It’s been 3 years since automobile factories across the globe started to shut down due to the pandemic.
But between the pandemic and an extreme shortage in semiconductors, and other supply chain issues the production of vehicles has not back to normal.
And what about prices? Hoo boy.
Both prices for new and used have slowed from skyrocketing. Both prices dipped just a bit in February.
However, the median new-car cost is $48,763, as per Kelley Blue Book. Before the pandemic, an most expensive new vehicle was sold for $37,876.
In an auto show in the year 2000, Noah and India Grabisch from Laurel, Md., were considering new SUVs which they loved. But an $86,000 price tag for a Chevrolet Suburban?
Okay …
“It looks nice,” India Grabisch said. “But … no.”
The used car market isn’t providing any relief, neither. Prices for used cars are currently at $26,510.
After a dip in the last year, closely monitored wholesale prices, which are a crucial indicator of where the market is heading, are climbingagain.
Why do prices remain so high? Here are a few possible reasons.
Supply chain issues are being felt
The shortage of semiconductors has become significantly better since 2021, but it’s not gone completely, and other supply chain issues are causing periodic disruption to production.
Due to these supply chain issues due to supply chain issues, the automotive industry worldwide has produced less vehicles than it would otherwise.
The availability of new vehicles is improving However, the thousands of “missing” vehicles are absent. Low supply, higher costs This is the basic economics.
What cars are produced? Not the cheap ones.
If automakers aren’t able to make the number of vehicles they’d like to they will prioritize their top-performing cars. The ones that aren’t as good get the boot.
Take a look at what happened at Nissan who was unable to overcome problems with supply chain management all through 2022. As a result, it reduced the production rate of the cheapest vehicles that is that of the Nissan Versa, by 78 percent. Nissan also cut the production of the two low-cost models such as that of the Sentra as well as the Kicks.
More expensive, but larger cars, such as The Altima as well as the Pathfinder? Nissan has increased production of both of them.
The reason wasn’t the lack of buyers at the low end, according to Judy Wheeler, Nissan U.S.’s vice president of regional and sales operations.
“In the past month, we’ve noticed a increases in searches for Nissan Versa, Sentra and Kicks which indicates a increasing interest in this segment in the minds of people who are looking for a car,” she told NPR via email.
She added that Nissan plans to produce more of these entry-level vehicles in the event that supply chains allow it.
It’s not only Nissan. Automakers across the board are focusing on larger and more luxurious, expensive cars. The ones they produce are often loaded with extra features that drive up the cost even more.
Cars with fewer cars — and higher prices are extremely profitable
The market shift has been stunning and automakers are not in any rush to change their course.
Think about how massive the impact of the shift is. Cox Automotive crunched the figures and found that between December 2017 through December 2022, sales of cars priced below $25,000 — which is affordable in comparison to the new-car market, fell 78%, and dropped from nearly 13% of the total new vehicle sales to less than 4percent.
The sales of new cars that exceed $60,000 also soared. These cars, which cost more than the annual earnings of an average American was able to go from 8percent of the auto market to 25 percent of sales.
Since the $60,000 cars are much more profitable than those with a price tag of $25,000 the shift in price is lucrative for car manufacturers. They’re focusing on profit margins that are high rather than large numbers, since they’re investing heavily in the latest electrical automobiles (EVs).
“The price environment is currently in place is excellent extremely robust,” General Motors Chief Financial Officer Paul Jacobson told investors on an earnings call last year. “And … managing the business to ensure cash flow is essential in helping us fund our journey towards this EV change.”
Today’s brand new cars were yesterday’s used automobiles …
A few years back, as the production lines began to slow and slow, it impacted both the market for used and new cars immediately. A lower supply of new vehicles drove prices to the top. This, in turn, drove many people into the used car market. Additionally, the increase in shoppers on the used market drove prices higher there, too.
However, the problems with new cars also caused a delay in the market for used cars — since new cars, naturally are used after a certain period of time.
All those high-end automobiles that were manufactured in 2021 are now extremelynice two-year-old models and that’s why, that even in the used market the top segment is on the rise.
As automakers reduce production of basic, low-cost automobiles, buyers searching for used, less expensive automobiles are out of luck.
“We are in the middle of a highly competitive used-car market, and it is directly related to the events of the last three years,” states Jonathan Smoke, chief economist at Cox Automotive.
Lonnie Smith President of the non-profit On the Road Lending, is a philanthropist who helps families in need find low-cost loans for used vehicles, with a preference for those that are still under warranty.
“Typically we’re looking for cars with a range of two to four years old and less than sixty thousand miles. This is an affordable type of vehicle” He says.
It’s become difficult to locate recently and On the Road got licensed as an auto dealer. This meant that it could buy cars auctioned off — the handful of cars that met the criteria at dealer auctions were quickly snapped up.
And the average amount of loans for those vehicles which was just $13,000 ten decades ago has increased to $24,000.
It’s all it costs for an affordable used automobile in America nowadays.
There is a chance The EV price could be reduced
As the chip shortage decreases automakers have stated that they would like to create more cars for those who cannot buy top-of-the-line SUVs. Don’t expect a flurry of $15,000 vehicles.
“We’re not expecting to see, say this return of cheap gasoline-powered automobiles,” says Ed Kim the chief analyst of AutoPacific. “Really where we’re moving is to put an enormous amount of effort to bring cheaper plug-in cars on the market.”
In reality, aided by Tesla’s frenzied price reductions price cuts, electric vehicle prices have beendropping. According to the most recent Kelley Blue Book data, they’re down 7.5 percent from year to year even before tax credits from the federal government (including for vehicles that are used).
However, there are a lot of issues — particularly in the area of charging infrastructure prior to the majority of car owners buy an electric vehicle. Prices have an extended way to go before they’re affordable. Investors were shockedwhen Tesla, who has been a long-time promise of lower prices for its vehicles but has yet to reveal one.
Therefore, cheaper cars are in the works. However, a lot are powered by battery and will take a long time to reach.
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