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        home > news > Automakers > Rising Prices Make Affordability an Issue for Car Buyers

        Rising Prices Make Affordability an Issue for Car Buyers

        CAR Analyst Bailo says rising prices causing big problems for buyers.

        Joseph Szczesny
        Joseph Szczesny , Executive Editor
        April 16, 2021
        Volkswagen dealership
        The prices on new and used vehicles continue to rise, nearing the point where buyers are being priced out of the market, CAR research reveals.

        Affordability will become a significant issue for the automotive industry in the not-too-distant future, according to one of the industry’s top analysts.

        “We’re starting to price people out of the market,” said Carla Bailo, president and chief executive officer of Center for Automotive Research in Ann Arbor, Michigan, said during a webinar on Modern Mobility this week. She said the sentiment applies to the cost of vehicles both new and used vehicles.

        In 2019, the median household income in the United States was $68,703. But CAR’s research indicates that since 2000, the buyers of new vehicles have 1.5 to 1.9 times higher household incomes than the U.S. median income.

        The price of used cars also is going up, Bailo noted. Climbing to $23,000 on average. The average price of a new vehicle exceeds $40,000, according to the U.S. Commerce Department.

        Prices beget consumer changes

        EV sales are currently the domain of higher-income buyers so if makers want sales to soar, prices must plummet, CAR’s Carla Bailo notes.

        Bailo said vehicle sharing models, where do not purchase or lease the vehicle outright, but share the cost with other consumers clearly are going to become more important in the future and the industry will have to adjust to the new reality.

        The issue is particularly acute around battery-electric vehicles. Until now, data shows that sales have been to consumers with higher income, she said. For the shift to electric vehicles to succeed EVs also must become more affordable, she said.

        Industry changes driven by economics

        Meanwhile, the industry also beginning to face inflationary pressure, a key industry executive acknowledged this week. The uptick in pricing is likely to be passed along to consumers, further raising new and used vehicle prices.

        Carlos Tavares, the chief executive officer of Stellantis, which includes Fiat Chrysler North America, told the new company’s first shareholder meeting, the company is trying to mitigate the increase in prices but is facing higher material prices. The price of steel, for example, has climbed along with other raw material used to build new vehicles.

        Adding to the affordability problem is the fact that due to the pandemic material prices have risen as well.

        In addition, the shortage of semiconductors, which has forced automakers to curb production for months, is not likely to end in the second half of 2021 as some executives have predicted, Tavares said.

        Statistics showing increases

        Earlier this week, the U.S. Bureau of Labor Statistics reported consumer prices rose in March for the fourth month in a row and the pace of inflation hit the highest level in two and a half years, underscoring new pressures emerging on the economy as the U.S. recovers from the coronavirus pandemic.

        The consumer price index jumped 0.6% last month, according to the Bureau. The gasoline index continued to increase, rising 9.1% in March and accounting for nearly half of the seasonally adjusted increase in all items index. The natural gas index also rose, contributing to a 5% increase in the energy index last month, the Bureau reported.

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