With Automotive Costs Climbing Larger and Larger, Struggling People Marvel When the Worth Hikes Will Finish

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The cost of new and used cars is already sky high due to COVID shortages and is expected to rise further as the war in Ukraine creates new material constraints and strains the supply chain.

For more than a year, the global auto industry has grappled with COVID-related manufacturing and supply issues, ranging from a shortage of microchips to delivery delays. War now threatens to increase the problem and prices. While your current ride is probably worth more, you might be in for a rude awakening if you need a new one.

“We’re very sensitive because we don’t have inventory anywhere in the supply chain,” said Mark Wakefield, automotive analyst at AlixPartners. “Due to the comeback of COVID and everything being so tight, every bump in the road becomes a real production disruption, either a production disruption or a totally unplanned increase in costs.”

For example, electrical cables made in Ukraine, which are vital to the auto industry, are now much harder to come by. Important Russian exports could also be prevented due to sanctions.

“You only have to leave out one part to not be able to build a car,” Wakefield said.

That has caused production halts and slowdowns at factories in Europe, and analysts say it could be heading for next year. They estimate that global car production will fall by two to three million cars in 2022 and 2023. For consumers, this means higher prices not only for new cars but also for used cars.

“Before COVID, the average used car price was about $17,000,” said Dan Banister, president of Banister Automotive in Maryland and Virginia. “After COVID — hopefully we’re there — it’s about $30,000.”

Sticker shock spreads among used car buyers hoping for a bargain. Three-year-old vehicles made the biggest jump at almost 40%. Edmunds researchers point out that the Dodge Caravan and Porsche Cayenne lead the pack. Families are paying nearly double last year’s list price.

Banister says while now is a good time to sell your car, you’re paying more to have it replaced. On the plus side, you’ll likely get a higher trade-in value to make up the difference in price.

“Used car prices have gone up and so have new ones,” Banister said. “So you don’t have the rebates, incentives that manufacturers used to put in the window because they don’t have to. Some of the cars may have a $2,000 or $5,000 discount, and you won’t see that anymore. If you come in what’s on the window – you’ll probably pay for that.”

More than 80% of car buyers paid more than the new vehicle sticker price in January (Edmunds). Compare that to 3% last year.

“But if {they did} prices go up and interest rates go up, then we’re talking about a different story,” Banister said.

It’s already happening. The Federal Reserve has hiked interest rates for the first time since 2018, and more rate hikes are on the cards in the coming months to cool inflation. All of this leaves the future of car prices somewhat uncertain.

“In my opinion, I don’t think it’s going to be an overnight decline,” Banister said. “I think eventually used car prices will come down and used car prices will even out in interest rates.”

Other considerations include record-breaking gas prices and insurance depending on where you live. More than a dozen states have approved rate hikes since November 2021, according to S&P Global Market Intelligence.

“Yes, the prices are just ridiculous, but what should we do?” asked a California driver.