American automobile buyers like Darin Davis face new sticker shock. When the 56-year-old Dallas real estate agent updated the insurance on his pearly-white 2024 Cadillac XT4 a few months earlier in January, the amount nearly doubled.
"It takes the fun out of owning a new car when you're paying so much money," Davis said, adding that he might have chosen a cheaper model if he had realized such a huge rise was coming. But it was too late.
Car prices are falling after rising by record amounts during the COVID-19 pandemic, a bitter twist in an inflation-weary U.S. economy. Consumer gains are being eaten up by soaring auto insurance rates that now account for more than a quarter of the total cost of owning a vehicle for some models.
As the pandemic's supply chain issues, especially computer chip shortages, have been resolved and automakers increased inventory, car costs have fallen. Climate change is increasing storm damage and automobile repair expenses, raising insurance prices.
Car buyers aren't the only ones upset about insurance inflation. This is an example of how unwanted surprises have slowed Federal Reserve policymakers' efforts to control inflation.
Labor Department: Consumer Price Index climbed 3.5% last month from a year earlier. Over the same year, auto insurance costs rose 22.2%, the most since the 1970s.
Car prices moderated. Compared to last year, new car costs fell 0.1% and used car prices fell 2.2%. Car dealers are offering additional incentives to lower upfront expenses. There are indicators that insurance premiums are weighing more on buying decisions, especially for those on tight budgets.
"We're hearing from a number of shoppers that they're declining to buy a car - or returning one - because they can afford the car but not the insurance," said Sean Tucker, senior editor at Irvine-based Kelley Blue Book.
Follow for more updates