Inflation and Car Prices: Why the Auto Industry is at Risk

April 14, 2022

Most of us know someone who has tried to buy a home in recent months. The home-buying and the home-selling market is going crazy right now. Anyone who has looked at buying a car knows that the auto market is insane right now too. Cars, both used and new, are more expensive than they’ve ever been because the supply chain has been slowed down. If you’re like me and simply curious, you might wonder what’s going on and what puts the auto industry at risk during times of inflation.

What Caused the Inflation to Begin With?

Of course, COVID-19 and the shutdown had a huge impact on the inflation we are seeing right now. It isn’t the sole reason it’s happening though. I was recently reading an article (check it out here) where Michael Greiner explained the circumstances of this inflation best.

Greiner, an assistant professor at Oakland University, said, the United States government spent $5 trillion during the pandemic. A lot of that went right into the pockets of consumers. Typically, during a recession like the U.S. was preparing for, people’s finances take a hit. During this recession, the average savings balance actually increased. People got the money and saved it. After all, most of us were stuck in our homes anyway.

He continued, “It was a policy decision that was made — that we were going to risk inflation because of the fact that we wanted to make this economic crisis something that most people were going to be able to survive well.”

A Shift From Services to Goods

Another huge thing that changed during the pandemic is the way consumers in the U.S. spend money. Historically, the U.S. economy is based on service-based transactions. For instance, you go out to eat and pay the bill or you work out at the gym so you have a membership fee drafted monthly. When the world shut down, people stopped spending money on those things.

Instead, they began spending money on material goods to improve their quality of life at home. People couldn’t go out to eat so they spent more money on kitchen appliances and cookware. No one could go to the gym so they canceled their memberships and bought a machine for the house. This fundamental shift in the way people spend money has impacted suppliers in a huge way.