Why High New Car Prices Are Here To Stay FOREVER

If you’ve been in the market for a new or used car over the last couple of years, you’ve likely noticed the peculiarities that have disrupted the conventional expectations of the automotive industry. From persistent inventory shortages to soaring prices, car buyers have been waiting for a reprieve that seems elusive. Despite hopes that higher interest rates or an economic downturn might trigger a reduction in prices, recent insights from reputable sources, including Barons, suggest a different reality. In this post, we delve into the four compelling reasons why new car prices aren’t poised to decrease anytime soon.

1. Sustained Demand Defying High Prices

One might expect that elevated prices would naturally curb demand, triggering a correction in the market. However, the reality is quite the opposite. Even with prices reaching new highs, there is a significant demand for new vehicles. Some buyers are willing to commit to hefty monthly payments, reaching up to a thousand dollars. This sustained demand is a key factor in maintaining the current price levels.

2. Adaptation to Profitability with Lower Volume

Both manufacturers and dealerships have adapted to a new paradigm where profitability can be achieved with lower sales volumes. In the past, dealerships scrambled to secure every sale, often selling hundreds of cars each month. Now, the focus has shifted to lower volumes with higher profit margins. This strategic shift allows for reduced advertising, lower overheads, and less reliance on selling high volumes to turn a profit.

3. Diminished Investment in New Gasoline Vehicles

With an impending shift to electric vehicles (EVs) within the next four to six years, manufacturers are hesitant to invest heavily in creating new inventory for gasoline-powered vehicles. Several states, including California, New York, and Washington, have set timelines to make the sale of gas vehicles illegal post-2028 or 2030. The focus is now on transitioning to EVs, making extensive investment in new gasoline-powered models less appealing for manufacturers.

4. Escalating Costs of Vehicle Production

The cost of producing vehicles has experienced a significant surge. While supply chain inflation is part of the equation, recruiting skilled workers has become a major challenge. The increased cost of labor, coupled with higher material costs, has led to a substantial increase in the overall manufacturing cost. Consequently, obtaining a decent vehicle now comes with a price tag of $40,000 to $45,000, making the days of $20,000 or $30,000 vehicles a distant memory.

Implications for Car Buyers

As a result of these factors, new car prices are unlikely to witness a substantial decrease. The current price point, while potentially seeing fewer dealer markups, is expected to be more or less permanent. Consumers have become accustomed to higher monthly payments, and this adjustment has been integrated into the industry’s standard practices.

Considering Alternatives: Late-Model Used Cars

While new vehicle prices remain high, those seeking more budget-friendly options might find solace in late-model used cars. However, it’s essential to approach this alternative with caution, considering potential drawbacks such as high mileage, being out of warranty, and limited availability of desired models.

Navigating the New Normal in Car Buying

The automotive market’s current dynamics paint a picture where new car prices are unlikely to experience a significant reduction. As a prospective car buyer, understanding these factors is crucial for making informed decisions aligned with your preferences and financial considerations. While the allure of lower prices may persist, navigating the new normal in car buying involves a pragmatic approach that embraces the evolving landscape of the automotive industry.

Disclaimer: The insights provided in this post are for informational purposes only and do not constitute financial or investment advice. Prospective car buyers are encouraged to conduct thorough research and consult with automotive professionals for personalized guidance based on their unique circumstances.