Why Do Cars Cost so Much Now?

Here’s how vehicle sales trends are impacting the current economy and the future of fueling.

February 23, 2022

Cars in a Parking Lot

By Sara Counihan

ALEXANDRIA, Va.—The economy and fueling are largely impacted not only by fuel markets but vehicle sales trends, as well. This week’s Convenience Matters podcast episode dives into what’s affecting sales now, and what could change in the next five years.

Last year was a big one for the auto industry, according to Patrick Manzi, chief economist of the National Automobile Dealers Association. There were a lot of challenges and new legislation that affected auto dealers, but the story of 2021 was limited inventory because of the semiconductor microchip shortage.

“The story was that demand was out there to sell our historical high benchmark of 17 million [new car] units last year. But the inventory was so pinched that sales came in at 14.9 million, just a half a million more than the severely COVID-impacted year of 2020,” said Manzi, who added that it will be mid-2022 before inventories will return to dealer lots because auto demand is still high.

However, Manzi expects 2021 to be a record year for used car sales. Final data has not been released yet, but he’s expecting more than 40 million used car units were sold last year. The average price for a used car also reached a record high last year. The average used vehicle at franchise dealerships retailed at $27,124, a huge leap from 2020’s average retail price of $22,970.

Manzi says it’s going to be 2024 before all market conditions normalize in the auto industry.

John Eichberger, executive director of the Fuels Institute, and one of this week’s podcast hosts, says that the family economy is being squeezed by the impacts of the auto industry increases.

“Most people buy vehicles not based off their MSRP but on their monthly payments, and those payments have increased by about $100 over the 18 months. Between the increased price for vehicles, plus the uptick in gas prices, the family economy is pinched,” Eichberger said.

Despite the economic squeeze, consumers are not changing the type of vehicle they choose to drive. A family of five is not downsizing to a compact car to save money on gas, says Eichberger. But what consumers are now demanding are hybrid power trains on pickups and three-row SUVs, and manufacturers are delivering.

“The Toyota Sienna minivan is only offered as a hybrid because they believe that customers are willing to pay for those incremental gains in fuel economy,” said Manzi. “While we aren’t yet seeing everybody want an EV, we are definitely seeing increased sales for EVs, but some of these transitionary power trains are really gaining popularity with consumers.”

Manzi says that in order for Americans to change their buying habits when it comes to EVs, their monthly payments have to be less than what an internal combustion vehicle payment would be.

“The average price on a new vehicle of all power trains was $43,000 [last year]. For battery electric vehicles, it was $56,653, so $14,000 more, said Manzi. “That’s maybe $300 a month more in a monthly payment. You’re going to have to bring that down if you want to incentivize the customers to [buy an EV].”

Listen to this week’s Convenience Matters podcast episode No. 324 “What’s Driving Higher Transportation Costs?” to learn more about the vehicle inventory crisis, expectations on all-electric pick-up trucks and a little President’s Day trivia.

Sara Counihan is contributing editor of NACS Daily and NACS Magazine. Contact her at scounihan@convenience.org.