The price to buy a new or used car is increasing at a faster rate than the average wage growth in the nation, a study said.
On Thursday, Anderson Economic Group, an East Lansing-based economic consulting firm, released the results of a recent analysis comparing new and used vehicle price increases against wage growth in the U.S. private sector. The study relied on data from the U.S. Bureau of Labor Statistics related to the Consumer Price Index to compare the cost of a new and used vehicle relative to average weekly earnings for private jobs.
It found that the average new car price last year increased by 11.8% in December compared with a year earlier. The average price of a used vehicle increased by 37.3% for the same period, according to Consumer Price Index data cited in the study.
But the average weekly earnings for all private jobs in the U.S. increased by 4.9% to $1,085.42 in December 2021 compared with $1,034.75 in the year-earlier period.
“These are some of the most extraordinary changes in the affordability of vehicles in recent history,” said Patrick Anderson, CEO of Anderson Economic Group. “It is the first time ‘sticker shock’ has been a clinical condition for auto shoppers.”
By that Anderson means, customers are actually shocked by the high price of cars, he said.
The new and used car price hikes are the result of ongoing tight inventory caused by production disruptions across all automakers. The industry had to pause or stop new-car production throughout last year due to a global shortage of semiconductor chips used in a variety of car parts.
Dealerships saw their new-car lots become barren, and with fewer new cars to sell, there were fewer trade-ins of used cars, creating a shortage of inventory for both.
Yet consumer demand for new and used cars remains strong, allowing many car dealers to charge above sticker price and not honor corporate discount plans. In December, the average transaction price across the industry was $709 above the manufacturers’ suggested retail price, according to Edmunds data. Experts expect the same conditions to continue through much of this year, meaning consumers will have limited choice, long waits for cars from the factory and little-to-no negotiating power.
“Employees need to work three weeks more than they did in December 2020 to afford a typical new vehicle in December 2021,” said Cristina Benton, director of market and industry analysis with Anderson Economic Group.
To buy a used vehicle in 2021 is even more difficult, Benton said, noting “for the typical used car, the number of additional weeks of average weekly earnings required increased by five over the year prior.”
The study used new vehicle pricing data from Kelley Blue Book, Average Transaction Prices, and it relied on used vehicle pricing data from Cox Automotive for the following analysis comparing purchase price and buying power:
- Average new vehicle price in December 2020: $41,335.
- Average weekly earnings in December 2020: $1,034.75.
- Weeks of average earnings to buy a typical new car: 40 weeks.
- Average new vehicle price in December 2021: $47,077.
- Average weekly earnings in December 2021: $1,085.42.
- Weeks of average earnings to buy a typical new car: 43 weeks.
For the purchase of a used car, the price and wage disparity is even wider. The study used November data, Benton said, because it was the most recent data Cox released to Anderson Economic Group.
- Average used vehicle price in November 2020: $21,708.
- Average weekly earnings in November 2020: $1,044.23.
- Weeks of average earnings to buy a typical used car: 21 weeks.
- Average used vehicle price in November 2021: $27,569
- Average weekly earnings in November 2021: $1,077.09.
- Weeks of average earnings to buy a typical used car: 26 weeks.
Anderson said consumers were hit with a “double whammy” last year. Beyond the increase in the cost to buy a new or used car, gasoline prices went up significantly in 2021. The data, Anderson said, should serve as a warning to automakers.
“It definitely signals some rocky conditions for the auto industry once they get past some supply chain woes that limit the ability to what they can produce,” Anderson said. “Automakers could have some difficulty selling vehicles at these prices given the earnings of typical American consumers.”