Why Purchasing a Car in the US Is More Expensive Than Before?

After Covid shut down manufacturing lines and caused a shortage of essential semiconductors, the cost of owning a car increased dramatically in the US. The Federal Reserve then quickly increased interest rates to counteract excessive inflation, which increased the cost of auto loans.

Because of this, the average sticker price of a new automobile in the US was $48,759 in December, which, according to researcher Cox Automotive, translates to a nearly record $770 monthly payment that must be made over time.

In January 2019, that sticker price has increased by over thirty percent. Pent-up demand left over from the pandemic is keeping sticker prices high even as industry production has restored to full power. Because there is a dearth of availability, used automobile costs are also higher.

Prior to the epidemic, when supply and demand were in balance and loan rates were extremely low, the average monthly payment was roughly $400. Nearly two years into the Covid pandemic, in December 2022, that amount had nearly risen to a record $788 per month.

Although the price of new cars has decreased from its peak of over $50,000, monthly payments have remained high due to increasing interest rates (the Fed began hiking rates in March 2022). According to vehicle researcher Edmunds, used automobiles aren’t much better, with an average monthly bill of $561 in November. From $410 in late 2019, that is a 37% increase.

According to AAA, the average total cost of owning and running a new automobile in 2023 was $12,182, or $1,015 per month, including fuel, maintenance, and insurance. That represents a 14% increase from $10,728 (or $894) in 2022. Sales of new cars increased 13% in December over the same month last year, to 1.4 million vehicles, despite high pricing.

HIGHLIGHTS

  • Due to supply chain interruptions brought on by the pandemic, the cost of new and used cars has increased by 22% and 40%, respectively.
  • The cost of insurance, upkeep, and repairs has also gone up, as have the expenses of components, parking, and tolls.
  • The cost of owning a car has increased overall since 2020 due to rising petrol prices and increased auto loan finance charges.

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