Listen to this article Car Dealerships’ Price Hikes Contributed To Inflation
Introduction
The U.S. Bureau of Labor Statistics has published new research on the causes of inflation. According to this research, markups on new cars were a significant contributor to the current bout of inflation, accounting for between 0.3 and 0.7 percentage points of the nearly 16% rise in the consumer-price index between the end of 2019 and the end of 2022.
Auto demand and supply chain disruptions
The research indicates that auto demand surged after customers received pandemic stimulus checks, while supply-chain disruptions reduced supply. This created an imbalance between supply and demand, which had a significant impact on the pricing of new cars.
Sales prices and dealership profits
As a result of the supply-demand imbalance, sales prices for new cars increased sharply, with dealerships making the most profit. This finding is consistent with the data that economists have seen.
Different views on the causes of inflation
While the research suggests that markups on new cars were a significant contributor to inflation, some contend that inflation is driven by market forces that include many players, so it cannot be pinned on one group.
Disruptive effects on the auto market
Dealerships saw margins improve during the pandemic as the supply-demand imbalance for new vehicles meant dealerships could suddenly charge more for each one. However, rising new-car prices disrupted the entire auto market, as used-car prices also surged, customers turned to cheaper options, and borrowers took out bigger auto loans to afford their cars, more of which are now going delinquent.
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