Not too many years ago, spending $30,000 on a new vehicle defined entering the luxury car segment. But the numbers now tell a far different story.
Earlier this year, the automotive industry experienced a double statistical phenomenon: For the first time, the average price of a new vehicle in the United States surpassed $40,000—and even more stunning, 16 mainstream vehicles, including eight made by BMW, have manufacturer suggested retail prices of more than $100,000. Six cars were on the $100,000 list a decade ago.
The list of six-figure 2020 model cars excludes supercars such as Ferrari, Lamborghini and Rolls-Royce, but it includes models from Acura, Audi, Mercedes-Benz, Nissan, Polestar and Porsche.
And just like in most industries, the COVID-19 pandemic only complicated the automotive matrix. Thousands of new pickup trucks, minus semiconductors not available because of global shutdowns, are crowded into acres of parking lots around the country. The result: With the unavailability of new lightweight trucks, used truck prices have skyrocketed. According to iseecars.com, the online automotive search engine and research website based in Woburn, Massachusetts, used truck prices increased an average of more than 25% within a few months in 2021.
New passenger car sales have experienced similar delays, depending on brands and varying circumstances. “Business has been very good; the only thing through the whole COVID-19 that’s been holding us back is the chip shortage for new cars,” says Peter Stratton, director of internet sales at Sutherlin Nissan in Fort Myers. “We are slowly but surely dwindling our new inventory, which means we are going have to ramp up our pre-owned inventory for consumers.”
Porsche, like other luxury performance manufacturers, also had delays of microchips for power steering, but it’s been resolved. High new car prices, a steady 2% per year, reflect the cost increases in materials, cost of goods and more technology, according to Fabio Oliveira of Porsche Naples.
“The demand is extremely high; supply is just not there,” Oliveira says. “Porsche has always been like that. But what we are experiencing is a shortage of certain things. We just got a notice that all cars ordered will only be delivered with one key. There are shortages of materials to build other keys.”
Increased new car prices also reflect buyers’ expanding conspicuous consumption habits. More means better, particularly for consumers who equate their success to the price and prestige of the vehicles in their driveways.
Cheaper interest rates, longer-term loans and fewer vehicles available in base trim levels also entice buyers not to compromise on a dream car. Further, buyers who might be willing to forgo power windows, air conditioning or radio no longer have the option not to have what once were options on some vehicles.
Nationally, the average new-car buyer took out a 70.2-month loan with an interest rate of 4.6% in the third quarter of 2020, according to Edmunds, the online automotive company headquartered in Santa Monica, California. A year earlier, the averages were 69.6 months and a 5.7% interest rate. Longer finance terms appease some buyers because of smaller monthly payments.
“People just want more and more, and you think that they’re not going to pay for it, but they find a way,” says Edmunds analyst Jessica Caldwell.
Pandemic ramifications also have greatly affected the rental car industry. Many leading companies ceased operations during the health crisis and were forced to sell a majority of their fleets to remain in business.
Less availability means many rental car businesses in Southwest Florida are booked several months in advance. Locations with vehicles available have substantially increased rates. In some cases, car rental seekers with no other options have rented U-Haul vehicles. For the moment, higher costs across the board are the road on which the automotive industry finds itself.