By Amelia Lipcsei
Semiconductor chip shortages, supply chain problems, and production snarls all have immensely contributed to the staggering inflation in car prices. With economic difficulties stemming from the pandemic, the majority of automakers assumed that the demand for vehicles would dramatically drop; auto manufacturers canceled part orders, especially for components like microchips, and reduced their sales forecasts. However, consumer demand for cars rebounded within months of the economic downturn of 2020. Now, due to lack of supply, the market value for new and used cars has exponentially increased all over the world. In 2019, the average transaction price of a new car was $36,580. In 2022, that rate rose to $48,870. With cars selling faster than ever, automakers no longer need to offer discounts; consumers don’t need incentives to buy vehicles anymore. According to J.D power, 57% of cars sold within 10 days of arrival at dealerships in December of 2021. The remaining cars sold, on average, within 17 days, a drastic reduction compared to the 49 days spent at dealerships a year ago.
Unfortunately, the demand has also spilled over into used cars. Now, buyers have to pay, on average, $29,011 for a used car, up 27.9% from just a year ago. Due to the pandemic and economic instability, many rental car companies sold over one-third of their inventory to cover financial losses. With the current comeback in global traveling, rental car companies now face shortages of rental cars, causing them to pull back from selling the majority of their inventory. Thus, less used cars remaining on the market, coupled with millions of people returning to work who require transportation, has caused a dramatic increase in prices. Due to Americans spending over 600 billion on cars annually, the immense car price escalation has significantly impacted the market. As the cost of used cars continues to skyrocket, headline inflation will remain remarkably impacted all over the world.