New Cars

Why New Car Prices Are So High


New car sales really struggled during the recession. Many people could not afford to buy a new car and others simply could not qualify for the loan. Now that the economy is beginning to recover, you would think that car makers would keep their prices stable as an incentive to increase sales. That is not what is happening. The average cost a new car is up almost 7% over last year and has hit an all time high of $30,748. There are many reasons for the soaring price of new cars.

In previous years, car makers produced a lot of cars. At the end of the model year, they often ended up with excess inventory at the dealerships. In order to move that inventory, they would reduce the price of the vehicles by offering the buyer cash back or other incentives. Car makers are no longer offering those incentives. They do not have excess inventory because they are now producing many fewer cars.

The current rise in gas prices has dramatically increased the demand for small cars, subcompacts, hybrids, small SUVs and light trucks. Although people are looking for fuel efficiency, they are not willing to give up the features they had in their larger vehicles such as in vehicle entertainment systems. These extras add greatly to the cost of the vehicle.

During the recession, it was difficult to qualify for a car loan. That is no longer the case as much more credit in the form of low interest rate loans is available. The interest rate on a new car loan is much less than that of a used car loan. That coupled with the high price of used cars is causing many buyers to gravitate towards purchasing a new car instead of a used one. Most buyers are expecting to keep the vehicle for five years. That is much longer than in the past. Due to this, they are willing to splurge on pricey extras and options for their new car. The demand for fuel efficiency with luxury will keep the cost of a new car high for the foreseeable future.

Along with the decision to purchase a new car there is the decision of what to do with the older car. Although used car prices are high, they are only high for late model, low mileage, fuel efficient vehicles. There is not much of a demand either from car dealers or individuals for all other vehicles.

That basically leaves only two options for dealing with the older car. Those options are to donate your car to charity or junk the car. The average amount received by junking a car is about $200. Car donation results in a tax deduction that is at least $500. In many cases, it is much higher. A person will get more of a benefit when they donate a car instead of junking it. The charity will use the proceeds from the vehicle donation to help those in need. That helps our economy. Car donation is an excellent way of paying it forward.