New Car Prices Hit Record Highs in 2021

New Car Prices Hit Record Highs in 2021

Buyers will pay more in the new year as manufacturing shortages continue
handing over car keys

Supply chain issues have impacted retailers and consumers in 2021, and the car-buying market is no exception. While microchip and other inventory shortages have caused a lag in global supply, the demand for vehicles did not wane.

According to car shopping experts at Edmunds, an online resource for car buying and inventory information, these trends will continue to impact the market in 2022 and cause some unique changes in the car-buying landscape, including an increased demand for used vehicles.

Auto prices rose steeply in 2021

According to earlier reports from Edmunds, 2021 has been a record-breaking year for vehicle prices. Purchase prices saw a year-over-year increase of 14.3% for new vehicles and 27.4% for used vehicles. As a result, consumers' monthly car payments were projected to exceed an average of $600 for the first time for new vehicles) and $500 for used vehicles.

In their newer report, Edmunds notes that the average transaction price for new vehicles increased by $5,888 from November 2020 to November 2021, and many buyers paid well above MSRP (manufacturer's suggested retail price). Here's what Edmunds reports:

  • Buyers paid an average of $662 over the MSRP in November
  • The average sale price is expected to reach 38% above MSRP in 2021, versus 30% in 2016

It's uncertain whether buyers paid above MSRP by choice, opting for special features and upgrades, or if vehicle shortages resulted in fewer base trim vehicles being available. According to Edmunds, many vehicles that are on the market are heavily equipped or have higher trim levels.

Auto sales will be competitive again in 2022

Pent-up demand is expected to make 2022 a competitive year for car buying. The experts at Edmunds predict the following trends for the coming year as manufacturers and dealers respond to shortages:

Leasing will be down

Lease inventory will be reduced for a number of reasons, including automakers’ need to make more vehicles available for purchase.

Electric vehicle sales will be up

Consumers will continue to shift away from gas-powered vehicles and toward electric vehicles as more manufacturers make EV options available. For the first time, annual electric vehicle (EV) sales could exceed 600,000. Here's what the experts predict:

  • U.S. EV market share will climb to 4% (4.6% retail)
  • Tesla will make up less than half of the EV market (46%) in 2022 compared to 65% in 2021

Used vehicle sales will be up

While new vehicle manufacturing lags, buyers will turn to used inventory for their purchases. As a result, used vehicle prices are expected to hit a new high of $30,000.

The big winner in this shake-up could be used vehicle owners. While 2022 may not present great opportunities to buy a budget-friendly vehicle, Edmunds recommends that one way to sweeten the deal is to trade in your current vehicle, since you're likely to get a better price than in a typical market.