The Bureau of Labor Statistics has released new research that backs up what anyone shopping for a car recently may have already experienced: Dealers are charging a lot more for new cars these days. The report shows that during the COVID-19 pandemic, price hikes at car dealerships were a big driver of new-car inflation, and also contributed somewhat to overall inflation in the consumer goods market.
The amount consumers paid for new vehicles climbed more than 20% from December 2019 to December 2022.
The BLS found the pandemic flipped the script on how dealers used to buy cars from manufacturers and sell them to consumers.
Prior to 2019, manufacturers were charging dealers higher prices, which meant less profit per vehicle. Dealers made up more of their profits selling extra things alongside their cars, like financing packages and insurance policies.
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But when the pandemic hit, dealers didn't encounter the same immediate supply shortages that car manufacturers did, since dealers typically kept about a month's worth of inventory on their lots. They didn't have to buy more cars right away, so they had more power to set new prices.
Consumers also had bigger budgets for cars: They were spending less on services during the pandemic, and they got stimulus checks from the government.
The BLS found that together, this enabled dealers to increase their pricing to make better profits.
Those higher prices have stuck, and helped shift the whole market for new cars toward the more expensive.
Analysts at Edmunds found that from March 2018 to March 2023, the share of new cars available for less than $20,000 or $30,000 shrank, while the sales of cars that cost more than $60,000 or $70,000 grew over the same time frame. A new car in 2023 now costs an average of $47,713.
