The Consumer Price Index (CPI), which measures the cost of goods and services, has been rising steadily in recent months. In January 2023, the CPI was up 7.5% from a year ago, the highest level in 40 years. One of the areas where inflation is having a particularly big impact is car prices with the average price of a new car in the United States now over $47,000, up more than 12% from a year ago.
There are a number of factors contributing to the rise in car prices. One factor is the chip shortage, which has been causing production delays for automakers. Another factor is the increase in demand for cars, as people are looking for ways to avoid public transportation during the COVID-19 pandemic.
- The chip shortage: The global chip shortage has been a major challenge for automakers, as it has caused production delays and constrained the supply of new vehicles. This has led to higher prices for both new and used cars. While covid-19 shut downs are no longer happening, it is still too early to say when the chip shortage will be completely solved. However, the measures that are being taken are starting to show some results, and it is likely that the shortage will start to ease in the coming months.
- Chipmakers are increasing production: Chipmakers are investing in new factories and production lines in order to increase production. In September of 2022, the tech giant Intel gathered officials in Columbus, Ohio, where it pledged to invest at least $20 billion in two new factories to make semiconductors. A month later, Micron Technology celebrated a new manufacturing site near Syracuse, N.Y., where the chip company expected to spend $20 billion into its semiconductor infrastructure by the end of the decade. And in December, Taiwan Semiconductor Manufacturing Company hosted an event in Phoenix, where it plans to triple its investment to $40 billion and build a second new factory to create advanced chips. Samsung, the world’s No.2 contract chip manufacturer, announced its $25 billion dollar Taylor, Texas, plant in back 2021.
- Companies are using different chips: Some companies are starting to use different chips in their products, which has helped to alleviate the shortage.
- Governments are providing subsidies: Governments are providing subsidies to chipmakers in order to encourage them to increase production. The Biden Administration has passed the $53 billion Chips and Science Act which includes $39 billion in incentives for manufacturing facilities. The bill is suppose to help revive domestic chip manufacturing to strengthen U.S. technological leadership and national security.
- The increase in demand: The demand for cars has also been rising in recent months, as people are looking for ways to avoid public transportation during the COVID-19 pandemic. This has also contributed to higher prices.
- Inflation: Inflation is also playing a role in the rise in car prices. As the cost of goods and services rises, so too does the cost of producing and selling cars. Prices had finally begun to soften after a historic used-car price spike throughout much of 2021, but then the prices rose again 4.4 percent in April, driving inflation across the board.
Here are some additional factors that have contributed to the rise in car prices:
- The rising cost of materials: The cost of materials used in car production, such as steel and aluminum, has been rising in recent months. This has led to higher production costs for automakers, which have been passed on to consumers in the form of higher prices.
- The increase in shipping costs: The cost of shipping cars has also been rising in recent months. This is due to a number of factors, including the rising cost of fuel and the congestion at ports.
- The shift to electric vehicles: The shift to electric vehicles is also contributing to the rise in car prices. Electric vehicles are more expensive to produce than gasoline-powered vehicles, and this is being passed on to consumers in the form of higher prices.
The rise in car prices is a challenge for many people, as it makes it more difficult to afford a new or used vehicle. One of the most common pieces of advice that I have heard lately is to simply wait for prices to fall once again. However, if you are situated in a city that lacks robust public transportation and you heavily depend on a car, then waiting may not be the best option.
So if you need a car asap, here are some tips for saving money on your next car purchase:
- Shop around: Get quotes from multiple dealerships before making a purchase. This will help you get the best possible price.
- Consider buying a used car: Used cars are often less expensive than new cars. You can find great deals on used cars, especially if you’re willing to do some research.
- Finance your car: Financing your car can help you spread out the payments and make them more affordable. There are many different financing options available, such as getting pre-approvals from banks or credit unions.
- Look for discounts and rebates: Many dealerships offer discounts and rebates on cars that often correlates with how long a car has been sitting on the lot. Be sure to ask about these when you’re shopping.
- Negotiate the price: Don’t be afraid to negotiate the price of the car. The sticker price is just a starting point. You may be able to get a better deal if you’re willing to haggle.
- Consider buying from a private seller: You can often find great deals on cars from private sellers. However, be sure to do your research before making a purchase.
- Do your research: Before you start shopping, take some time to research the cars you’re interested in. This will help you know what to expect and what a fair price is.
- Be patient: It may take some time to find the perfect car at the right price. Don’t be afraid to walk away from a deal if you’re not happy with it. The best times to get a deal is at the end of the month, end of the year, and around major holidays (Christmas, Memorial Day, Labor Day, 4th of July, ect).
Here are some additional tips for saving money on car purchases:
- Consider your needs: Before you start shopping, take some time to think about your needs. What kind of car do you need? How much are you willing to spend?
- Set a budget: Once you know your needs, set a budget for your car purchase. This will help you stay on track and avoid overspending.
- Consider your lifestyle: Your lifestyle can also affect your car purchase. If you have a family, you’ll need a car that’s big enough to fit everyone and their stuff. If you live in a city, you may want to consider a smaller car that’s easier to park.
- Don’t be afraid to ask for help: If you’re not sure what to do, don’t be afraid to ask for help from a friend, family member, or financial advisor. They can help you make the best decision for your needs. Here are a view resources I use for advice on the car market:
- Car Edge (youtube channel: RayandZach)
- Youtube channel: CarQuestionsAnswered