AYESHA RASCOE, HOST:
Earlier this year, the average price of a new vehicle hit a new record, eclipsing $50,000 for the first time. The Trump administration blames it on rising fuel efficiency standards and the push to adopt EVs. But there are lots of other factors at play, including tariffs on imported cars and car parts. So what's really behind the rising prices, and can anything be done to reverse the trend? Joining us now is David Welch. He's the Detroit bureau chief for Bloomberg and reports on the automotive industry. Thanks for speaking with us, David.
DAVID WELCH: Thanks for having me here today.
RASCOE: So let's start with fuel efficiency. President Trump wants to roll back Biden-era regulations. He says it would save buyers about $1,000 per car. Are these environmental regulations really a big factor in making cars more expensive?
WELCH: They played a role over the past decade or two as companies had to meet these regulations. They did put in things like turbochargers, which, you know, that can add a few hundred dollars to the cost of a vehicle. Hybrid systems - they can cost 1,000 or $2,000 more, and, you know, the companies try to recoup that cost with their sticker prices.
So that's a piece of it. Now, the other part of it, though, is as companies have been able to meet their fuel-economy regulations with some of that technology and larger vehicles, they canceled a lot of the smaller, cheap vehicles that they used to have to sell in order to meet their fuel-economy rules. So things like the Chevy Cruze compact, the Ford Focus, the Honda Fit.
RASCOE: They don't make the Honda Fit no more? That was my first car.
WELCH: They don't sell it here.
RASCOE: (Laughter).
WELCH: Yeah. They - all these vehicles are gone, and, you know, those were the vehicles that were, you know, years ago, 12,000, 14,000 or under 20. There are very few vehicles in that $20,000 range on the market these days. And that's one of the reasons that average cost is over 50,000. It's an average. So when you take out a lot of the cheap vehicles people used to buy at the bottom of the market, then you have this imbalance. But some of that technology, also safety technology, and a lot of infotainment stuff - creature comforts - all that stuff costs money, and it has pushed the price up. That's not the biggest factor that has made cars expensive, but it is a factor.
RASCOE: What is the biggest factor making cars so expensive?
WELCH: So look, we've seen this run-up in vehicle prices over the past five or six years. So what happened during that time? We had COVID, and we had a semiconductor shortage. Both of those things caused automakers to have to cut production - or stop production in some cases - of vehicles. During COVID especially, we had plant shutdowns for weeks on end. The semiconductor shortage, they were having to allocate chips around to make their vehicles. That cut production.
So the car companies learned something very important to them and their shareholders during this time period. What they learned was that if they made fewer cars, either because they didn't have chips or because they didn't have people working because they had COVID or because they just made fewer cars, they could charge more for them because dealers didn't have to negotiate. They didn't have to offer rebates and 0% financing deals and all that stuff. So, you know, back before COVID, we had annual U.S. vehicle sales of usually close to 17 million vehicles or more. Last few years, we're running, let's just call it in the 16 million a year range.
RASCOE: And so are they still making the same amount of - not to cut you off, but are they still making the same amount of money? Like, they're selling less cars, but they're making the same amount of money or more.
WELCH: They're making more money.
RASCOE: They're making more. OK. So then that...
WELCH: They're doing better.
RASCOE: So that makes...
WELCH: Yes.
RASCOE: ...Sense for them, then.
WELCH: Yeah. Their profitability is much better these days. And if you get on their earnings calls, they will talk about, we had a good quarter with mix. What mix is - we sold more expensive cars than cheap cars in the quarter, and that's better for profits. Usually, that means they sold more pickup trucks, more large SUVs than they did small SUVs. And the bigger the vehicle, the more expensive it is and the higher margin they make on it.
RASCOE: Well, I mentioned the president's tariffs. Are they impacting car prices yet?
WELCH: They have a bit, not as much as you would think. I think what we've seen is, you know, the average vehicle price has gone up 1,000 or 1,500 bucks over that time. That's not - I mean, it is in excess of sort of the annual increase you would see in a healthy economy. They haven't been able to offset all of the tariffs, is my point, but they've offset a little bit with some pricing moves.
RASCOE: Well, do you have any advice for prospective car-buyers who might be listening? I know back in the day, they would say, like, wait till the end of the year and, like, don't buy the new model year. Buy the old model year. Is that still a thing? Are there any tricks?
WELCH: Yeah. It can help a bit, particularly you're buying at the end of the month. Dealers often do want to clear out inventory, or they have incentive programs, so they'll bargain a little bit more. So, you know, be a smart shopper and do a lot of research and see if you can find a good deal out there.
RASCOE: That's David Welch, Detroit bureau chief for Bloomberg. Thank you so much for being with us.
WELCH: No problem. Thank you. Transcript provided by NPR, Copyright NPR.
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