Why Are New Cars So Expensive? (Or Are They?)

It was predictable.

I’m not talking about the spike in used-car prices, though that too isn’t surprising.

No, I’m talking about the doomsday drumbeat about “through-the-roof” new-car prices. Here’s a representative sample of half-a-dozen pieces harping on that theme:

• Business Insider: “Why used and new cars are so expensive right now, explained in 3 charts”
• CNBC: “Buying a car in 2021: What consumers should know to beat high vehicle prices”
• CNET Roadshow: “The average new car costs $45,000: What the heck is going on?”
• CNN: “Here’s why car prices are so high, and why that matters”
• CNN again: “Car prices are through the roof”
• JD Power: “Why are New Cars So Expensive?”

The gist is simple.

The Covid pandemic caused a worldwide chip shortage, and because chips are needed everywhere in our high-tech world, carmakers have a hard time getting enough to fill dealership lots like they used to.

Economics 101 – when constrained supply meets surging demand, prices go up. A lot. Add to that supply-chain disruptions affecting a wide range of goods and services, and you have a perfect pricing storm.

In the past, new-car buyers could safely ignore the MSRP, or “Manufacturer Suggested Retail Price,” as an amusing fantasy. Instead, we’d try to get our new cars under dealer’s invoice, or at least within a couple hundred dollars of that much-lower price.

No more.

Now, step onto a depleted auto dealer’s lot, with a couple dozen cars of all models, rather than the many hundreds of pre-pandemic times, and you’re quoted prices thousands above MSRP!

No more discounts. No more zero-interest financing options. Few car-maker incentives, and where you do find them, they’re measly.

Sort of sounds like I’m jumping on the same high-prices bandwagon here, right?

I’m not.

A Surprising and Overlooked Truth About New-Car Prices

I’m a long-time believer in buying cars new and driving them for at least a decade. That’s why, when I needed a car back in August 2009, I bought new.

If you want to drive your car for so many years, you’d best get a highly reliable car with all the features you want, so you’re less likely to be tempted to replace it after a few short years. That’s why I bought a 2010 Toyota Camry XLE V6 with all the (useful) bells and whistles (I declined the BS stuff like rear bumper applique).

The price, back then, was just over $31,250.

Not bad for a super-comfortable, super-reliable, top trim Camry.

To see how that compares to today’s “through-the-roof” prices, I went to Toyota’s website, and “built” the most comparable 2022 Camry XLE V6 with the closest features I could find.

Here’s what came out…

The MSRP of a brand-new 2022 Camry XLE V6, with similar features is $39,072, or 25% more than I paid back in 2009.

Perhaps the chorus of click-seekers were right after all?

Not so much…

According to the Bureau of Labor Statistics consumer price index (CPI) calculator, the $31,250 I paid in 2009 would be equal to just over $40,240 in today’s dollars, which means the 2022 Camry XLE V6 is actually 3% cheaper than the 2009 Camry XLE V6 was back when it was new!

On top of that, the 2022 model has extra safety features that the 2009 model lacked. Things like Bird’s-Eye View Camera with 360⁰ Perimeter Scan, Intelligent Clearance Sonar, and Rear Cross-Traffic Breaking.

The Bottom Line

In their haste to publish sensationalist headlines, mainstream media tends to overlook important factors, like inflation. Whereas they claim that new-car prices are “through the roof,” in real dollars they’re actually lower than they were over a decade ago! Plus, today’s new cars come with a suite of safety features that would have been in the realm of science fiction back in 2009.

Thus, if you need a car, now’s a pretty decent time to get a new one, though I wouldn’t say the same for a used vehicle.

As a bonus tip, I’d suggest you find a good dealership near you, and concentrate your family’s car-buying there.

That’s what I did. All told, my family has now purchased 5 cars in 12 years from the same dealership.

As a result, when the car I ordered recently came with cosmetic features I didn’t ask for, to the tune of $500, they didn’t charge me for them. They also threw in the $1000 coating treatment I didn’t order. Even more importantly, they charged me $0 over MSRP, compared to the $5000 over MSRP local dealers typically charge these days.

If you didn’t keep track, that’s a total of $6500 that I’d have had to pony up at another dealership.

It’s also $1500 under MSRP for the features I got.

Pretty good deal, wouldn’t you agree?

Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

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