Car prices are falling, but owning a car is more expensive than ever

The cost of new and used vehicles may have fallen from their 2021 heights, but rising insurance premiums and rising financing rates are still making it much more expensive to own a car.

New internal data released by Bank of America on auto loan originations suggests overall auto sales are flattening — likely due to worsening affordability issues.

“One reason for this flattening, we believe, is that the total cost of ownership – including high interest rates, insurance and maintenance costs – has become more expensive even as vehicle prices are falling,” Bank Institute economists of America. says an accompanying research note.

Higher interest rates

Car prices rose in the early days of the pandemic for a number of reasons. The government sent stimulus checks to millions of Americans, boosting demand. This coincided with a shift away from public transport and a crisis in the supply chain that significantly reduced the availability of key parts needed to produce new vehicles.

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“As a result, there was a sharp decline in domestic inventories, which resulted in an increase in the sticker price of new vehicles,” the economists said. “And with consumers unable to find or afford a new model, they moved into the used market, driving up prices there as well.”

Supply chain disruptions have since been cleared and vehicle prices have begun to cool. However, auto sales data shows that auto loan originations for both new and used cars and trucks have declined from their peaks in 2021 and 2022.

One reason may be that interest rates on car loans have risen sharply since April 2022, jumping almost four percentage points for 48-, 60- and 72-month loans. According to the report, that translates to a monthly increase of nearly $100 on a $51,200 loan, which is the cost of the average new vehicle loan.

AUTO INSURANCE RATES CONTINUE TO RISE WITH NO IMMEDIATE SIGNS OF LETTING UP

Increase in insurance premiums

Insurance rates are also going up.

The cost of auto insurance rose 1.8% in April, bringing the total annual gain to 22.6% — the fastest annual rate on record, according to Labor Department data. Compared to the beginning of 2021, before the inflation crisis began, car insurance is over 50% more expensive.

Experts say the problem may soon get worse before it gets better.

“With auto insurance, it’s something that’s been building for a while now,” Shannon Martin, a Bankrate analyst, previously told FOX Business. “Car insurance tends to be very reactionary, so in recent years, the industry has suffered a lot of losses at a time when inflation has driven up the cost of vehicle partsdifferent products and repair costs, increase.”

In 2023, the average U.S. rate for comprehensive auto insurance rose to $2,019, a 24% increase from $1,633 in 2022 and a nearly 29% increase from $1,567 a year earlier, according to Insurify, a site for insurance comparison shopping. This amounts to approximately 3.4% of the average household income. Even a bare-bones policy required by states climbed to $1,154 a year in 2023.

HIGH INFLATION IS COSTING AMERICANS AN EXTRA MONTH 1 KA

The national average cost of car insurance reached $2,314 a year for comprehensive coverage as of April, according to a separate Bankrate database. That works out to about $193 a month for full coverage.

Several factors have caused car insurance rates to rise.

When the price of new and used cars rose after the pandemic, so did the cost of repairing or replacing an older vehicle.

In addition, the country is facing a shortage of mechanics, which is driving up vehicle repair costs even more. One source, the TechForce Foundation, estimates that the number of graduates completing post-secondary programs in the automotive sector has decreased by 20% since 2020. The number of automotive technicians is projected to continue to decrease in the coming years.

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TICKER	Safety	The last	AmENdmENT	change %
PGR	PROGRESSIVE CORPORATION.	209.38	-1.80	-0.85%
SAFT	SAFETY INSURANCE GROUP INC.	76,22	-0.04	-0.06%
MCY	MERCURY GENERAL CORP.	55,56	-0.27	-0.48%
EVERYTHING	ALLSTATE Corp.	164.12	-3.40	-2.03%

Car insurance companies are also scrambling to make up for the huge losses incurred in 2021, which saw a sharp rise in fatal accidents.

“Everybody used their car insurance a lot back then,” Martin said. “And then inflation started to keep going up and the insurance companies asked for rate hikes to recoup, in a way, the money they lost during that time.”