Why Are Auto Prices Rising?
While the prices of new cars are on the rise, they are not the sole reason. While dealer markups certainly play a role, they aren't the only factor. Supply chain problems and shortages of key parts have hampered production, forcing car dealers to raise prices. And, with fewer used cars on the market, car dealers are forced to hike prices in order to fill the demand. But, there's only so much demand in the market, and it's not possible to maintain higher prices without a steady flow of sales.Fortunately, most in-demand vehicles did not suffer from higher price increases. This is largely because automakers shifted production to better-selling models and not as expensive ones. While new vehicle prices were up 12% in January, pre-owned vehicle prices rose 31 percent. The same trend happened for trucks and SUVs, but car prices grew more than twice as much. A three-year-old Toyota Camry, for example, would cost $29,749 a year from now in December 2021 compared to the same month a year earlier.The war in Ukraine has already affected production in Europe. Volkswagen, BMW, and Porsche depend on Ukraine to assemble their wiring harnesses. With fewer available cars, they are likely to restrict their exports to the U.S., which would further increase prices. But the war will only intensify the problem of low supply. While many analysts are predicting that new vehicle prices will continue to rise, one thing remains clear: there's a long way to go.
