It does not matter where you are, you must have seen prices of certain things rise sky-high. One of those objects is our beloved automobiles. It has been a rough year for everybody and industries did not have it easy either. Americans love cars, and the demand is always there, no matter what. Though the demand diminished during the pandemic, it has seen a huge resurgence now. So much so, that automakers are struggling to keep up with the demands. You may only be able to browse your favorite cars on CarHP, but you may not actually be able to purchase them.
When did all of this start? After the pandemic, or during the pandemic, you could say. Automobile industry suffered a big blow due to the lockdown and the demand suddenly plummeted. They stopped their factories and their production. When they did open up, they were faced with the semiconductor shortage. Now with the people demanding vehicles, and the manufacturers suffering from the low supply, the market has gone crazy. As a result, the prices of cars have shot up massively.
If we take a look at the statistics from Kelley Blue Book's analysts, they report that the transaction price for new vehicles in January of 2021 was $40,857. Just a year ago, it was $38,747. Those are pretty insane stats. On average, the price increased by more than 5% within a year! Even Edmunds reports that the average new car transaction in 2021 has been around $40,000. It is not possible for everyone to afford a new vehicle in this market. The market is massively inflated. While there are various reasons for this, the only one that we would be worried about is the demand and supply chain.
There is a chart that displays the average increase in price per brand. If we take a look at that, we see that Stellantis (Chrysler) had the highest increase in price between January 2020 and January 2021. It's almost around 10%. The second-highest on the list is Volkswagen Group and all the automakers under them, which saw an 8% increase. Companies like Acura, Honda, GM, Hyundai, Kia, Toyota all experienced a price hike of 6-7% on average. Ford saw an increase of 4%, Volvo saw 3%, however, BMW and Mazda barely saw any increase in price.
On the bright side, there are automakers who had a drop in their prices in the same time period. Nissan saw a reduction of 4%, and Tesla also saw a reduction of around 5%. Mitsubishi saw a big reduction of 8%. But out of all the manufacturers listed in Kelley Blue Book's list, the average among them turns out to be 5.45% increase, on average. Not good news for those who wanted to buy new cars this year.
Kelley Blue Book also released a list that captures similar details about transactions, but according to the category of cars sold. New compact cars are sold for an average of $22,394. Crossovers cost $30,557 when new; electric cars are $53,701 and so on. The list varies widely and features all types of cars, including entry-level luxury cars, full-size pickups, high-performance cars, luxury cars, luxury SUVs, etc. Except for high-end luxury cars, electric vehicles, and high-performance cars, all the other categories saw an increase in their price tag.
But high-performance cars are the ones who experienced the highest reduction in price, a massive cut of 16.63%. If you are looking for a compact car or a crossover, you might get away by paying just about 2% extra. However, if you want a full-size SUV or a luxury car, you will need to shell out an additional 10%. If you want a minivan to drive your family around in, get ready to pay 12% extra.
No matter what type of car you choose, chances are, you would have to end up paying more than you would have last year. And, if a model is in demand, you can easily expect to pay a hefty sum above the MSRP.
The ones who would rather buy a used car are also not safe. Used car prices have also shot up significantly over the past few months. In 2021, the average used car transaction is $23,000; which is quite tough to wrap your head around.
But what is causing the prices of new cars to rise so high? Well, inflation is the primary reason, but there is another obvious factor staring at us in the face. Yes, the pandemic. Due to the pandemic, a lot of industries have been hit hard. Workers losing their jobs, companies losing their employees, it all has been a tough emotional journey. As you already might have heard, there is an acute semiconductor shortage in the world. Semiconductors are used to create electronics. All of the electronics inside your car are made with semiconductors.
With the shortage of semiconductors, cars are basically handicapped. That means no infotainment system, no modern safety system, no start/stop system, etc. Nobody wants a modern car without these features. Without the semiconductor chips, automakers are finding it tough to manufacture cars and meet the demand.
Companies like Ford and GM are being forced to manufacture "incomplete" vehicles, without the semiconductor chips put in them. They are storing these incomplete vehicles in their lots. When the stocks replenish, they hope to fit these cars with the chips and send them to the market. GM also thought about not including wireless chargers and some other features in some of their cars, due to the shortage of chips.
Apart from this shortage, the demand just keeps growing. Last year, people were forced to stay inside their homes and nobody had a demand for cars. The automakers suffered, and even temporarily shut down their factories. However, with the pandemic slightly subsiding and people being called back to work, the demand is growing faster than ever. People who saved money during the pandemic are also looking for new vehicles.
But due to the shortage in supplies, the automakers cannot keep up with the increasing demand. We all know, high demand + low supply = high price. This is the primary culprit behind the drastic increase in price. Toyota has not been affected by the semiconductor shortage as much as Ford or GM has, but all the companies are more or less in the same boat. As to when everything is going to be normal, we have no clue. We can only wait and hope for the best.
