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Why are car prices so expensive right now?

A look at why car prices are so high amid the end of the COVID-19 pandemic

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2021 Ford Mustang Mach Es are displayed for sale at a Ford dealer.

A pair of 2021 Ford Mustang Mach E cars are displayed for sale at a Ford dealer on Thursday, May 6, 2021, in Wexford, Pa.

Keith Srakocic, Associated Press

Car prices are super high right now across the country, changing the way people shop for cars amid the coronavirus pandemic.

What are car prices right now?

According to CNN, the average new car in May 2021 cost about $38,255.

  • That’s up 12% compared to the same time frame in 2020.
  • About two-thirds of car buyers ended up paying within 5% of that number, meaning that even with a little haggling, prices were even higher than they were a year ago, according to CNN.

Why are car prices up?

Car prices are soaring right now for a number of reasons. Per CNN, many car dealers’ lots have fewer cars than they normally would have. So they’ve raised the prices of cars they do have. Since there are fewer cars available, the cars there tend to be rarer, jacking up their price.

  • There’s also a higher demand. Sales are rising because people need to drive again after months of lockdown and quarantine. Car dealerships that were closed during the pandemic have also opened up, and they’ve jacked up prices to help account for the losses, according to CNN.
  • Consider inflation as well. According to NPR, consumer prices for everything rose 5% in the last 12 months, which is the sharpest jump since August 2008 when prices jumped 4.2%.

Supply chain and cars

One of the biggest factors of high car prices deals with the supply chain. For example, electric cars are hard to come by in Utah right now because there’s “a global shortage in the high-tech semiconductor chips that have become the lynchpins of modern automotive manufacturing,” according to the Deseret News.

  • (If you didn’t understand that language — because I didn’t — it basically means the parts needed for making some cars are in short supply.)

And this isn’t just the case for electric cars. It’s the case for so many cars.

  • “Prices are being driven higher by supply chain snarls that are leading to shortages of key components such as computer chips for cars, hence the higher price that Toyota wants for its pickups,” according to NPR.

Craig Bickmore, executive director of the New Car Dealers of Utah association, told the Deseret News that the car industry will do well once the pandemic is over. But there’s a lack of inventory right now for people.

  • “The car industry is doing OK, and we will hopefully come out of COVID OK,” Bickmore told the Deseret News. “The dealers have done OK and we’re grateful. But what’s happening now is inventories are tight for reasons that have been in the news a lot — inventory is tight and will probably get a little tighter as manufacturers work through those issues with supply chains.”

What about rental cars?

OK, so you don’t need to buy or lease a car. But what about renting them for your summer trips? Well, it looks like prices for renting cars have jumped as well, according to WHLT. Renting a car, in some cases, can cost upwards of $300 per day.

And that’s representative of a jump, too. Per WHLT, AutoWeek data show that rental car prices jumped more than 30% since 2020 alone.

  • “It’s a booming business right now. Everybody needs a rental car, they want to keep miles off there own, so they don’t have to pay as much maintenance,” said Mona Bullock, a rental car adviser with Hattiesburg Cars, according to WHLT.
  • He added, “Since January, we have had lot more people come in for rental cars, and our prices did actually recently go up about a month ago just due to high demand and trying to stay under competition but still have a good price for our customers.”

Will car prices stay high?

Experts have different opinions about the current inflation numbers. Per NPR, some experts suggest prices won’t stop because people have money due to savings during the pandemic and stimulus checks.

But Treasury Secretary Janet Yellen said prices will change if it becomes too much of an issue.

  • “While we’re seeing some inflation, I don’t believe it’s permanent,” Yellen said. “We’ll watch this very carefully, keep an eye on it and try to address issues that arise if it turns out to be necessary.”