Car Purchasing Prices: Are They Rising Or Falling?

Introduction 

Understanding the landscape of car prices is essential for anyone looking to purchase a vehicle. If prices of new cars are predicted to fall, it could be beneficial to wait to purchase. In turn, if car prices are expected to rise, consumers could be more inclined to buy sooner rather than later. A thorough understanding of the different factors that affect car prices is helpful to make more informed decisions when buying a new car. 

In this article, we’ll outline some recent trends in the prices of new vehicles and go over the many factors that influence purchasing prices. Consumers need to note that no one can perfectly anticipate the future of car prices. With so many different factors coming together – combined with potential unexpected elements – predictions in terms of car prices are always subject to change. 

Recent Trends In Car Prices

According to Kelley Blue Book, as of July last year, the average price for a new vehicle in the United States increased just 0.4% compared to a year before. After years of quickly rising prices, car prices in the past year have held relatively steady. Inventory is starting to improve, positively impacting recent car prices. [1]

Despite these relative improvements, new vehicle prices will remain high in the United States based on inflation, ongoing supply chain issues, and other factors. 

What Factors Influence Car Prices?

When reading about trends in car prices, it’s essential to be aware of the factors that influence them. Beyond knowing whether car prices might increase or decrease, understanding the “why” behind them can help you make a more informed decision. 

As with all industries, a range of factors affect car purchasing prices – including supply and demand, inflation, industry trends, and much more; these factors are often interrelated, impacting one another. Together, they influence the overall price trend of vehicles in the United States. 

Global Supply Chain Disruptions

Global supply chain disruptions can significantly impact the automotive industry. When parts and materials that automobile manufacturers need for vehicles are in short supply, it can slow down the production and shipment of vehicles. This, in turn, can profoundly impact car prices – affecting inventory, supply, and demand.

Following the COVID-19 pandemic, supply chains worldwide were substantially affected. This caused issues across countless industries, creating manufacturing disruptions, shipping issues, and product shortages. While the supply chain has begun to steady itself as of 2024, it still faces potential barriers from global current events. Current new car prices are still affected by these supply chain disruptions. [2] 

Supply And Demand

Supply and demand influence products across all industries; the automotive industry is no exception. For example, when a manufacturer has produced many of a specific type of vehicle, and there isn’t demand to match it, it can help cause prices to lower to encourage consumers to purchase. In turn, when there is little supply and high demand, it can pressure prices to increase as the perceived value of the vehicle has increased.

While car manufacturers have some degree of control over how many cars they produce, many global factors can impact production and supply. For example, a global semiconductor shortage has caused manufacturers to cut production, and a microchip shortage worldwide has also affected manufacturing. [3] These are both critical products for vehicles and can stall manufacturing. 

Supply and demand both impact car purchasing prices in many ways. For example, the shortage of new cars can lead to an increase in the price of used automobiles, as consumers can be priced out of purchasing a new vehicle. 

Inflation 

Inflation is another ongoing factor impacting car prices – the general price increase over time. Inflation rates can significantly affect car prices. For example, inflation makes parts and materials for automobile manufacturers more expensive, making car prices higher. [4] 

Apart from the actual purchase price of the car, inflation also affects car owners by affecting gas prices, the cost of maintenance, insurance, and more.

Technological Advancements

Cars that feature new technology – such as electric vehicles – tend to be, on average, more expensive than conventional vehicles. However, according to Kelley Blue Book, the average price of a new electric car has decreased as of July 2023. 

As manufacturers produce more electric vehicles, competition is a factor that could further lower prices. Additionally, electric vehicles are expected to become more affordable for manufacturers as technology advances, lowering costs. 

Besides electric vehicles, new technological enhancements can drive up prices. The price of a new car is generally different from the exact sticker price, and adding new features to a car can raise the purchase price. Customizing a vehicle with tech-powered features can make the final price much higher. 

Government Policies And Incentives

The automotive industry is subject to government regulations, which can impact car prices. The government sets industry-wide standards for how cars are designed and built. For example, consider safety features – automakers must include certain features like seatbelts and airbags. These features require additional components that cost money, which can accordingly increase the price of a new vehicle. 

Another example is emissions regulations – the automotive industry must meet specific federal emissions standards. As a result, car companies have to invest time and money into developing and producing technology meant to reduce emissions, which can also drive up the cost of vehicles. 

While government policy tends to impact car prices by increasing them, it’s also important to know that there are also government-run initiatives that can have a more beneficial impact on the cost of purchasing a vehicle. For example, the IRS has tax credits for electric and fuel-cell vehicles. When IRS criteria are met, purchasers can claim a relevant tax credit – an incentive intended to promote the use of clean vehicles in the United States. [5] 

Consumer Preferences

Another strong impact on car prices is consumer preference. What customers seek in their next vehicle changes over time based on lifestyle shifts and trends, affecting manufacturing, demand, and more.

Recent trends have shown electric vehicles and SUVs becoming more popular among new car buyers. According to a 2023 commentary from IEA, SUVs comprised 46% of all car sales globally, and electric SUVs accounted for 55% of all electric vehicles sold in 2022. [6] This shift has contributed to the steady high prices of new SUVs – just one example of how consumer preferences can shape the industry and costs. [7]   

Conclusion

Many new car prices are expected to remain high, but it’s essential to understand that predictions are just predictions. Whether car prices increase or decrease isn’t as simple as looking at supply, demand, or inflation. Instead, it requires examining the cost of vehicles based on many complex factors, each one interrelated. As consumer preferences shift, technology advances, and more, car prices are subject to change accordingly. 

If you’re in the market for a new vehicle, understanding each factor that goes into a car’s cost can help you better grasp the car pricing landscape. For consumers, it’s also critical to look beyond the price tag on a vehicle and consider all of the associated expenses – gas, maintenance, and more – for a fuller picture to compare vehicle prices. 

Rather than simply looking for a quick answer, it’s best practice for consumers looking to buy a new vehicle to understand car pricing thoroughly. Staying informed of market dynamics and regular shifts can help consumers make more informed decisions about purchasing a car. 

Sources

[1] New-Vehicle Transaction Prices Up Less Than 1% Year Over Year | Cox Automotive Inc. 

[2] Covid Broke Supply Chains… Can They Withstand Another Shock? | CNN 

[3] The Semiconductor Shortage Explained | Automoblog

[4] The Impact Of Inflation On The Cost Of Owning A Car | Bankrate

[5] Clean Vehicle Tax Credits | Internal Revenue Service

[6] Suvs’ Global Co2 Emissions Are Nearing 1 Billion Tonnes | IEA 

[7] Electric Cars Are Becoming Less Expensive – Consumer Reports
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