Cars make the world go round quite literally for almost everyone on this planet. For most car enthusiasts and first-time buyers, the year-end inventory sales are where the best prices are typically found, whether it’s a brand-new Honda Civic for sale or a used Ford F-150 up for grabs. However, not to anyone’s surprise, discounts, deals, and price slashes were nowhere to be found in the waking madness of the auto industry, where car prices have seemingly left the realm of reason.
As a result, buyers have no other choice but to purchase with these extremely inflated prices in mind because price corrections and any semblance of recovery for the automotive sector might take much longer than expected. Today, people are left wondering if there’s even any benefit to buying a car in 2022 or if the events leading up to such a cascading problem are improving in the slightest.
What’s Pushing Car Prices Higher?
To put things into context, it’s best we strike at the core of the issue and understand why car prices are pushing higher and higher in the first place. And, like most heavily affected business sectors, the automotive industry was and still is at the mercy of the Covid-19 global pandemic, even if global economic metrics are showing signs of recovery. Specifically, the biggest adversaries to blame are the chip shortage constraints on manufacturing and the increasing demand matched with decreasing inventory.
- Chip Shortage Constraints on Manufacturing: To manufacture a vehicle, a factory would need large supplies of steel, aluminum, fiberglass, and many more, but one special ingredient that’s been impossible to source are chips and semiconductors. As a result, car manufacturers are operating at an unoptimized level, and with so many orders backlogged, the logistics are in a complete mess. And until these supply chain issues see any improvement or resolution, car prices will continue to rise and match the shortage.
- Increasing Demand With Decreasing Inventory: Besides the chip shortage, we must also account for demand, and since people will still need and look for cars regardless of the supply situation, the combination of increasing demand and decreasing inventory pushes the price even higher. Since manufacturing can’t keep up with the sheer volume of vehicle sales, it’s only expected for prices to go up in proportion, but none were ready for just how ludicrous the inflation would turn out.
How Are Used Car Prices Affected by All This?
On paper, with new cars being extra expensive, some people would see this as a chance to go for used car alternatives, and while the prices may inch up quite a bit, it shouldn’t be that bad, right? Well, since rental companies can’t trade in their older models for newer ones and local dealerships can turn a high-profit margin on used vehicles, it’s been a slippery slope to navigate. As a result, used car prices also increased significantly due to a tricky inventory situation and buyers having nowhere else to go.
- A Tricky Inventory Situation: Businesses exist to turn a profit, and if something threatens the sustainability of operations, it’s only natural for companies to implement defensive strategies into their framework. That being the case, since car rental companies can’t get their hands on newer models, they’re holding onto their used-car supplies, which should’ve already entered the used car market. But, in the case of used car dealerships, they’re also hoarding used cars to exploit the increasing demand.
- Simply No Other Purchase Options: As mentioned above, the inventory situation is bad enough as it is, and you’d expect buyers to catch on and wait for circumstances to be better and more affordable. However, it’s been almost two years now, with only a negligible percentage of recovery achieved in 2021, and with no other purchase options available, people just settle for the inflated prices. And as more people fall into the same cycle, it only further supports the current range of car prices.
Will Things Get Better Anytime Soon?
Of course, the market is long overdue for a price correction, and these price tags will come back down to Earth given enough time to recover. Sadly, the caveat there is “enough time,” and there are zero guarantees if the period necessary for resolving supply chain issues and stabilizing manufacturing operations will occur in the next year or in the next five years to come.
So, in the meantime, you might want to think twice about what you’re getting and weigh your options against each other to get the most bang out of your buck. And if Tesla’s 2021 Q4 sales are anything to go by, we’d suggest adding electric vehicles into the mix of choices you consider this 2022.
