Why Are New Cars So Expensive?

John Goreham's picture

You may be experiencing sticker shock if you've recently gone car shopping or read reports on the cost of new automobiles. Or disgust Or anger When the economic climate shifts from one of relative stability to instability, these are all natural reactions. It appears that the instability always increases costs, rather than reducing them.

There isn't a single factor driving the current and future price increases in automobiles. There is no single responsible party. There is no scapegoat No single political faction bears responsibility. It's not just the Eastern European war In addition to the COVID The lack of available semiconductors is not the only factor. Let's investigate current trends in the auto industry to figure out why brand-new cars cost so much more than they used to.

Car dealer image by John Goreham

On Average, we go car shopping every five to ten years.
Consider how often you buy a new car if you live in the United States and are a car buyer. It's difficult to get accurate numbers because many people have more than one car, or they live with roommates who often go shopping together. A member of the family, whether spouse It's possible you'll increase your car purchases even if you plan to keep each one for at least ten years. Use a horizon of five years as a benchmark.

Price Increase Due To Inflation
A new car with a "Sticker Price" of $30,000 five years ago will likely cost around $36K today. This is entirely attributable to the depreciating dollar. S dollar The American political system has degenerated into a system of borrowing and spending. The federal budget has been in deficit every year for decades. This has been the case except in extremely rare instances. One notable exception to this rule is the time right before the dot-com bubble burst, when many companies paid huge taxes on profits that were soon to vanish. Apart from that, every year we spend more than we bring in from taxes.

This destroys the value of our currency In the last five years, the value of the dollar has dropped by 20% due to the basic policy of borrowing to get what we want now rather than paying for it as we go. So, a vehicle that cost $30,000 in 2017 will now cost around $36K when it first hits dealership lots. If you're looking for someone to point the finger at, consider this policy a round of circular firings. When given the opportunity to vote on how to rein in out-of-control spending, almost nobody does so.

Dealer markup image courtesy of Sarah Jane

The Manufacturer's Suggested Retail Price Is Only a Guide.
Retailers use the MSRP gimmick to make consumers believe that prices are higher than they actually are. We all act as if the MSRP is a reliable indicator of how much a car should cost at the dealership. But we know deep down that it is not the case.

For about five years, I worked for a truck magazine. Back then, I used to regularly write about sales from different truck manufacturers. It was common to get a price reduction of $10,000 before negotiations even started. There were no complaints made.

People are losing their collective minds and feeling ripped off because most new cars are selling for more than their suggested retail price (MSRP). To their credit, they Angry consumers help keep prices in check. Dealers for many brands routinely add tens of thousands to the manufacturer's suggested retail price (MSRP) of the vehicles they sell due to scarcity. Vehicle availability is low. Pay up if you want one. No one complained when car lots put $10,000 in cash on the dashboard as an incentive to buy.

Can you identify the two automobiles that currently have the highest markups?
Pricing Gaps for Automobiles
Manufacturers and dealers are exploiting the laws that regulate vehicle pricing and how prices are advertised, in addition to simply marking up vehicles for no good reason. American car buyers are protected from deceptive advertising by consumer protection laws. However, manufacturers and retailers of automobiles found some clever ways around this. They add thousands to the price of a new car.

One is titled "Delivery and Final Resting Place." This is a fee above the manufacturer's suggested retail price that car companies and dealers collude to charge you. Nothing about it makes sense. There is no mandate mandating that they must charge you. Any car company has the option to do away with destination and delivery charges starting tomorrow. They won't because doing so would eat up a significant portion of their profits (if they have any) or reduce their losses.

This is a fee that Tesla charges. This is the case even for consumers who choose to have their cars delivered to them in the same city where they were manufactured. As long as we're discussing Tesla, have you seen the $250 Order fee? To learn more about how Tesla has increased its non-refundable order fee, check out the feature article featured on Elektrek.

Dealers commonly add a documentation fee, sometimes in the hundreds of dollars, to the price of a vehicle on top of the destination, delivery, and ordering fees.

There are three additional costs on top of the sticker price of a new car: destination and delivery, order fees, and documentation fees. The price of the $30,000 car you were hoping to buy for $40,000 is now over $38,000.

Image of dealer added rubbish by John Goreham

Added Junk by the Dealer The dealer-added trash markup is another con played by producers and retailers. The rules are simple: choose the make, model, and options that suit you best, and $36K will be the absolute minimum. Despite being offered on the dealer's website, you are not permitted to purchase this. Instead, you must purchase this model and trim, but with extras of questionable usefulness. For example: Air deflectors for the moon roof Car side molding Filler for Paint Joints

Safeguarding the Interior

The dealerships and manufacturers know you don't want to be coerced into buying a lemon. In preparation for the inevitable question of why they insist upon your compliance, They apologise and say things like, Once it's added at the port, there's nothing we can do about it. Nothing undermines faith in the durability of a car accessory like hearing that it was installed "At the port. "

Let's do the math and figure out how much that new "$30,000 car" will cost you!
Sticker shock can be calculated as follows, if you have recently shopped for a "$30K car" and were expecting the prices you see to be near that today for the same model:

Inflation of 20% added to $30K equals $36K Include $1,295 for shipping and handling to the final delivery address. Plus $3,000 in Dealer Markup, or $39,295 Added $1,400 in Junk by the Dealer = $40,695

Add Dealer Doc Fees of $395 = $41,090

A car that, based on your previous purchase, you may have estimated to cost around $30,000 could now cost you well over $40,000. Take note that none of these supplementary expenditures can be attributed to the manufacturer having to pay more due to a scarcity of raw materials, a requirement for increased use of electricity, or the installation of extra safety features. These factors, among others, contribute annually to rising car prices. Manufacturers are able to effectively counteract those in some way.

Bonus A privileged member of society benefited greatly from your poor deal.
It's likely that you'll pay more for a car than those who belong to coveted special interest groups such as recent college graduates, veterans, teachers, first responders, healthcare workers, friends and family of manufacturer employees, and so on. In reality, prices vary from person to person. Car price discounts for certain individuals are funded in the same way that solar rebates are funded: by the other car buyers and electricity users.

Every major retailer gives discounts to people we single out as special in society. If you're an American, this is not news to you. We just cut the debt of millions of recent college grads, but we're not helping the people who work to keep our sewers clear. Who is more deserving of such generosity? How to fix a toilet that won't flush

If you haven't bought a new car in the last few years, you can expect to pay close to twice as much today for a vehicle that cost you around $30K in 2017. And if you think you know who the lone perpetrator is, please let us know.

John Goreham created the featured image. Photograph by John Goreham featuring dealer-added junk John Goreham dealership advertising photograph Sarah Jane Smith's dealer markup illustration

John Goreham is a recovering engineer and longtime member of the New England Motor Press Association. John has been interested in electric vehicles ever since he worked on the thermal control system for an EV battery in 1990. John has a background in mechanical engineering and business from his time spent working in the semiconductor and biotech industries after completing a marketing program at Northeastern University. John's writing has been featured in dozens of American newspapers and magazines, including Torque News, and he contributes reviews to a wide variety of automotive-focused websites. You can find John on social media at @ToknCars on TikTok, as well as on Twitter and Linkedin.

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