How cars – new, used and rental – are driving inflation up a gear – .

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How cars – new, used and rental – are driving inflation up a gear – .


Consumer prices are increasing at the fastest rate in 13 years. Driving this thrust are – the drivers. American motorists and their wheels – cars and trucks; new, used or rented – are the main culprits pushing consumer prices to the breaking point.
The consumer price index for used cars and trucks saw its biggest monthly increase since 1953, when Buick Roadmaster ruled the country’s roads. This surge alone was responsible for a third of the increase in the overall CPI. Meanwhile, new car prices continue to climb. The average new car bought in May cost more than $ 41,000, according to Kelley Blue Book – a jump of more than $ 2,000 from the previous year.

“We’re seeing record prices for used vehicles, and we’re also seeing record average transaction prices for new vehicles,” said Matt DeLorenzo, senior editor at Kelley Blue Book.

Need. After. Cars.

The roots of the new car shortage can be traced back to the pandemic, when automakers slowed production or even shut down assembly lines, while consumers withdrew their purchases of new cars. Manufacturers of microchips – a component of everything from cars and smartphones to washing machines – have also cut production and some have moved manufacturing away from the auto market.

This left automakers unprepared when the economy and buyers came back strong.

“That’s the main obstacle,” said Ivan Drury, senior knowledge manager at Edmunds, of the chip shortage. “It’s so small, but the effect has been so deep. ”

To make matters worse, a fire this spring at a large Japanese plant that supplies automakers has further affected chip production, with the VW North America chief predicting shortages at least until this fall. Ford closed eight factories in North America for several weeks this summer, while a GM plant has been closed since February due to the shortage.

Pay above the sticker price

The crisis has led to the sale of some new cars at sticker prices or above. The Kia Telluride, Hyundai Palisade and Ford F250 are among the most popular models experiencing shortages and high prices.

“You’ll go to the dealership, and you’ll see that they have low stock or nothing of that Kia Telluride you wanted or that F250,” Drury said.

He added, “You really have to weigh the benefits. Is this shiny new car worth it for you? Otherwise, don’t worry, someone else will buy it. ”

In June, three-quarters of all American cars sold at sticker prices or above, the Wall Street Journal reported – more than double the share before the pandemic. Meanwhile, cash back offers and other incentives are at their lowest in 10 years, according to DeLorenzo of Kelley Blue Book.

“If you want an SUV or a crossover or that type of vehicle, the market is very hot right now,” he said.

High prices and low inventories are starting to deter buyers, with new vehicle sales falling in May and June.

Worn out

The slowdown in new car production is pushing up used car prices, with the average cost hitting a record high of $ 25,410 the year before, according to Edmunds. Some of the latest generation used cars are selling today more than when they were new.

“Usually the used car people will say there is a limit to how much it can cost more, because the new car [price] set the limit, ”Drury said. “Now that new cars are selling for above MSRP, guess what – used car prices are going up too. ”

Car rental companies are generally a reliable source of used cars because they regularly upgrade their fleets. But after offloading more than 770,000 rental vehicles during the pandemic, according to the Wall Street Journal, many are now trying to rebuild their fleets with next-generation used cars, creating more competition for buyers. And with thousands of Americans ready to travel again, rental car prices are skyrocketing.

Fares at popular tourist destinations reach several hundred dollars per day, with a rental company in Maui offering rides for $ 700 per day. The fuel for this journey is also increasingly expensive. Gas prices have risen 43% in the past year to an average of $ 3.15 per gallon, according to AAA.

When will new car prices drop again?

Still, there are signs that car prices are peaking, even though it may still be a year or two before buyers can expect pre-pandemic discount levels. Wholesale auction prices for used cars have moderated over the past month, falling by one percentage point, DeLorenzo said. And Ford said this month that it has secured a batch of microchips and plans to start shipping thousands of F150s to pending owners.

Car prices hit “record highs”

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Analysts expect the chip shortage to ease by the end of 2021, as automakers find new supplies of microchips or begin manufacturing them in-house. Many options to get around the shortage, such as changing suppliers, changing plants, or building new facilities, take months to implement. That makes it likely that some shortages will persist into the next year, according to Bain.

For potential car buyers, this leaves two options. The first is to wait – and while you wait fix your current wheel set. This will make the drive more enjoyable and increase the value of the car when it is time to trade it in, DeLorenzo said. But be prepared to wait: Although auto factories are expected to start ramping up production later this year, analysts say it will be a year before buyers can expect a “normal” auto market.

If you absolutely need a car, DeLorenzo recommends doing some research online before going to a dealership, “so you don’t get sticker shock.” Dealers won’t be interested in negotiating much on price, unless you’re looking for a hybrid or plug-in hybrid vehicle. Many potential buyers are still wary of the technology, he noted, so the savvy buyer is likely to find deals in this category.

And be picky, advises Drury of Edmunds.

“Pay what you have to pay, but make sure you like this car, that it’s the right color, that it has the right features,” he said. If you decide you don’t like the car a year from now – after the prices come down – and try to sell it, “that will be the most expensive mistake you’ve ever made.”

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