Why car prices keep rising even amid the coronavirus pandemic
Average transaction prices for new car sales keep climbing despite the economic downturn, so what gives?
It's a sellers market.
Even amid the coronavirus pandemic and the ensuing economic turmoil, car prices continue to rise. That's probably counter to how the average car shopper imagines the situation would be shaking out, so what gives?
Along with the latest data from TrueCar, we spoke with TrueCar's director of OEM Analytics, Nick Woolard, to understand what's going on in the auto industry to create this odd-on-the-surface effect. The good news for automakers is retail sales continue to climb from their low point this April when the pandemic caused numerous shutdowns in cities and states across the US. In September, retail sales rose 8% compared with September 2019. October likely won't be treated to similar gains, but still, TrueCar estimates retail sales will creep upward by 0.3%.
The bad news for car buyers is despite the minor projected gains, average transaction prices will climb another 3.1% this month -- 0.7% higher than in September. That means car buyers are going home with more expensive cars. Yes, even amid the coronavirus pandemic.
So we asked Woolard, is this simply because car shoppers accept the higher prices? Does the pandemic mean only better-off shoppers are buying cars?
Woolard acknowledged that ATPs continue to climb for new vehicles amid the pandemic, but one of the main reasons was a pretty well-known factor even before COVID-19 became a common term in our vocabulary. A "shifting consumer preference toward larger trucks and SUVs " plays a role, since they're often more expensive than, say, a compact car. However, the coronavirus did help push ATPs higher as nearly every automaker shut its production facilities down.
Woolard said these shutdowns created a supply crunch, so when buyers went looking for new cars, there weren't many of them available. Dealers were able to charge more, or perhaps sell shoppers on a more expensive model just so they could go home with the car they wanted. "With demand well above anticipated levels and lower supply, it's a seller's market for new cars and trucks," he said.
That's starting to change as automakers finally start to catch up on production, though, so we should start to see some easing. TrueCar projects new car inventory will stay on the low side overall, however.
Part of the surge in car prices amid an economic downturn is definitely due to the fact the pandemic hasn't struck everyone equally, however. Woolard noted that Lamborghini set a new all-time sales record last month. Those with the means to buy a supercar aren't deterred by the pandemic and the crunch lands on other Americans.
On the flip side, the pandemic may have helped those with average incomes to step into more expensive cars. Woolard named lower fuel prices and very attractive finance offers as a way to lower the cost of ownership for average buyers.
