increase of 14% (US$5,742) compared to 2020, and 1.7% (US$808) compared to the previous month, according to Kelley Blue Book. The rise came as U.S. inflation closed 2021 at dizzying levels — a 39-year high of 7% — and gasoline soared with a 49.6% price increase from a year earlier.

The higher prices of cars, food and clothing, among others, reflect the exhausting effort of a reopening economy. Last year’s surge in car prices came as component shortages hit automakers just as consumer demand soared.

“The lack of inventory was the big news in 2021″ says Jonathan Smoke, chief economist at Cox Automotive. “Tight supply has created strong pricing power and record profits for automakers”.

This trend is expected to continue through at least the first quarter, he says. “Although we see modest supply growth in 2022, we expect pricing power and profitability (for automakers) to remain supportive”.

The cost of luxury

Luxury vehicles in particular contributed to overall price increases. The median price of a luxury car in December came in at $64,864, considerably higher than the $43,072 median price paid for a new non-luxury vehicle.

Last month, luxury cars sold for a record average of $1,300 more than the sticker price, while in December 2020 they sold for $3,000 less than the recommended retail price.

Chip shortages, an increase in holiday spending and the spread of the omicron variant were the biggest factors in the disparity, according to analysts. Affluent consumers were not discouraged.

“The luxury goods buyer has probably done well in recent yearssays Charlie Chesbrough, senior economist at Cox Automotive. “Your portfolio is probably doing well and so is your income. That’s the reason we evince so much strength”. In fact, the global catastrophes of the past year have served to make the rich get richer.

The trend will continue, says Chesbrough. In December 2016, luxury vehicles sold by brands including Audi, BMW, Mercedes-Benz and Porsche made up 15.5% of the US market, according to KBB.

Last month they represented 18.4%. In 2012, 54% of new vehicles sold had an MSRP of less than $30,000, according to Cox Automotive. Today that percentage stands at 19% of the market.