Car prices will likely continue to rise

For more than two years now, buying a new car has cost a small fortune.

And receiving it has become almost a luxury because it is difficult to know when it will arrive. Delivery times given by car manufacturers fluctuate, changing depending on the availability of parts.

Blame it on supply chain disruptions that have been exacerbated by the covid-19 pandemic and microchip shortages. These two problems combined have forced automakers to temporarily suspend production of some, often very popular, models. They also reduced the stock of new vehicles.

At the start of the year, the easing of the pandemic in several regions of the world gave hope that things would finally return to normal, but that was without counting on the invasion of Ukraine by Russia. This unprovoked war caused the prices of the raw materials needed to assemble certain cars, such as electric vehicles, to skyrocket.

The prices are soaring

And unsurprisingly, new vehicle prices have risen sharply as automakers pass on those extra costs to consumers who are eating away at their profits.

The average price of a new vehicle reached $46,259 in August, the highest on record, according to JD Power/LMC.

A recent iSeeCars analysis out of 1.9 million new car ads, the average price of a new vehicle is 10% higher than the MSRP, the manufacturer’s suggested retail price. Additionally, some new vehicles are priced well above the 10% average, according to the study.

The top 15 cars with the largest markups range from 1.8 to 2.4 times above the 10% average for all vehicles. The price of the Jeep Wrangler is thus $8,433 higher than the suggested price by Stellantis (STLA) ; The Porsche Macan (VLKAF) costs $14,221 more than the price offered by Porsche; The Ford Bronco is $8,697 more than Ford’s (F) suggested price and the Chevrolet Corvette is $14,697 more than that of General Motors (GM) Suggested price.

“Dealers reacted to market conditions by pricing cars above MSRP, earning a higher profit on specific models to help offset lower sales volumes due to restricted new car production,” said Karl Brauer, executive analyst at iSeeCars. “In today’s market, consumers are willing to pay well above the list price for new cars because inventory is so scarce and because they know the price of new cars is not expected to improve. before 2023 at the earliest.

Missing parts

Unfortunately, this trend will continue. Ford has indeed recalled that the supply chain remains a huge headache and that some suppliers continue to raise prices.

“Supply shortages will result in a higher than expected number of ‘vehicles on wheels’ being built but remaining in Ford’s inventory awaiting needed parts, late in the third quarter,” Ford said in a filing. regulatory.

That means the Dearborn, Michigan-based automaker’s inventory will remain limited. Ford, for example, ends up with between 40,000 and 45,000 unfinished vehicles because some parts are missing. These cars had been promised to dealers by the end of the month at the latest. That won’t be the case, according to Ford, which hopes to be able to finish assembling them before the end of the year.

Ford is not an isolated case. In July, GM had already warned that it had 95,000 vehicles left unfinished due to lack of components.

“Supply chain challenges may not be as prominent in the news as they were last spring, but it’s still the biggest issue facing manufacturers across all industries,” he said. said James Sampson, partner at Black Horse Consulting & Advisory in a Publish on LinkedIn.

All of this means that given the imbalance that already exists between demand and supply, the advantage will further widen in favor of demand. Basically, car prices will continue to rise because there won’t be enough of them. Delivery times will continue to increase by several weeks or even months.

We should also not forget that financing the purchase of cars is again more expensive because the Federal Reserve is in a cycle of raising its interest rates. Thus, auto loan rates are much higher.

The average monthly rate on a new car hit 6.14% in August, according to Edmunds.comthe highest since January.

The bad news delivered by Ford has thus helped to cement the idea that almost all automakers remain constrained by their supply chain. The auto industry thus had a bad week on Wall Street.

Admittedly, the sector’s slide is also fueled by fears surrounding the health of the economy undermined by inflation at its highest in 40 years, but the bad news delivered by Ford has completely shaken investors.

Ford shares have lost 16.4% over the past five trading sessions. GM fell 11.2% and Rivian (SHORE) fell 14.5%. Stellantis, formerly Fiat Chrysler, 10% drop, Lucid (LCID) fell 13.3%, while Tesla (TSLA) market leader in electric vehicles, fell 9.2%.

Comments are closed.