As cars and trucks become generally more available, following the problems associated with Covid and the supply chain, ownership costs are accelerating. Four of the five primary costs associated with owning and operating personal vehicles, purchase price, repairs, insurance, and financing, are all rising, in some instances, by a lot. Only fuel costs have been moderating.
Consider the following:
- Average new car transaction prices are hovering around $50,000.
- Increasing vehicle complexity and more sensors, such as cameras, have substantially increased repair costs. EV repair and battery replacement costs are through the roof.
- Higher initial prices and escalating repair costs have led to much higher insurance prices. Regulators have started to push back on higher rate increase requests, which could further complicate the issue if insurance companies withdraw from certain markets.
- Rising interest rates are resulting in rising monthly payments for both leases and financed purchases.
Investors should seek to understand how this could affect potential vehicle purchasers. To the extent that prospective purchasers choose to keep their vehicle longer, new car sales could suffer while the maintenance industry could benefit.
All comments and suggestions are welcome. Walter J. Kirchberger, CFA