Pub 6 2021 Issue 1

32 I n March 2021, Kelley Blue Book’s valuation analysts reported an estimated U.S. average transaction price for light vehicles of $40,472. To put this number in context, the estimated average was $38,812 in March 2020. The percentage change between March 2020 and March 2021 was a 4.28% increase. Are prices likely to drop going forward? No, but the story is more complicated than it might seem. To start: • The pandemic affected the market. Manufacturing stopped for a while, people lost jobs and buying habits paused. That combination also caused the new-vehicle average to increase. • Electric and hybrid vehicles cost more than gas- powered vehicles, and they require less maintenance overall. As market share shifts, that difference in sticker price creates a powerful incentive for dealers People Are Spending More on New Cars, but Prices Aren’t Necessarily Rising B y Jeff S. Bartlett Wild market conditions are driving high-end sales and skewing average prices to compensate for the drop in service shop profits by charging more money for cars upfront. • Supply chains are still brittle, especially overseas. That affects computer chips and other components used to build cars. If manufacturers can’t get the parts they need to build cars, they have to wait. The wait increases demand. • Many people prefer trucks and four-wheel drive, but those vehicles have higher prices. That affects the average somewhat. • Manufacturers are offering more high-end trims and luxury features than ever before. That, plus improved safety, is worth a higher price tag. • There are more cars priced at $200,000 than there are cars priced at $20,000. A record number of high-priced cars pull the average up sharply. • Many new vehicles cost $20,000 or less. For example, the MarketWatch website says the least expensive new car is currently a 2021 Chevrolet Spark. The website cites a sticker price of $13,400 plus a destination charge. Other sources list different prices; according to Car and Driver, the price is somewhere between a low of $14,595 and a high of $17,995. These are not bad prices for a subcompact with 30 mpg in the city and 38 mpg on the highway, although Car and Driver also says the manual transmission version is cheaper and better than the version with continuously variable automatic transmission. • For people looking to buy at the lower end of the market, there are other good choices to consider. If you consider inf lation, for example, the cost of some popular cars has actually decreased over time. Jake Fisher, senior director of the auto test program for Consumer Reports, says the Toyota Corolla and Subaru Forester are in this category. They are better cars now than they were in 2001. Why are they better? The new models are bigger,