In the current economic climate, the automotive industry is facing unprecedented challenges, resulting in what can be described as the least affordable car market in modern history. A convergence of factors has led to soaring car prices, making it increasingly difficult for consumers to find affordable options. In fact, in May 2023, the average transaction price of a new car reached an astonishing $47,892.
Before the pandemic, new cars priced under $30,000 constituted a substantial 38% of the market's supply. However, this figure has taken a sharp nosedive, plunging to a mere 8%, as reported by CoPilot. On top of that, over the past five years, the percentage of vehicles sold above $70,000 surged from 3% to 10% and only a mere 0.3% of new vehicles sold cost less than $20,000. This is in stark contrast to the 8% recorded five years ago. As we delve deeper into the reasons behind this astonishing shift, we encounter a convergence of challenges that have reshaped the automotive landscape.
This chart, first posted by CNBC, shows how rapidly the cost of new vehicles has increased.
One of the primary drivers behind the exorbitant rise in car prices is the continuing global chip shortage and other supply chain disruptions. As technology becomes increasingly integrated into modern vehicles, semiconductor chips have become crucial components. Unfortunately, a confluence of events, including the pandemic and geopolitical tensions, has severely impacted chip production and supply.
The shortage of these vital chips has had a cascading effect on the automotive industry. Car manufacturers have been forced to limit production, leading to reduced vehicle availability and higher costs at dealerships. With supply unable to meet demand, car prices have skyrocketed. Unfortunately, the burden is being transferred to consumers.
Another contributing factor to the current car market's affordability crisis is the overall inflation throughout the economy. As the cost of raw materials, labor, and other essential components continues to rise, car manufacturers are facing increased production costs. To offset these expenses, car prices are being pushed upwards, leaving consumers with fewer budget-friendly options.
The inflationary pressures impact not only the production of vehicles but also the prices of replacement parts and maintenance services. While new cars come with a manufacturer’s warranty, they usually expire after only a few years, leaving customers exposed to out-of-pocket repair expenses. This is why more and more customers are opting to purchase a vehicle service contract, also known as an extended warranty, after their manufacturer warranty expires. To learn more about how inflation is impacting the used car market, see our previous blog on this topic.
Consumer preferences have significantly shifted over the years, with a notable move away from sedans and towards SUVs and trucks. The popularity of larger vehicles can be attributed to factors such as a desire for more space, higher driving position, and perceived safety benefits.
However, SUVs and trucks are generally more expensive due to their size and additional features. As the demand for these vehicles surges, manufacturers are capitalizing on the opportunity to increase their profits, driving up prices across the board.
The automotive industry finds itself grappling with a perfect storm of challenges that have led to the least affordable car market in modern history. Chip shortages, inflationary pressures, and shifting consumer preferences have combined to push car prices to unprecedented heights. As a result, finding budget-friendly options has become increasingly difficult for the average consumer.
In these trying times, it's essential for consumers to make informed decisions and carefully consider their needs and budgets before purchasing a new vehicle. Unsurprisingly, the escalating cost of new vehicles has left many consumers seeking alternative options, leading to a surge of interest in the used car market. However, navigating the used car market comes with its own set of challenges, including the uncertainty of a vehicle's history and potential repair costs. This is where our monthly subscription service, ZoomiCare, comes to the rescue.
ZoomiCare offers peace of mind to car owners by providing coverage for surprise repair bills, acting similarly to a manufacturer’s warranty on a new vehicle. With our comprehensive and transparent subscription plans, customers can avoid the financial burden of unexpected car repairs, making car ownership a worry-free experience. Our platform empowers car owners to enjoy their vehicles without the fear of hefty repair costs, allowing them to fully embrace the joys of driving without hesitation.
Sources: CoPilot, Edmunds, CNBC