New Car Prices Continue To Set the Wrong Kind of Records

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Anyone in the market for a new car is sweating. Prices keep rising, with the average cost of a new vehicle in August breaking the record for the fifth month in a row. Values are almost 10% higher than they were 12 months ago.
The most worrisome part of all this might be how the price increase seems to be disconnecting from demand. Actual sales in America dropped in August, nearly matching the numbers we saw in April 2020, when the pandemic halted industry growth.
The only people not hesitating on car purchases are the people who can clearly afford the price increases. Luxury car sales continued to grow, in part due to automakers’ focus on producing them in order to tap into their high markup values.
A view of a new car dealership from above
New car prices have been on the rise for months.

What caused the new car price hike?

The short answer to what precipitated these bank-breaking prices for new cars? Kelley Blue Book (KBB) blames it on COVID and the microchip shortage. Other factors were at play, but these two global influences are largely at fault.
The pandemic brought car sales to a screeching halt last year. When the economy opened up again in the spring, people were ready to spend that saved cash on new vehicles. But automakers weren’t able to keep up with the quick influx of demand.
Under normal circumstances, car manufacturers would have corrected this imbalance already, but the global shortage of semiconductors, a type of microchip used in everything from dishwashers to smartphones, continues to slow down production.

Why do luxury vehicles continue to sell?

Luxury vehicles are able to maintain sales growth for a number of reasons, the most obvious being demographic. People who can afford luxury vehicles are naturally less affected by price increases. What’s a few thousand more for someone with millions?
But KBB says another key reason is that car companies keep producing them. The chip shortage has forced them to prioritize what vehicles get built and which production lines slow down. Per vehicle, automakers make more off of luxury vehicles, so luxury vehicles get priority.
One vehicle type continues to buck industry trends—EVs. Most electric cars are still considered luxury items, but in the last year, these “green” vehicles have dropped in price. 
The dozens of new models released for 2021 may have increased supply, but automakers are also working to broaden the audience of EVs. Mini and Nissan already offer models that start just over $30,000, and Hyundai and Mazda will all have relatively affordable models for 2022.

How to save on a new car in 2021

If you need a new car this year, it frankly isn’t easy to find one for what in other years would be considered a reasonable price. Normally, experts advise people to buy used vehicles to keep costs down, but those are far more expensive than usual right now, too.
The best way to save right now is to focus on expenses besides the sticker price on a car like fuel, maintenance, and car insurance
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