Why did new car prices increase dramatically during the pandemic and why haven’t they decreased as quickly even though inventories have improved? It’s been widely suspected that carmakers prioritized building higher trim levels or more profitable models and now, using car listing data, we have some evidence that this likely did occur and that the asking price for entry-level trucks has grown by as much as 40% since the start of the pandemic. I’m calling it trimflation, and it’s likely still impacting the car market.
To be clear, nothing explicitly nefarious is happening here. It’s not a big secret and it makes logical sense that, given the ability to only make a certain number of cars, automakers did not seem to prioritize their cheapest, lowest margin cars. What’s been lacking in conversations about this topic is any quantifying of the existence of trimflation, which is what I’m attempting to do. Additionally, I want to try to put it in context of the larger discussion around inflation and its causes.
It’s become a less controversial idea in mainstream economics that many corporations used the pandemic to raise the prices of their products and services, to a degree beyond what would normally be expected due to production shortfalls. In this school of thought, this has been a contributor to overall inflation. The rapid increase in the price of new cars is a related phenomena, but with its own unique causes and outcomes.
The conventional wisdom is that, faced with a mostly self-imposed semiconductor shortage (we’ll get into that in a bit), automakers chose to prioritize higher-margin vehicles and trim levels. For example, with only enough resources to build a certain number of cars Mercedes may have chosen to make more of its GLC SUV (which starts around $48k) than smaller models the GLA crossover (which starts at $38k). And even within models, the company might have decided to build proportionally more of the AMG GLA 35 trim, which starts at $60k.
Working with a dataset of cars listed for sale before and during the pandemic provided by CarEdge, I’ve been able to isolate what appear to be quantifiable indicators of trimflation. Specifically, I looked at entry-level half-ton trucks as the likely best example of where trimflation can be seen.
This data shows that number of listings for base trim levels of trucks fell by as much as 80% during the pandemic, while prices increased by as much as 40%. It’s time to give you hardcore car enthusiasts what you love the most: deep dives into new car sales data!
A Brief Explanation Of Sellers’ Inflation/Greedflation/Whatever You Want To Call It
Basic economic theory holds that companies, unless they have some sort of monopoly or killer innovation, generally increase (often) or lower (rarely) prices based on fairly predictable factors. If a company makes wooden chairs and the cost of the lumber it uses goes up then, to protect profit margins, it will raise prices. If the price of lumber goes down and demand stays the same then the company might lower prices to stay competitive or, at least, keep prices similar and pocket the profits. If demand for wooden chairs goes down then it might force the company to lower prices and, vice versa, if demand increases it might increase prices.
Early on in the pandemic, there was a real concern that demand for most consumer goods might fall dramatically. At the same time, numerous industries faced serious production issues related to global shutdowns and the many disruptions (notably, shipping) that followed. Ultimately, demand for many consumer goods remained strong or even increased, due partially to increases in government stimulus and partially to the fact that we were all stuck at home for big chunks of time. While there were real cost increases for certain upstream products and commodities (the stuff you need to make stuff), profits for large corporations went up way more than expected.
An economist by the name of Isabella Weber from UMass Amherst wrote a paper that basically said much of the inflation in the United States we assumed was caused by COVID-19-related issues was, in fact, caused by corporate leaders sort of tacitly agreeing to raise prices and keep them up, using the pandemic more as an excuse than a real reason. As proof, Weber and her co-author looked at the very real increases in profit margins for public companies and listened to numerous earnings calls where corporate leaders essentially indicated that they felt comfortable that demand wouldn’t decrease if they kept prices up and that, frankly, everyone else was doing it.
Here’s how she put it in her paper:
The dominant view of inflation holds that it is macroeconomic in origin and must always be tackled with macroeconomic tightening. In contrast, we argue that the US COVID-19 inflation is predominantly a sellers’ inflation that derives from microeconomic origins, namely the ability of firms with market power to hike prices. Such firms are price makers, but they only engage in price hikes if they expect their competitors to do the same
Some people call this greedflation, though Weber uses the more neutral term sellers’ inflation (which I also prefer and will use). Initially, this was an unpopular opinion among economists, with New York Times columnist/economist Paul Krugman calling Weber ‘truly stupid’ in a tweet (he later apologized and deleted the tweet). Over time, however, people have come around, and the German government even brought Weber in to successfully help the country deal with the energy crisis caused by the war in Ukraine.
I highly recommend listening to the excellent Odd Lots podcast with Weber as a guest, where a lot of this is discussed (also, listening to this podcast gave me the idea for this research):
So, did automakers reap record profits because they all just decided to make cars more expensive and build fewer cars? Not quite. Automakers faced a number of real upstream issues that caused them to initially raise prices, including energy costs, labor shortages, and shipping issues.
But the biggest problem they had was a semiconductor shortage that was predominantly their doing and, one assumes, a happy accident.
How Automakers Shot Themselves In The Foot With A Golden Bullet
Remember the early part of the pandemic when it seemed like we’d be inside forever and you spent a good 10-15% of your day wondering if you might need to spray Lysol on the Ikea catalog you just got in the mail? Fun times.
Modern cars use lots of semiconductors, aka microchips, aka chips. In particular, they use a lot of cheap, older ones, because the processing needs of a PlayStation 5 are way higher than the processing needs of the heated seats in your car (a fact we all learned when automakers started delivering cars without heated seats in the middle of winter and blamed the chip shortage). Automakers also use older chips for a reason: they’re proven and they’re safe. If your computer crashes, you turn it back on and maybe lose some work; if your car’s computers crash, people could die, which is why those chips generally don’t.
Assuming demand would crater, most of the major automakers canceled their orders for chips at the same time everyone was buying electronics to work from home. As IEEE Spectrum reported:
With panic, lockdowns, and general uncertainty rolling across the globe, automakers cancelled orders. However, those conditions meant a big fraction of the workforce recreated the office at home, purchasing computers, monitors, and other equipment. At the same time entire school systems switched to virtual learning via laptops and tablets. And more time at home also meant more spending on home entertainment, such as TVs and game consoles.
Automakers quickly realized demand for cars wasn’t decreasing, especially when banks lowered interest rates, but few chipmakers were interested in making lower profit-margin chips and essentially shuffled automakers to the back of the line. They had PS5s chips to make instead and the money was far better.
With limited chips, automakers knew they wouldn’t be able to build as many cars; from 2019 to 2020 the total number of cars sold dropped by nearly 16%. Faced with the choice of building an expensive vehicle with a high profit margin or something with a low profit margin, it’s long been assumed that automakers chose higher profit margin vehicles. This is touched on on Weber’s paper:
Companies in the automobile sector have also amplified price pressures enabled by a form of temporary monopoly granted by the computer chips shortages. This allowed car producers to focus on expensive models with higher margins and generally raise prices without having to fear a loss in market share. General Motors, for example, increased its profit margins and magnitudes in the second half of 2020 and in 2021 due to a combination of pricing and mix.
GM did, indeed, reap massive profits while building fewer cars, and part of those profits likely came from trimflation.
How To Prove That Trimflation Happened
While this activity has long been assumed, automakers don’t generally release sales information with enough detail to determine how many of which trim (LX, EX, Sport, Black Gold Edition, etc) they actually sell. I wanted to quantify this phenomena somehow and had an idea of how to do it. If any part of the market in the United States would be the ideal indicator of trimflation, it would be half-ton pickup trucks. Trucks command large margins and GM, Ford, and Stellantis all rely on their trucks as major profit centers.
Additionally, while automakers keep adding more expensive trims (Laramie Longhorn, Platinum, Denali AT4), they are fairly consistent with the lower trim levels of their half-ton trucks. In fact, Stellantis continues to produce the previous generation Ram pickup truck and markets it as the Ram 1500 Classic. If I could somehow make a smart guess of how many Ford F-150 XL, Ram 1500 Classic, and Chevy Silverado WT pickups were produced then I might be able to show some of the choices automakers made.
Thankfully, I knew someone who’d be able to help with that. The folks at CarEdge use their partner MarketCheck to scrape nearly all dealership websites nationwide every single day. They use this data to try and bring transparency to the industry and help consumers make more informed decisions. I had them pull the number of listings and the average price for every day from Jan. 1, 2019 to June 30, 2023.
The data not only confirmed what we expected, but showed it was probably worse than many realized.
“Our team was blown away by the decrease in entry-level trim options,” CarEdge CEO Zach Shefska told me after reviewing the data. “We expected to see a drop from pre-pandemic times, but the magnitude of that decline was shocking to us. It is clear that automakers put profits before affordability when the “chip shortage” and new vehicle shortage came to be.”
Again, automakers don’t generally release sales data at this level of detail. In fact, Ford doesn’t even break down sales by truck size, with all F-250s and F-150s merely called “F-Series” in Ford sales reports.
While this data is not perfect (sometimes trucks that aren’t sold are listed, fleet sales might be missed, demand is not static over time, and people often negotiate a lower price than what’s listed), it gives a good representation of the market at any given moment. The actual decrease in production numbers depends on a lot of factors, including how many days it takes to sell an individual truck and the gap between being produced and being listed. These numbers can only be used to get a sense of the declines and may not map up identically with production decreases.
Just How Bad It Got
With all those caveats, here are some fun raw numbers. At its peak on March 21, 2020, dealers showed 58,145 Ford F-150 XLs for sale across the United States. By June 23, 2021, just 8,770 were listed for sale.
With trucks being delivered but the country quickly shutting down, Chevy also had a max listing in March 2020 of 30,479 Silverado WT trucks. That number dropped to just 2,745 trucks in October of 2021. The Ram 1500 Classic was already declining when the pandemic began, but saw a similarly big drop, from a January 2019 high of 48,671 trucks to a low of 5,603 trucks in April of this year.
And what about prices? No surprise: they’ve gone up. The price for the F-150 XL, as indicated by the average of all of them listed for sale, hit a high of $49,037 in March of this year, compared to a low of $36,442 October 2019. The Ram 1500 Classic had a low of $33,850 in December of 2019 and a peak of $45,597 at the end of June. Most dramatic, though, has been the Silverado. For the Silverado WT the high came in June of this year at $57,431, with a low of $34,771, also in October 2019.
Looking at averages, From January 2019 to June 2023, the average listed price of Ford, Chevy, and Ram entry-level trucks increased by 24%, 32%, and 25% respectively. In January of 2022 there were, on average, just 22,868 of the Silverado WT, F-150 XL, or Ram 1500 Classic listed for sale, compared to a high of 109,934 in January of 2020.
Because I don’t yet have trim-level data for each and every trim level for every truck, I’ll have to make some informed inferences based on total sales numbers. So, for comparison, Ford sold 896,526 “F-Series” pickups in 2019 (as mentioned, this includes F-150 through F-450 trucks, but it’s mostly F-150s). In 2020, that number dropped to 787,372 trucks, for a decrease of about 12%. By comparison, XL listings dropped, on average, about 43% from January 2019 to January 2020.
The same can be seen with Silverado, which also tends to report light- and heavy-duty sales together. From 2019 to 2022, Silverado annual sales dropped from 575,569 units to 520,936 units, or about 9.5%. From January 2019 to January 2022 the average number of Silverado 1500 WTs dropped by a whopping 78%.
A spokesperson for GM told me the company did prioritize building WTs for its fleet customers (rental companies, government agencies, et cetera) as much as possible while acknowledging that “[a]ll vehicle line and trim mixes saw adjustments due to both customer preference as well as constrained microchip supply.”
Ford, as well, gave me a similar statement:
Global parts shortages continue to affect Ford’s North American plants – along with automakers and other industries around the world. Behind the scenes, we have teams working on how to maximize production, with a continued commitment to building every high-demand vehicle for our customers with the quality they expect.
The Ram Classic demonstrated declines in listings before the pandemic, but the once popular truck was one of vehicles Stellantis called out as being delayed specifically by microchip shortages, telling The Detroit Free Press in March of 2021:
“We continue working closely with our suppliers to mitigate the manufacturing impacts caused by the various supply chain issues facing our industry. Due to the unprecedented global microchip shortage, we are currently building and holding Ram 1500 Classics built at Warren Truck Assembly Plant in Michigan and Saltillo Truck Assembly Plant in Mexico,” according to a statement provided by company spokeswoman Kaileen Connelly.
According to the company’s sales reports, there were 468,344 Ram pickup sales in 2022, a decrease of 18% from 2021 and of 27% off the 633,694 sold in 2019. Between January 2019 and January 2022, Ram 1500 Classic listings dropped a whopping 85%. Stellantis, when presented with some of this data, declined to comment.
While these numbers are not perfectly interchangeable, it’s hard to imagine a plausible scenario where these trucks are produced and not listed/sold and don’t represent a large percentage of the trucks that weren’t produced. Even if a larger number entry-level trucks were produced for fleets and never showed up as listings, the number of trucks available to non-fleet buyers decreased.
What About Non-Trucks?
The other way it’s been suspected that automakers have improved margins in the pandemic is in the production of higher margin vehicle types (i.e. a big SUV over a small car). Curious about this, I also asked CarEdge to pull data for all Honda Civic and all Honda CR-V production. I didn’t pull trim level data because it’s not consistent given that Honda actually dropped its lower levels during the pandemic, which is essentially an admission of trimflation.
“We made the initial decision to eliminate certain trims to help manage the shortage of microchips and other supply issues that limited production during the past two years,” a Honda spokesperson told me in a statement. “ In order to meet very strong consumer demand, we have reintroduced the more affordable LX trim level to certain models like the CR-V and Civic Sedan for the 2023 model year.”
Honda has also created some additional trim levels that, for instance, add or remove features like Blind Spot Information in order to lower the price of certain models.
Honda is also a good test case because the company was amongst the hardest hit companies during the chip shortage. According to the data, Honda dealers listed as many as 85,000 new Civics before the pandemic. By summer of 2022, that number dropped to just 5,000 a day, or a decline of almost 95%. CR-V listings also peaked around 85,000 new daily listings in the summer of 2019, dropping to a low of around 6,000 vehicle listings in Summer of 2022. While slightly fewer Civics were listed, it’s not a huge difference.
What’s interesting is that Civic numbers have only rebounded to about 14,400 new listings in June of 2023 while CR-V numbers are up to 25,400 new listings each day. (Of course, the general trend in the market has been away from cars and towards crossovers, so that definitely also plays a role.)
Is this another form of trimflation? The removal of a base trim definitely was, but the model-to-model data is a little less clear. The average listing price for a CR-V is hovering around $35,890 according to the data, compared to just $28,150 for the Honda Civic.
To Honda’s credit, the average listing price of the Civic and CR-V only increased by roughly 21% and 20%, respectively, from January 2019 to June 2023, which is lower than the average price increase of 27% for trucks over the same period. With more supplies, Honda’s sales across both Civic and CR-V are up significantly.
The Limits Of The Data And Future Work
As I’ve mentioned a few times before, I’m certain that trimflation–the prioritization of higher margin vehicles in supply-constrained environment–is a real thing that happened. The data I was able to get from CarEdge and analyze seems to show that, at least with trucks, this likely contributed to the increase in the average transaction price increasing during the pandemic.
This was just a limited first attempt at trying to come up with a name for what happened, which I haven’t seen, and try to demonstrate its existence. I invite anyone with access to similar (or better) data to please look into trim level availability and try to get a more detailed understanding of production changes.
The biggest shortfall in the data is the assumption that demand stayed static between 2019 and 2023, meaning that a vehicle stayed listed for the same amount of time across the period. For example, 100 trucks listed for 30 days is the equivalent of 50 trucks listed for 15 days.
While I assume demand was pretty much maxed out for trucks from the summer of 2020 until early 2023 (i.e., few vehicles seemed to stay on the lot for very long), the larger number of listings in 2019 and early 2020 could be partially attributable to softer demand as opposed to larger supply (overall sales volume was down slightly in 2019 versus 2018, for example).
How This Might Come To Hurt Automakers
With the number of vehicles increasing, the changing rate environment, and slightly less economic uncertainty it’ll be interesting to see how quickly this changes and how many of these price increases are essentially permanent.
If the listings data is correct, then both Ford and GM are trying to reverse this trend, and listings continue to increase as production begins to rebound from the chip shortage (truck sales are up year-over-year, so it’s unlikely to be only a demand issue). And, as mentioned, Honda also brought back the entry level trim options for both the Civic and CR-V, theoretically slashing the base price of the vehicle. Still, none of the listing data for Ford, Ram, Honda, or GM show the vehicles or the prices back to pre-pandemic levels.
One of the reasons why automakers were able to get away with this without, in theory, losing a ton of demand is that unusually low interest rates and buyers getting used to these increasingly long loan terms made it possible for consumers to justify spending more on a car by keeping their monthly payments comparable to their expectations. Additionally, government intervention meant that there weren’t Great Recession-style job losses and many households saw an increase in disposable income.
This doesn’t work when interest rates go up and now, according to J.D. Power and GlobalData, the average interest rate for a new vehicle loan is 7.1%, or 180 basis points higher than July of last year. In a higher interest rate environment, automakers may need more lower-trim level models to be competitive and attract buyers who were on the sidelines during the pandemic but now want or need a new car.
Do you want a counter example? Look at Tesla Motors. The company, which built its reputation on the back of the expensive Model S, did all it could to produce as many of its more affordable Model Y and Model 3 offerings during the pandemic. This led to a drop in margins from a relatively high 25% in Q2 2022 to a lower (but still enviable) 18.2% in the Q2 2023, per TechCrunch. In the face of a lot more competition, Tesla has been able to hold on to a lot of its market share and remains the biggest builder of electric cars on the globe.
With the pandemic-induced supply disruptions decreasing and used car prices remaining high, there’s a real opportunity for affordable vehicles with nicely appointed lower trim models. A good example is the 2024 Chevy Trax, a vehicle that’s both reasonably priced (it starts at $21,495) and is also quite good.
The alternative is that the United States car market begins to look more like Europe and another player, perhaps even Chinese brands, start to poach customers who just need a good car and a decent price. If the mainstream automakers don’t alter their pricing strategy and keep focusing on pumping out newer, more expensive EVs, then the market could be primed for a company like Dacia or, even, a BYD, to suddenly gain traction.
Images: Stellantis, Ford, General Motors, Honda, Topshot by Jason Torchinsky, Graphs Jason Torchinsky/Matt Hardigree