Why New Car Prices are Going Up

A remarkable thing is happening–used cars are appreciating.

Traditionally, they depreciate (a fancier way of saying they lose value), almost immediately and ongoing. As you drive, the less it’s worth.

Suddenly, used vehicles are increasing in value (or rather, cost) to a degree never seen before. The Manheim Used Car Index, which works like the consumer price index applied specifically to used vehicles, notes an almost 50 percent jump in the average used vehicles indexed value over the past year.

Interestingly enough, the spike has been almost like a vertical ballistic trajectory, beginning right around the beginning of this year.

Even more, interestingly, the spike is general.

It is one thing for a specific make/model used car to go up in value. For example, a version of a car or truck that people like better than the new version of the same thing.

But this is something different and perhaps not the most desirable thing; indeed, a more expensive thing.

Used vehicles are going up in value because people increasingly don’t like or can no longer afford new cars. Arguably, part of the not-liking is due to the over-the-top electronics that come standard with practically all new vehicles.

Older cars lack “advanced driver assistance” technologies. They don’t attempt to countermand your steering, apply the brakes on your behalf, or automatically shut off the engine every time the car stops moving. They don’t put the transmission into park because you tried to back up with the door open to using your eyes rather than a camera and beeping electronics to see where you want to go.

The car press bow-wows these advanced technologies, but how many car buyers actually want to buy them? It’d be interesting to find out, but it’s tough to fathom because these features are part of the deal; you can not buy them without not buying the car.

Many apparently are doing precisely that by purchasing an older, used car instead.

There are also related reasons for the rush, touched on in previous columns. Folks are leery of the increasing disposability of new cars due chiefly to their elaborate, vehicle-specific electronics. People are hearing about replacement costs and wanting no part of a vehicle that may be more expensive to fix than it is worth to keep once the warranty runs out.

There are also the exorbitant peripheral costs of buying and owning any new car, including the outrageous taxes applied at the time of purchase and then every year after that in states where an annual property tax is extracted based upon the “book value” of the car. A new car can cost you more in taxes over five years than it costs to buy a decent used car itself.

Many people are no longer able to hemorrhage all the cash needed for payments, taxes, maintenance, and repair. It’s not surprising they’re looking for ways to save some money by not buying a new car.

They also have less money. Or rather, their money buys less and less every week, it seems.

Rising inflation is not unrelated to the rising values and the cost of used cars. The same used car sold for $8,000 six months ago now sells for $9,000, not so much because it’s worth another $1,000 but because it now takes $9,000 to buy what used to cost $8,000.

Just as a sheet of 4×8 plywood that cost $20 last year now costs three times as much. It’s not so much the item’s value went up, but the purchasing power of the money has waned.

New cars are also costing more too.

In real terms, not adjusted for inflation. The rate is not as ballistic, but it is incrementally steady. Because of the steadily, inexorably increasing cost of government, necessarily folded into the price you pay. These are the cost of compliance with all of the many federal “safety,” “emissions,” and “mileage” regs, which manifest in cost-adding hardware such as smaller engines with turbochargers to comply with federal MPG mandates.

Aluminum bodywork costs more to manufacture, and it’s more easily damaged, more expensive to repair and insure, costing you more, several times over.

Buyers aren’t asking for tiny turbocharged fours in place of V6s without all the peripherals or for automatic transmissions with seven, eight, nine, and in some cases, ten speeds. Nor for aluminum truck bodies or direct injection rather than port fuel injection and the additional/secondary port fuel injection circuit needed to correct the carbon-fouling problems created by direct-injecting the engine.

These kinds of parts on vehicles are increasing because they are necessary to meet government approval.

Meanwhile, the car companies use their new cars to make money by selling you after buying the vehicle. They sell data about you, mined without your knowledge or your consent.

It appears more and more potential new car buyers disapprove and are expressing their disapproval by not buying in.

This has created a unique and unprecedented feedback loop that’s waxing seemingly with every passing day. And which may wax beyond all prior conception given the built-in supply problem with not-new cars:

They aren’t making any more of them.

Eric Peters lives in Virginia and enjoys driving cars and motorcycles. In the past, Eric worked as a car journalist for many prominent mainstream media outlets. Currently, he focuses his time writing auto history books, reviewing cars, and blogging about cars+ for his website EricPetersAutos.com.

Editor’s Note: The opinions expressed in this article are those of the author.

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