Rising prices for new and used cars have been a major concern for U.S. consumers for years. However, new data suggests that some relief may be on the horizon.
While this news may be welcomed by consumers, it isn't great news for automakers like Ford Motor (F) and General Motors (GM). Additionally, car buyers will still need to contend with the high costs of repairs and insurance.
According to the Bureau of Labor Statistics, July consumer price data for the U.S. reveals that prices for a basket of consumer goods have increased by about 3.3% year over year. This is a slight uptick from June's 3.1% and breaks a 12-month streak of declining numbers.
Despite the increase, the figure is still considered relatively low and provides some reassurance to investors who are hoping the Federal Reserve will halt its interest rate hikes. As a result, the S&P 500 and Dow Jones Industrial Average have performed well in Thursday's trading session.
The rising interest rates have had a direct impact on the cost of personal transportation. In the second quarter, a record-breaking 17.1% of Americans financing new cars found themselves paying $1,000 or more per month. This is a significant jump compared to the 4.3% during the second quarter of 2019, before the pandemic.
However, interest rates aren't solely to blame for the rising costs. The prices of both new and used cars have surged by approximately 29% since the end of 2019. This spike can be attributed to production disruptions caused by the pandemic, which resulted in a reduced supply of vehicles.
Despite these challenges, there is a glimmer of hope as prices for new and used cars have slightly decreased. In July, prices experienced a year-over-year decline of 0.2%, marking the third such decrease in the past seven months.
Rising Car Prices and the Impact on Auto Investors
The recent boost in car prices has been a cause for concern among auto investors, as it may result in lower profits. This fear has had a direct impact on stocks, with Ford stock experiencing a 4.8% decrease in late trading on Thursday, reaching $12.12, and GM stock declining by 5.6% to $34.24.
While lower prices are certainly good news for car buyers, there are other factors to consider. The costs associated with insurance and car repairs have been skyrocketing. In July alone, transportation services costs saw a year-over-year increase of 9.3%, marking the 28th consecutive monthly increase.
It is worth noting that while insurance and repair costs may not immediately reflect changes in car prices, they eventually catch up. Expensive cars require costly parts for repairs, which results in higher insurance premiums as well.
Since the end of 2019, transportation services costs have already seen a significant rise of about 21%. Given this trend, it is likely that further increases will be necessary to align with the overall rise in vehicle costs.
While this situation isn't great news for consumers, there is no immediate cause for alarm. The misery index, which combines the inflation rate and unemployment rate, stood at 6.8 in July. Although this is a slight increase from June's 6.7, it is still significantly lower than the index figure of 11.9 from a year ago.
With people steadily employed and inflation on the decline, the cost of fixing a car won't completely break the bank.