The rollercoaster ride of car prices in the post-pandemic world is something that everyone's talking about. Two years after the coronavirus lockdowns, America is facing its worst inflation episode since the 1980s, and it's been a challenging journey for our industry to get back to normal.
Demand for vehicles surged in 2021 and early 2022, further fueled by global shipping issues, a semiconductor shortage, and factory closures. This led to a sharp rise in car prices, and while economists expected things to cool down, prices of new cars have instead gone further north. Notably, the used car market, which helped moderate inflation late last year, bounced back due to an uptick in demand amidst short supply.
Our Chief of Operations, Scott Kunes, recently had an enlightening chat with The New York Times, discussing how the auto industry landscape has evolved significantly. For example, manufacturers have been focusing on their highest-priced models like trucks and SUVs, allowing them to balance lower volumes with higher profits on each sale. Interestingly, this shift towards a low-volume, high-priced model has proven profitable, as noted by Tom Barkin, president of the Federal Reserve Bank of Richmond.
However, this situation hasn't been easy for those urgently needing a car. Prices for vehicles, especially new ones, have skyrocketed. Consumers like Hailey Cote of Pittsburgh found that used cars were only slightly less expensive than new ones, forcing her to stretch her budget to keep her life on track. Despite these challenging circumstances, people continue to spend, demonstrating the resilience of American consumers.
On the bright side, car prices started to settle down in the second half of 2022, and manufacturers are exercising "discipline" in their production targets. The industry is also seeing a slight dip in wholesale car prices and an increase in incentives, a promising sign of change on the horizon. However, our dealers should brace for another challenging summer, according to industry analyst Adam Jonas, due to the extended recovery time for the chip shortage.
Stay tuned to our blog for more updates and insights into the world of automobiles. Here at Kunes Auto Group, we're committed to keeping you informed and helping you navigate this bumpy road!
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If you found this blog post helpful, check out our article about Navigating the Car Buying Process with more insights from our COO Scott Kunes!