Opinions expressed by Entrepreneur contributors are their own.
The transaction price for a new vehicle has increased more than 14 percent on average over the last year, according to a report by a prominent automotive research company, which said that the record price hike was mostly due to supply constraints and luxury vehicle sales.
“New-vehicle average transaction prices (ATPs) increased further into record territory in December 2021 to reach $47,077,” said the Kelley Blue Book report published Tuesday. The price went up by $5,724 from December 2020, and registered a month-over-month increment of 1.7 percent, or $808.
In spite of high consumer demand, the supply of new cars was limited, forcing dealerships to forgo discounts and, in some cases, to increase prices above the manufacturer’s suggested retail price (MSRP).
As the pandemic-related lockdowns hit the economy, people stayed home, traveled less, and depended more on their computers and mobile devices. Auto manufacturers suspended production owing to lesser demand and complied with government shutdowns to reduce the spread of infection.
Chip manufacturers shifted the focus from automobiles to consumer electronics. Although the easing of restrictions and sudden economic recovery restarted auto factories, they were unable to procure enough chips, leading to halts in production, a shortage in supply, and high prices. Car prices were one of the main contributors to the nearly 40-year increase in inflation plaguing the country.
Last year saw an overall slump in sales volumes with six consecutive months of decline that ended in November. However, sales picked up in December with 1,219,034 units sold. The average price for a non-luxury vehicle was $43,072 last month, as customers paid more than MSRP during the last six months.
The ATP for a luxury car was $64,864, which is $1,300 over MSRP. Luxury vehicle sales typically go up during the last two months of the year. In December 2021, 18.4 percent of total vehicle sales were from the luxury category, driving up the average prices for the year.
“December typically is the best month for luxury vehicle sales, and 2021 followed that trend in a big way,” Kayla Reynolds, analyst for Cox Automotive, said in the report. “The result was another record in overall average transaction prices, completely driven in December by the increase in luxury vehicle sales.”
In December 2018, the percentage of cars compared to other vehicles being sold was 30 percent, while in 2021, it came down to 22.7 percent. Cars costing $42,460 on average were cheaper than SUVs at $46,075, $55,049 trucks, and $46,908 vans.
The average price of a Ford vehicle was $50,698, which is an increase of 5.7 percent from December 2020. Mitsubishi recorded the highest increase of 33 percent at a sticker price of $30,576, followed by $79,182 for Cadillacs at 25 percent.
Meanwhile, Fiat and Porsche went down in price, 8.1 and 6.3 percent respectively, to $27,467 and $98,357. Porsche had the highest average prices among all makes in the report.
Automobile industry incentives fell to an all-time-low of 3.9 percent last month.
Naveen Athrappully is a news reporter covering business and world events at The Epoch Times.