New Car Prices Are Up $7,200 Over Last Year: Here's Why
Four factors are driving up prices of new cars, trucks, and SUVs in 2022.
If you’ve shopped for a new car lately, you may have encountered sticker shock at the dealership.
The average new-car price in late 2019, prior to the coronavirus pandemic, was about $35,000. By the end of 2020, that price hit $38,000. And by late 2021, it ballooned to a record-breaking $45,000, according to J.D. Power.
That works out to a jump of around 18 percent in just a year, which J.D. Power’s Tyson Jominy, vice president of data and analytics, attributes to a quartet of factors: more dealer profits, a trend toward costlier trim levels, limited rebates, and continued interest in pricier trucks and SUVs.
Those factors add up to an increase of about $7,200 per vehicle in 2022. Here’s the skinny on how car prices have fattened up over the last year.
Background: Supply Constraints and Unprecedented Demand
Dealerships were relatively flush with new vehicles at the end of 2020. A year later, lots are empty, and more than half of cars arriving fresh from the factory will be sold within just ten days.
The early stages of the COVID-19 pandemic put an immediate crimp on vehicle buying, but various economic factors contributed to a booming economy for shoppers with larger budgets. Those buyers snapped up everything from computers and household goods to motor vehicles, contributing to a massive—and ongoing—shortage of the computer chips needed for operation.
As a result, automakers struggle with sourcing parts necessary to build cars. Though the situation won’t clear up overnight, Jominy notes that there are positive signs.
“By the second half of 2022, we expect that the supply chain will be sorted and automakers will begin refilling inventories,” Jominy says. For now, though, the market remains tricky.
$3,000: More Dealer Profits
The biggest factor in the $7,200 price increase that customers are paying? Car dealers are pocketing around $3,000 more on average per car than they were a year ago, Jominy notes.
As recently as last year, negotiating with a dealer was commonplace. Today, unprecedented demand for new cars means shoppers may face asking prices above the manufacturer’s suggested retail price (MSRP), something previously only found on the highest-demand models produced in limited numbers.
“The average transaction price for a new car is 99.8 percent of MSRP,” Jominy points out. “And about 87 percent of consumers are paying above MSRP for their new cars.”
That translates into more profit for dealerships, which are selling fewer cars due to supply shortages.
$2,100: A Shift Toward Costlier Vehicles
Jominy noted that consumers spent around $2,100 more on motor vehicles in December 2021, compared with December 2020, simply by buying higher trim levels than they might have in the past.
Automakers have changed their lineups to focus almost exclusively on the models that sell the fastest. They know that consumers generally want more features, not fewer, which raises prices.
“A lot of automakers are making the decision to reduce the number of buildable combinations as a result of the chip shortage,” Jominy says.
For instance, Mazda made all-wheel drive standard on its entire crossover SUV lineup for 2022, bumping up the base price of its CX-9 by $1,120 in the process. Not only does that mean fewer variants for Mazda to build, it means a prospective buyer has fewer decisions to make.
When it comes to vehicle features, shoppers tend to be more willing to buy a car with extra features that they may not consider critical—from all-wheel drive to premium audio to a moonroof—than to skip out on certain items they feel are necessary.
$1,700: Reduced Incentive Spending
The current demand leaves automakers with few reasons to offer the rebates and special financing rates that were once a common way to incentivize shoppers to pick one model over another. About $1,700 in typical rebates have vanished over the last year.
That said, some automakers are offering spiffs to encourage shoppers to place orders for specific vehicles or configurations.
“Be sure to get the agreed price in writing so that there are no surprises when the vehicle arrives,” Jominy advises.
$400: The Continuing SUV Boom and Year-over-Year Increases for 2022 Models
Shoppers continue to favor costly SUVs over sedans that might offer similar features and power for less money. Jominy notes that while SUVs aren’t gaining ground the way they once were, their higher prices compared with sedans account for around $400 of that $7,200 year-over-year price hike.
Finally, automakers routinely increase prices on a year-over-year basis to cover newly standard features as well as higher costs involved in shipping vehicles from factories to dealers. For example, Chrysler bumped the base price of its popular Pacifica minivan from $37,740 to $38,690, and the automaker now charges between $95 and $395 for paint colors that cost nothing extra last year.