Inflation Is Fake: New Car Prices Aren’t Dropping Despite Rising Supply

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In the world of economics, there’s this little thing called supply and demand. It states that, as supply drops for a given item of consistent demand, prices should go up. The opposite, too, should happen — an increase in supply without an increase in demand should lead to lower prices. Yet, as automaker supply chains recover from COVID-19, the chip shortage, and other various plagues and poxes, new car prices still aren’t dropping. Why?

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Car dealerships will tell you: The automakers are to blame. Dealers no longer have the barebones inventories of 2021, their lots are flush with new product, but carmakers still have a scarcity mindset towards incentives. Having gotten hooked on incentive-free profits, they’re loath to resume throwing cash on the hood.

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Dealers, to their rare credit, are just as frustrated as buyers. They’re stuck sitting on inventory for months, unable to move units at such inflated prices, and paying interest the whole time. For once, they’re aligned with car buyers: Both want more incentives from automakers.

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Of course, car prices are a big part of the “inflation” everyone keeps talking about. Cars factor heavily into the Consumer Price Index report, meant to show how the value of the dollar — and the cost of living — is changing. But if car prices are no longer based on supply and demand, rather a pure desire for profit from carmakers, the value of the dollar isn’t really changing. The people taking those dollars from you have just gotten greedier.

If sales stagnate, it’s likely carmakers will resume their incentive programs and begin discounting cars once more. But when manufacturers have grown fat and complacent on low-production profits, they’ll likely hold out as long as they can before discounts resume.