Consumers continue to pay considerably more than the manufacturer’s suggested retail price for new cars, and now the insurance needed to drive them legally is also increasing as semiconductor chip shortages and foreign disputes persist.
Supply chain disruptions and opportunities to lock in low interest rates on car loans have created insatiable demand for new vehicles over the past year, driving up the price of many used cars as high as that of new cars.
According to the latest Consumer Price Index data from the Bureau of Labor Statistics, in March new vehicle prices rose 12.5% year over year.
In the Oklahoma City metro, the average price of a new car is 10.3%, or nearly $4,000, above MSRP, according to automotive search engine iSeeCars. The price increase ranks 12th among the 50 most populous metropolitan areas.
Karl Brauer, Executive Analyst for iSeeCarssaid cities’ place in this ranking depends on availability versus demand.
“You see the different types of vehicles that are popular in different regions, and then that has to be cross-referenced with the number available in those regions,” Brauer said.
Oklahomans looking to buy a new vehicle are paying 24.5 percent, or about $8,800, above MSRP for a Ford Mustang. The Jeep Wrangler Unlimited, Nissan Kick, Ford F-150, and Lexus RX 350 are also significantly higher than MSRP.
The National Automobile Dealers Association reports that the chip shortage has reduced dealer inventories to their lowest level in 40 years. Brauer said Russia’s invasion of Ukraine was adding to the supply chain slowdown.
Brauer said ongoing shutdowns and movement restrictions in the Asia-Pacific region limit the ability to produce the chips. Additionally, Ukraine is one of the main suppliers of the neon element, a key component of a microchip.
Volkswagen Group told German publication Boersen-Zeitung that they expect the chip shortage to continue until 2024, and even then there will be structural undersupply.
While new car prices show no signs of falling, Normans may soon start to see a decline in used vehicle prices, which fell 3.8% in March, according to the BLS. Used vehicle prices are still up 36% year-over-year for the Oklahoma City metro area.
Brauer said that for a months-long decline in used-car prices to take place, more new-car buyers need to get into their next vehicle and then sell the one they no longer need.
“We have a definite number of people wanting to buy a car today, but that might be lower than two months ago,” Brauer said. “We need more than two months to call this a trend.”
Brauer estimates that car shortages will continue for 12 to 24 months until the backlog in demand for new cars is satisfied.
Sustained rise in car prices affects insurance premiums
Automotive industry challenges affect the price of auto insurance for consumers.
Jonathan Quinonez, a Farmers Insurance agent based in Norman, said industry pressures were actually playing a role in insurance rate increases right now.
Quinonez said actuaries offer rates at a certain price, but due to the shortage of vehicles, insurance companies are paying more than before for estimated losses. This leads to a rate increase of around 4% for those seeking a new policy from many providers.
“It’s in all areas,” Quinonez said.
When Quinonez works with Normandy residents, he tells them to look at the safety features offered on the vehicles they buy, which can mean more discounts on their policy. The Insurance Institute for Highway Safety rates vehicle performance in testing and rates safety-related features to apply a rating of poor, marginal, fair, or good.
“I’ve seen where someone would go from a Dodge pickup to a Subaru that [has the top IIHS rating]and their insurance is literally cut in half,” Quinonez said.