Source: CNN
It’s called sticker shock. And if you haven’t been to a dealer’s showroom since before the pandemic, you might want to prepare yourself.
Americans paid a whopping $47,612 on average for a new car in October, according to data from Edmunds. That’s a jump of almost $10,000 from October 2019, ahead of the pandemic. That means new car prices have risen much faster than most goods and services.
The price jump has multiple origin stories: The pandemic snarled supply chains and limited essential car parts. Buyers increasingly prefer larger cars with more features, continuing the decades-long shift to bigger, more expensive SUVs and trucks.
But much of the reason Americans are paying nearly $50k for a car is that automakers decided to go all-in on expensive cars. The more they charge for a car, the more money they make off it.
“You’d be hard pressed to find anything under $30,000 from an American automaker,” said Ivan Drury, director of insights at Edmunds. “They’re hacking away at models altogether, and basic trim levels, which are no longer the bulk of the business. They’re raising the floor prices.”
You want features, you got ‘em
Today’s cars come with all manner of driver assist features, including automatic braking, adaptive cruise control and blind spot warning systems.
“People didn’t know they wanted them (these features) until they had them,” said Charlie Chesbrough, economist and senior director of industry insights at Cox Automotive. “It’s a mix of what consumers want, and what industry is moving to. The market is abandoning the below-$35,000 price point.”
There are also more electric vehicles, as well as growing demand for hybrids, both of which are more expensive than traditional gas-only cars.
The cheaper cars remaining are generally from foreign brands. The average price of a Nissan sold in the United States in the third quarter stood at $35,362, and that includes sales of its luxury Infiniti brand.
Cars are hard to find – but not SUVs
The traditional Big Three of General Motors, Ford and Stellantis, which sells under the Jeep, Ram, Dodge and Chrysler brands, have virtually abandoned the sedan market to focus almost entirely on SUVs and pickups.
Ford sells only one traditional “car” these days, the Mustang, a two-door coupe rather than a family sedan. The last non-SUV or pickup Chevrolet will roll off the line this month.
The exclusion of almost everything that isn’t a big, high-riding crossover or SUV has already raised the average sales price to $50,922 at GM, $54,963 at Stellantis and $55,632 at Ford.
While average prices are down $142 from a year ago, they could be heading higher soon.
That’s because high interest rates have kept prices in check the past couple years, Drury said. With the Federal Reserve hiking interest rates to a two-decade high to battle inflation, buyers had to spend more on their car loan payments. Now that rates are coming down, that frees up cash to spend on pricey features instead.
The average rate on a new car loan – 7% in October – is well above what it was early in the pandemic. The combination of higher interest rates and higher car prices, along with the biggest average loans ever taken out to buy them, lifted the average monthly car payment to $742 in October.
“The only thing that stopped it from getting any higher is interest rates,” Drury said.
“If money was a bit cheaper, we’d be hitting $50,000 probably around now,” he said. “If they can buy more car rather than spending more on financing, they’re going to do it.”
Tariffs could also raise prices
And prices could head even higher if President-elect Donald Trump follows through on threats to impose steep tariffs on imports, especially in the the auto sector.
Details remain scarce, but even if tariffs are limited to finished cars, it could raise prices for cars built at US factories by reducing competition from lower-priced foreign models, said Jeff Schuster, global vice president of automotive research at consultant GlobalData.
In addition, many of the less expensive models available in US showrooms are imported here, from factories overseas or in Mexico.
And it is possible the tariffs could also be slapped on auto parts. And that would make every car built in America more expensive, because no vehicle is made with 100% American parts.
“Those costs will be passed onto car buyers. They’re not going to be absorbed by the automakers or suppliers,” he said.