The current automobile market finds itself caught in a whirlwind of factors contributing to escalating car prices. From the global chip shortage and the COVID-19 pandemic to the conflict in Ukraine, several elements are making it nearly impossible to secure a vehicle for less than $30,000.
In the United States, the average cost of a new vehicle has crossed the $47,000 threshold, marking an unprecedented surge in prices. The used car market isn’t far behind, with the average cost standing at over $25,000.
For more information on new and used averages, see,
Kelley Blue Book: https://www.kbb.com/
The National Automobile Dealers Association (NADA): https://www.nadaguides.com/
The COVID-19 Pandemic and the Disrupted Automotive Supply Chain
One of the significant contributors to this inflationary trend is the COVID-19 pandemic. The virus disrupted the automotive supply chain, causing factories to close doors and semiconductor supply to dwindle, resulting in a scarcity of new cars and, consequently, a spike in prices.
The global chip shortage, with an unclear resolution timeline, means that automobile prices will likely remain steep for an indefinite period. Furthermore, the war in Ukraine, disrupting the supply of steel – a commodity Russia is a major producer of – has pushed steel prices up, translating into more expensive car manufacturing costs.
Beyond external factors, specific industry trends are also inflating vehicle prices. For instance, auto manufacturers are incorporating more features and advanced technology in their vehicles, raising production costs and ultimately consumer prices.
Price Comparisons, Deals, and Private Sellers: Evaluating Alternatives
For consumers, this scenario implies paying significantly more for new or used vehicles compared to just a few years back. While price comparisons across dealerships, deals on used vehicles, and private sellers are some options, they’re unlikely to negate the overall price rise. Leasing is another alternative, particularly for short-term users, but demands a thorough understanding of the lease terms.
The situation for investors in the car market, however, is mixed. Higher vehicle prices bode well for automakers, as reflected in their appreciating stock values over recent months. Yet, for investors buying car stocks for their portfolios, the scenario is less than ideal, given the diminished returns on these higher-priced investments.
Further, inflated car prices can complicate finding vehicles meeting specific investment criteria, such as low depreciation or low mileage. Despite the challenges, some sectors offer investment opportunities, such as automotive stocks, component suppliers riding the wave of increased car prices, and companies engaged in advancing automotive technology.
The Car Market in the UK
While investment trends are often focused on the US market, it is important to consider whether they are similar in other markets. In the UK for example, we are seeing similar things, In the UK, car prices are hitting new heights, with the average cost of a new car now exceeding £25,000 and used cars averaging above £18,000.
In sum, the present state of the car market is volatile, and it’s expected to remain so for an undefined period. It’s crucial for consumers and investors alike to stay informed and prepared for a costlier automotive landscape.
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