Why Rising Prices of Cars and Car Parts Means You Should Shop Your Insurance

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The average cost of a new vehicle exceeded $47,000 in December 2021, according to Kelley Blue Book — a nearly 40% increase from 2016. Increased expenses don't just stop when you leave the auto dealer, either. Insurance rates have steadily increased each year to keep pace, increasing 13% from 2016 to 2019 according to The National Association of Insurance Commissioners (NAIC).

There are several culprits behind these price increases — worldwide microchip shortages that diminish the supply of cars for purchase, the need for specialized technicians to repair high-tech vehicles and rampant inflation, just to name a few. With the true cost of car ownership rising each year, shopping around for the lowest car insurance rates is essential for protecting you, your vehicle and your budget.

Key Insights

  • The average cost of a new car ($47,243 in 2021) increased 36% from 2016 to February 2022. A used car costs $26,710, on average, in 2021 — a 34% from 2016.

  • Car insurance has increased 13% from 2016 to 2019. In 2021, auto insurance cost $1,450.92 per year, on average, according to SmartFinancial's analysis.

  • A worldwide microchip shortage partly contributes to higher car prices due to a diminished supply of cars and higher demand for cars as the world returns to pre-pandemic driving habits.

  • Expensive cart parts, the need for specialized technicians and a patent on basic car parts are additional factors contributing to higher car costs and auto insurance premiums.

  • When car prices and auto insurance premiums are reaching an all-time high, shopping around and comparing rates can help you save money while maintaining your car insurance coverage.

New Cars Prices Have Risen 36% Over Past Six Years

The prices for new vehicles have risen 36% from 2016 to February 2022 according to Kelly Blue Book (KBB), a trusted automotive research company. In January 2016, the average cost of a new vehicle was $33,845. Fast forward to February 2022 and consumers can expect to pay $46,085, on average.

new car average cost over time

Source: KBB

The all-time high in cost for a new vehicle was a whopping $47,243 in December 2021. Fortunately, slight cost declines in January and February 2022 have interrupted the upward climb in cost.

The average cost of a new vehicle exceeded $47,000 in December 2021.

Costs in the Used Car Market Follow a Similar Trajectory

While you would likely save money buying a used vehicle over a new one, you'll still be paying much higher prices compared to six years ago. A used vehicle in 2016 would cost, on average, $19,890 per year, according to Statista. The average cost then soared to $26,710 in 2021 — a 34% increase.

used car average costs over time

Source: Statista

Higher Car Prices Correlate with Higher Car Insurance Rates

Data from the NAIC shows a correlation between the rising cost of buying a car and car insurance. The annual cost of car insurance has steadily increased from 2016 ($1,065.97 per year) to 2019 ($1,203.65 per year) — a 13% increase.

average cost of car insurance over time

Source: National Association of Insurance Commissioners

SmartFinancial's analysis shows that the average cost of car insurance was even higher in 2021. Costing $1,450.92 per year, on average, U.S. drivers were paying 36% more in 2021 than NAIC's analysis in 2016 ($1,065.97 per year). Prices are still climbing.

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More Expensive Parts and Other Factors of Higher Car Prices

The increase in car prices and car insurance rates isn't an isolated phenomenon. Several factors, both economic and technological, are contributing to more U.S. drivers paying more out-of-pocket for cars and auto insurance.

Microchip Shortages Reduces Supply, While Increasing Prices

Worldwide shortages of microchips are bottlenecking the ability to meet the increased demand for vehicles following the pandemic. The shortage is partly due to mass shutdowns and quarantine protocols during the height of the pandemic. Now that driving habits are returning to pre-pandemic levels, more U.S. drivers are car shopping.

A vehicle may have over 100 microchips to enable various functions and safety features, like opening your windows and operating your navigation system. Without these microchips, manufacturers can't increase the supply of vehicles.

The microchip shortage contributes to a lower supply of vehicle production despite increased demand. As a result, prices go up — the laws of supply and demand very much at work.

The average cost of a new car ($47,243 in 2021) increased 36% from 2016 to February 2022.

Technology and Car Part Materials Contribute to Higher Costs

With vehicles becoming more technologically advanced (and essentially functioning as computers on wheels), there is a greater emphasis on engineering research and development. Driving assistance technology and entertainment and connectivity systems all cost money to develop and then implement into newer car models.

Newer models may use more expensive materials, like aluminum and high-quality steel, to provide better durability, performance and efficiency. While this generally improves overall safety while driving as well, it does come at a higher cost, increasing the price tag of the car and also the cost of buying replacement parts following an accident. Insurance companies then pass these costs onto the consumer in the form of higher insurance rates.

Design Patent Monopolies Reduce Lower-Cost Alternatives

Car manufacturers have started patenting basic parts, like fenders and headlights. Instead of patenting aesthetic or ornamental parts, a patent on core auto parts restricts aftermarket manufacturers from making similar replacement parts of similar quality at a lower cost. This effectively creates a monopoly that forces drivers to pay higher prices for repairs.

Design patent monopolies can also force drivers to receive service from a qualified dealer instead of going to an independent aftermarket shop. This can lead to increased costs and longer wait times, according to the CAR Coalition.

New Model Repairs Require Specialized and Costly Technicians

Safety systems, like backup cameras, collision warnings and blind-spot detection sensors are becoming standard fare on newer models. A specialized technician that understands how to troubleshoot, replace and calibrate fragile sensors may be required for some types of vehicle repairs. This is specialized knowledge that can drive up the cost of repairing and maintaining your vehicle.

Supply Shortage in Used Cars

With new cars skyrocketing in price, U.S. drivers are more likely to turn to the used car market. Unsurprisingly, high prices may lead more people to hold off on buying a new car until the prices drop. This hold-out contributes to a lower supply of used cars. Again, increased demand for cars but lower supply leads to higher prices, even in the used car market.

Returning to the increase in auto insurance premiums, this means that your auto insurer has to pay more to replace your car or reimburse you. To offset this additional cost, you get charged higher auto insurance premiums.

Inflation Is Driving up the Cost of Car Repairs

Inflation is driving up costs across multiple industries and the automotive industry is no exception. Your money isn't going as far as it did just six years ago. Spending $1,000 today at the repair shop would've purchased $1,194.32 in 2016 — a near $200 difference. See below how inflation has diminished your buying power since 2016.


$1,000 Buying Power for Auto Maintenance and Repairs




















Source: OfficialData.org

Since auto insurance covers the cost of auto repairs for covered losses, car insurance premiums rise to keep pace.

When car prices and auto insurance premiums are reaching an all-time high, shopping around and comparing rates can help you save money.


Does the price of a car affect the cost of insurance?

Generally, more expensive cars cost more to insure partly due to the costs of replacing expensive parts or the need for specialized technicians for repairs on high-tech vehicles. Expensive luxury cars can also be a prime target for theft, which can increase the cost of comprehensive coverage. Cheaper and older cars may require less coverage, which can reduce costs associated with higher coverage limits or optional coverages, like collision and comprehensive.

What factors affect the price of car insurance?

Your vehicle and driving habits, such as your claims history, annual mileage and vehicle year, make and model, will affect how much you pay for car insurance. Personal information, such as your age, location and credit score can also affect your auto insurance premiums.

Shopping Around Can Help You Secure the Lowest Price Available

With the increasing cost of buying a car driving up the costs of auto insurance, shopping around is essential to meeting your coverage needs without breaking the bank. Just like our economy, auto insurance rates are constantly shifting, so it's important to find an insurer who can offer you the best coverage for less.

SmartFinancial can help you find the lowest price in your area, much faster and more efficiently than calling each insurer one by one for a quote. Just enter your zip code below and answer a few questions or call 855.214.2291 so we can match you with a policy based on your answers. Receive your free car insurance quotes now!

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