- The average price of a new car in the US shot past $47,000 in December, Kelley Blue Book says.
- Car prices have surged amid supply-chain issues and a shortage of new vehicles at dealerships.
- The supply-chain challenges and shortages aren't going away overnight.
The cost of the average new car in the US has surged toward $50,000 over the last two years. Don't expect prices to come down dramatically anytime soon.
In December, the average price paid for a new vehicle surpassed $47,000 for the first time, hitting $47,077, according to Kelley Blue Book. The average price of a non-luxury vehicle stood at $43,072, slightly down from an all-time high in November.
All in all, the amount Americans paid for the average new car rose a staggering $6,220 in 2021, and $3,301 in 2020, Kelley Blue Book says. Americans today are paying almost $10,000 more for their new cars than they did before the pandemic in 2019. Prices may not return to typical levels for quite a while.
New and used car prices have skyrocketed throughout the pandemic, mainly due to a drop in new vehicle production globally. In fact, cars were one of the key contributors to rampant inflation in 2021, which had leaped to its highest pace since 1982, the Bureau of Labor Statistics said Wednesday.
Supply-chain snarls — including a shortage of the semiconductor chips that underpin a huge assortment of vehicle technologies — have stunted manufacturing worldwide. As a result, US dealerships have had to grapple with historically low inventories.
It's simple economics: When supply plummets, prices shoot up. And the low supply of new vehicles isn't going to resolve itself overnight.
According to the research firm IHS Markit, vehicle production should slowly recover throughout 2022, but semiconductor shortages and other supply-chain challenges will drag on until 2023. Even once the chip situation improves, other coronavirus-related struggles having to do with raw materials or labor could emerge, the firm said.
The Volkswagen Group, one of the world's largest producers of commercial and passenger vehicles, doesn't expect much of a change in the availability of computer chips this year, its CFO told The Wall Street Journal on Monday.
Things seem to be improving. The supply of new vehicles in the US has risen in recent months, signaling that the worst of the shortages could be over, according to Cox Automotive. But inventories remain far below normal levels. At the end of November, there were roughly 1 million new, unsold vehicles on dealer lots — that's 1.8 million fewer than the same time in 2020 and 2.5 million fewer than 2019 levels.
There's another reason average transaction prices aren't likely to drop significantly in the near term: changing tastes. Kelley Blue Book says more luxury purchases and fewer low-cost sedans changing hands is driving average vehicle prices up.