The soaring cost of new cars is pricing out most buyers as car manufacturers scale back on inventory — while raking in record profits.
Since 2019, the average price of a new car in the US has risen 30% to $50,000, according to statistics cited by Bloomberg News.
In order to lease a new car, it would cost $777 a month — almost double what it was in 2019, according to Kelley Blue Book’s parent company Cox Automotive.
According to the Bureau of Labor Statistics, the average monthly after-taxes salary in the US is $4,318. Anyone wishing to buy a new car would have to devote around 18% of their monthly take-home pay.
For those looking to buy a used car, the options aren’t that much better. The average price of a second-hand vehicle is around $27,000, according to data from Cox.
Leasing a used model would set the average American back $544 a month.
The auto industry has yet to stock up on inventory and offer discounts as was common before the coronavirus pandemic, when a global chip shortage adversely impacted manufacturing.
Instead, car companies have kept supply low and sold their products at higher price points.
The result has been a boon to US automakers.
General Motors recently reported an operating profit of $14.5 billion last year — a record high.
In 2022, Ford said it made an adjusted profit of $10.4 billion, which was short of its forecasted sum of $11.5 billion. The company generated $44 billion in revenue — up from $37.7 billion in 2021.
Before 2019, carmakers usually carried between 60 and 100 days of inventory. Now that timespan has been slashed in half, according to data cited by Bloomberg News.
While the semiconductor shortage has shown signs of easing in recent months, Detroit is focusing on keeping costs low.
“We’ll never go back to the inventory levels that we were at in the past,” GM CEO Mary Barra told investors last year.
GM’s rival, Ford, is operating from the same playbook. Ford’s chief executive, Jim Farley, said his firm will also eschew the practice of building up large inventory and then offering customers discounts and incentives to clear it out.
There is a glimmer of good news for consumers in the gloomy numbers: Vehicle supplies on dealer lots are growing, albeit slowly, and automakers expect at least a small easing in prices this year as inventories grow.
Automakers reported Wednesday that they sold 13.9 million cars, trucks, SUVs and vans last year as the parts shortage limited factory output amid high demand for new vehicles. It was the lowest sales number since 2011 when the economy was recovering from the Great Recession.
But sales were up slightly in the fourth quarter and inventories grew as parts supplies improved enough to increase production.
Analysts are now expecting sales to grow by roughly 1 million to around 14.8 million this year as demand remains strong. But they’ll still be far short of the normal 17 million per year before the pandemic.
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