Why cars are becoming less affordable

[UNITED STATES] The surge in car prices, which has left many consumers struggling to afford new vehicles, is not solely the result of recent tariffs. While tariffs on steel and aluminum have exacerbated the problem, the rising cost of automobiles has been a growing concern long before these trade policies took effect. Industry experts warn that multiple factors have been driving the increase, and unless key changes are made to both the global supply chain and domestic manufacturing strategies, car affordability will continue to be a challenge for Americans.

For many Americans, purchasing a new car has become an increasingly difficult financial goal. According to data from the Kelley Blue Book, the average price of a new car in the United States reached a record high of $48,000 in 2024, up from approximately $34,000 just a decade ago. This sharp rise in prices has occurred despite the fact that recent tariffs on steel and aluminum are often blamed for inflation in the automotive sector.

While tariffs—especially those imposed during the U.S.-China trade war under the Trump administration—certainly had an impact on vehicle costs, their influence is only one piece of the puzzle. Experts argue that the root causes of high car prices are more complex and stem from longstanding shifts in the automotive industry, consumer demand, and economic factors.

Global Supply Chain Disruptions

One of the main factors driving up car prices is the disruption of global supply chains, which began during the COVID-19 pandemic. The pandemic caused severe delays in production, a shortage of semiconductors, and widespread manufacturing shutdowns, all of which resulted in fewer vehicles being made and a greater demand for available models.

According to the National Automobile Dealers Association (NADA), the semiconductor shortage alone led to a reduction in car production by 2.2 million vehicles in 2021, which placed additional pressure on the supply of both new and used cars. With fewer vehicles available, the price for those on the market increased.

These issues, combined with a shortage of workers in manufacturing plants and distribution centers, have meant that car companies have had to increase production costs. Additionally, logistical challenges in shipping vehicles from production sites to dealerships have created further delays, reducing inventory levels and driving up prices.

Shift Toward More Expensive Models

Another factor contributing to the increase in average car prices is the shift in consumer preferences toward more expensive, feature-rich vehicles. In recent years, there has been a significant shift away from traditional sedans toward larger vehicles, such as SUVs, trucks, and electric cars, which generally come with higher price tags.

Automakers, in turn, have been producing more of these higher-end vehicles in response to changing market demands. For example, trucks like the Ford F-150 and luxury SUVs such as the BMW X5 have become among the top sellers in the U.S., pushing the average price upward. The shift in vehicle mix has also been driven by the automakers’ emphasis on advanced technologies, such as electric propulsion systems, autonomous driving features, and sophisticated infotainment systems—all of which add to the cost.

The Impact of Tariffs on Vehicle Pricing

Tariffs have certainly played a role in the rising costs of new cars, but they are not the primary driver. Since 2018, the U.S. has imposed tariffs on imported steel and aluminum, which are essential materials in the production of vehicles. These tariffs raised the cost of these materials, which in turn led to higher manufacturing costs for car companies.

However, according to a 2020 study by the U.S. International Trade Commission, the impact of these tariffs on the overall price of new vehicles has been relatively modest—around $200 per vehicle. While this is not negligible, it is hardly the main factor behind the steep rise in prices.

Moreover, many automakers have found ways to absorb the increased costs through other means, such as reducing production of low-cost models or passing on the additional expenses to consumers in the form of higher prices. This has led some to question whether the tariffs are simply an excuse to charge consumers more, rather than a necessary economic adjustment.

The Role of Inflation

Inflation is another significant factor that has been pushing car prices higher. In 2022, the U.S. saw its highest inflation rate in four decades, with prices for many goods and services—including vehicles—soaring as a result. The Federal Reserve’s aggressive interest rate hikes in an effort to control inflation have also had an indirect effect on car prices, as higher borrowing costs have made financing more expensive for car buyers. This has led to higher monthly payments for those who rely on loans or leases to purchase their vehicles.

Economic Inequality and Access to Vehicles

For many consumers, the increasing cost of cars has widened the gap between those who can afford to purchase vehicles and those who cannot. According to a 2023 report from Consumer Reports, nearly 70% of car buyers are opting for financing options or taking out loans, and an increasing number of people are turning to used cars as an alternative. However, used car prices have also risen in recent years due to the limited supply of new vehicles, making it harder for people with lower incomes to find affordable options.

The inability to afford a new or used car is not just a financial issue—it’s also a social issue, as transportation is critical for access to employment, education, healthcare, and other essential services. In rural and suburban areas where public transportation options are limited or non-existent, having access to an affordable vehicle is often a necessity.

What’s Next for Car Buyers?

While there is no quick fix for the rising cost of vehicles, there are some signs that the market may begin to stabilize in the coming years. Experts predict that as supply chains recover and the semiconductor shortage eases, production levels may return to normal, alleviating some of the pressure on car prices. Additionally, the increasing adoption of electric vehicles (EVs) could provide some relief, as more affordable EV models hit the market and governments offer incentives to encourage adoption.

However, with ongoing inflationary pressures, the shift toward higher-end vehicles, and the ongoing impact of tariffs, it remains to be seen whether car prices will return to pre-2020 levels. For now, consumers will likely continue to face high prices, and it will be crucial for both automakers and policymakers to find ways to address the affordability gap in the automotive sector.

The affordability crisis in the automotive sector is not a new issue, and while tariffs have certainly played a role, they are far from the sole cause of rising car prices. Supply chain disruptions, shifting consumer preferences, inflation, and economic factors have all contributed to the current situation. As automakers and policymakers work to address these challenges, the road to more affordable cars remains unclear. For many consumers, the dream of purchasing a new vehicle will continue to be just that—a dream.