Price of new cars

From the 1980s through the 1990s, the price of new cars rose strongly for several reasons. First, the price of inputs (i.e. steel, rubber, lead, etc.) rose substantially. Since cars became more expensive to manufacture, manufacturers raised their prices to pass that price onto consumers. Second, the emerging middle classes in China, and to a lesser extent India, became increasingly wealthy, thus demanding automobiles. The global increase in demand for new cars caused prices to rise globally, which also increased domestic prices. Third, the high price of oil increased the cost of owning a car. While not pushing the price of the cars themselves to grow, the price of oil determines what consumers must pay for gasoline to use their cars. Therefore, the rising oil price increased the effective price of a new car. Fourth and more recently, hybrid vehicles became more popular due to the high oil prices. Hybrid vehicles are more expensive than their gas-only counterparts; as they comprised a more significant share of the market, the composite price of new cars increased. All of these factors combined increased the price of new cars from an index value of 88.5 in 1980 to 142.8 in 2000.

When the recession hit in 2008, demand for new cars collapsed. Whenever the economy experiences a downturn, consumers put off the purchase of durable goods, such as cars or homes, because they feel unsure about their financial futures. The recession in 2008 and 2009 was no different, with prices dropping 1.5% in 2008 due to the fall in global demand. In addition to the demand drop, new car prices declined because falling input prices over the same period made cars cheaper to manufacture and falling oil prices made cars less expensive to operate. Once the economy began to recover in 2010, these trends reversed, with global demand, input prices and the price of oil all rising again.

In 2020, the price of new cars increased 0.5% as demand has reduced amid the COVID-19 pandemic's subsequent recession, limiting consumer spending power for large discretionary purchases while supply chain disruptions contributed to some upward pressure on prices. Further contributing to reduced demand, stay-at-home orders and travel restrictions have limited the need for new car sales. However, this decline in demand has been partially offset by low-interest rates, supporting some demand. In 2021, the price bounced back by 5.9% as pandemic restrictions ease and the economy recovers while supply chain disruptions continue. Computer chip shortages have driven up the price of already produced cars, as manufacturers struggle to manufacture new vehicles. This shortage continued in 2022, with the price of new vehicles climbing higher as pent-up consumer demand is sustained. Similarly, supply chain disruptions stemming from inflation and the war in Ukraine raising the cost of crude oil contributed to higher production costs for manufacturers. In turn, the price of new cars spiked 10.4% in 2022 and 3.7% in 2023.

High inflation and rising interest rates in late 2022 into 2023 played a role in discouraging consumers from spending on big-ticket items such as automobiles. Inflated energy costs have also made the appeal of buying a new car less valuable when consumers can instead save by relying on their current vehicles, which in turn pressured automobile manufacturers. In 2024 however, inflation has fallen from previous highs, leading car prices to drop an expected 0.6% before rising a slight 1.7% in 2025.