Much like everything else in our society, the prices for vehicles have increased a lot since the beginning of COVID-19. If you were without a car during the past two years, you may have been faced with some hard decisions. Many car dealerships were short on inventory, and the sticker price on the vehicles they have on hand were over the actual retail value. In many cases, both new and used vehicles were up 30% – 50% above where they were before the pandemic hit. Before the pandemic, the average used auto cost about $31,000, and it is now currently $47,000. The higher prices with loan rates combine to average a new monthly payment of $700. Despite these prices, the automakers are still yielding substantial profits despite the low amount of sales.
Thankfully however, the vehicle prices are becoming more affordable due to the demand slowing down and the inventory rising. It is suggested that there is a “buyers strike”, which causes a higher inventory and will lower the cost of the vehicles, both new and used. It was recently shown that the average used vehicle price in September was 1% down from May. AutoNation, which is the nation’s largest dealership chain, shows their sales of used vehicles and profit-per-vehicle both had dropped last quarter. While this is a promising sight for buyers, the director of insights at Edmunds states that it will take years for the prices to fall even close to their pre-pandemic levels.
The low level of inventory of the used car market is due to a few different factors. First of all, since 2020, the automakers haven’t been leasing as many cars, which is a large source of inventory for the used car market. Furthermore, rental companies haven’t been able to buy many new vehicles, which means they aren’t selling as many autos in the used car market.
While the car inventory is starting to rise and the prices have started to go down, there still lies a major issue for purchasing a new vehicle. The newest problem to purchasing a new vehicle is the higher interest rates. Just before the pandemic hit, a typical interest rate for a used auto vehicle was 8.4% annual interest, making the average monthly payment of $412. By September of 2022, the average interest rate reached 9.2%, which caused the average monthly payment to jump to $567. By going up just 0.8 points, the monthly payment went up $155! The drop in prices will help buyers with solid credit scores who qualify for lower rates, but those with poor credit and lower incomes will still suffer in the long term.
The new-vehicle market however has become an option for affluent buyers. The automakers have increased the deployment of the computer chips that are required for the newer vehicles. The average price of a new vehicle was down slightly from August, but is still an astounding $11,000 above its level in January of 2020 – just before the pandemic hit. Thanks to the increased availability of the computer chips, the new car inventory has improved to about 1.4 million, which is still significantly lower than before the pandemic hit.
The pandemic caused the prices to go up in just about every facet of life, and the auto industry was not excluded unfortunately. From a lack of inventory, a high demand, to the inability to obtain the computer chips for new vehicles, it has been extremely difficult for people to purchase cars at a normal price. People over the past two years have had to either deal with the price hike, or simply walk away and make the car they have work. There is a light at the end of the tunnel with the coming year, as many economists are predicting a recession, leading to the prices of vehicles to drop significantly as the demand drops drastically as people focus their finances on their actual needs.
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