Why are new cars so expensive? The inside story on car price rises
The cost of buying a new car has gone through the roof over the past few years. We look into why, and offer ways for customers to minimise the price they have to pay
Been browsing for a new car after a few years off and found yourself muttering: “How the hell did new cars get so expensive?”
Your incredulity is spot-on: over the past 10 years, the average list price of a new petrol car has soared from £27,035 to an eye-watering £45,218. That’s up 67 per cent, significantly more than general consumer price inflation and wage growth.
Duster, Golf, Puma: how much have new cars risen by?
It’s not just petrol cars. The average retail price of hybrid cars has also risen, from £30,485 to £44,273 (up 45 per cent) in nine years according to research for Auto Express by expert analysts Cox Automotive, using Cap HPI data.
How does this increase play out for the more popular cars in the market? We asked Cox to crunch the numbers on a petrol-powered Dacia Duster, Ford Puma and Volkswagen Golf and a diesel Mercedes E-Class, taking one popular variant on consistent sale from 2016 to 2024.
Value-brand Dacia posted the highest percentage increase (28 per cent) but its low list price meant the monetary hike was contained to £4,197. Mercedes posted the biggest wallet impact – up £10,439 (22 per cent) – while VW boosted the Golf by £5,834 and Ford restricted the Puma’s inflation to 12 per cent (£3,074).
The average RRP of diesel cars has increased too, but this is exaggerated by a structural shift: many mainstream car makers have stopped selling diesels, leaving the field to premium German car makers. Electric cars exist in their own niche.
What’s behind the price hikes? Regulation, rising raw material costs, supply chain issues, changing consumer tastes and manufacturer line-ups – plus the Covid-19 pandemic.
COVID-19 lit the touchpaper for car pricing fireworks
Aside from the devastating human impact, the Coronavirus pandemic turned the car industry on its head. Lockdowns and furloughs hit the global supply chain, causing components to become scarcer and prices of raw materials to rise (and then climb further when Russia invaded Ukraine).
Covid-19 interrupted the status quo of Europe’s car factories churning out more cars than there were customers, which had kept down transaction prices. Semiconductors became headline news, with a ‘chips crisis’ meaning manufacturers could only build a finite number of cars, so they focused on expensive, higher-margin models such as SUVs, and on electric cars to help meet emissions targets.
“You couldn't get city cars or superminis,” says Cox Automotive insight director Philip Nothard. “It was SUVs, because that’s where the profit was: you can imagine the profit in a £50,000-£80,000 SUV is ten times what it is in your £15k supermini.”
Upmarket drives and agency models are a pricing factor
With new-car demand exceeding supply, the mindset of Europe’s car makers changed: to focus on delivering “value not volume” in the mantra of Ford, Mercedes-Benz and Renault. Not necessarily value to the customer – but to their bottom line and therefore to shareholders.
Mercedes is doubling down on upmarket cars. Sales of affordable Mercs will contract by 25 per cent; the barely profitable A-Class won’t be replaced, and the CLA that succeeds it will cost 20 per cent more than the outgoing model.
And Ford – which nearly doubled the price of the Fiesta in the decade before ending production last year – is phasing out affordable cars.
“We started to change our strategy towards iconic vehicles,” says Ford CEO Jim Farley. “We had always competed in the middle of the passenger car market. It didn’t really work out too well for us with Fiesta, Focus and Mondeo: they were loved by a lot of customers but from a business return they could never justify more capital allocation.”
Some brands including Mercedes, MINI and Volvo have switched to an ‘agency model’. Manufacturers set the price and dealers are no longer empowered to strike deals with buyers, instead acting as an agent for test drives and to deliver the car. In theory this should help brands defend prices, although the transition to agency is not happening smoothly.
The flight to SUVs comes at a cost
“One reason behind the price increase is the weight increase in cars,” says Dacia’s vice-president of product performance, Patrice Lévy-Bencheton. Since the millennium, European cars have bloated by a remarkable 21 per cent, triggering a 56 per cent increase in engine power with upgraded mechanicals adding cost.
Lévy-Bencheton says this is due to two main factors: bigger crumple zones to meet crash regulations and consumers abandoning low-slung cars for SUVs. And this leads to a vicious cycle: “more weight and more power means more consumption and emissions,” he says. “But at the same time we have to meet European green- deal constraints that are good for the planet.”
That’s why Dacia’s utility vehicles – the Bigster, Duster and Jogger – have hybrid powertrains, and its costly roll-out of pure-EV is gathering pace.
Low EV sales means no chance of hitting economy targets
Law makers have introduced targets to reduce vehicle CO2 emissions: the UK’s ZEV mandate sets rising quotas for EV sales, the European Commission stipulates car-making groups should not exceed an average of 93.6g/km across their total car sales (lowering to 49.5g/km from 2030).
“If you want to achieve the 2025 European target, electric vehicles have to be 22 per cent of sales,” calculates Dacia’s Lévy-Bencheton. “Last year, the European industry was around 14 per cent.” Dacia’s tally was a mere three per cent, as registrations of its Spring EV slumped 63 per cent after governments rolled back electric subsidies.
This has proved another inflationary measure: the average UK RRP for an electric car hit nearly £62,000 in 2024. Market experts Cap HPI reckons around 72 per cent of EV registrations topped the £40k luxury car tax threshold, which hikes road tax.
That said, an influx of lower-priced electric cars – the Citroen e-C3, Ford Puma Gen E, Renault 5 and Vauxhall Frontera – are sure to drag the average down in 2025. But this good-value cavalry is arriving too late to stop law makers from watering down the EU CO2 average and UK ZEV mandate, caving in to pressure from car makers fearful of potentially huge fines for missing targets.
Have safety standards impacted new car pricing?
Other regulation has transformed the cars European makers sell – and their prices.
From July 2022, the European Union’s ‘General Safety Regulation’ (GSR) mandated that all new cars had to feature more safety technology: autonomous emergency braking, location-based speed warnings, lane-keeping assist and driver-attention monitoring. These driver-assistance systems rely on sensors, cameras and telematics – and all of them are adding cost.
Two years later, a second stage, GSR2, widened to cover every car on European sale. And it led to some tough decisions for car makers: would it make economic sense, or was the engineering even feasible, to equip a model to meet GSR2, especially if it only had a limited time before replacement?
The result was less choice for car buyers: Toyota couldn’t retrofit the brilliant GR86 coupé, so it bowed out of Europe despite remaining on sale in Japan and the US. The law also limits Alpine A110 volumes to 1,500 units, the threshold for low-volume exemption.
After much wrangling, the Euro 7 emissions standard begins in November 2027 and requires combustion cars to minimise pollutant levels – including a tighter nitrogen oxides standard – for 10 years/124,000 miles, and all cars (including electric vehicles) must better mitigate particle emissions from tyres and brakes.
Again, it will cost. European pro-car industry lobby group ACEA claims it will add 2,000 Euros (around £1,650) to the average price of a new car. Vehicle manufacturers have argued that the exhaust gas treatments are cost-prohibitive and hard to package on low-margin small cars: Audi has vowed to retire the A1 supermini, VW intends for the electric ID.1 to replace the up! city car, four years after that ceased production. And these rules would have been a factor in Ford killing the Fiesta, taking its borderline profitability over the edge.
Everyone wants safer and cleaner cars. The challenge is: who pays the price of progress? It all adds up to a perfect storm of inflationary factors, stoking the price of every new car.
Five top tips to beat car price rises
1. Use Auto Express’s Buy a Car service
You can now buy a new car through the Auto Express Buy a Car service. It’s powered by Carwow, and you can use it to search for retailers’ best deals on the cars you want to buy. Terms and conditions apply, while prices and offers are subject to change and limited availability.
2. Bag a bargain EV
Under pressure to hit quotas on new electric car sales, manufacturers are offering generous discounts on new EVs. At the time of going to press, we saw some chunky offers on the Cupra Born and Ford Mustang Mach-E – check out Auto Express’s marketplace.
3. Buy a pre-registered car
Retailers can pre-register cars in a bid to hit sales targets, triggering a knock to a car’s value and turning it into a nearly new car. Look for the label ‘pre-reg’ on images in the Auto Express marketplace and you could find an extra grand or two off a car with very limited mileage.
4. Buy at the end of a quarter
Many car dealers have sales targets to hit at the end of a financial quarter. So in the run up to the end of March, June, September or December, you might find salespeople ready to strike a deal.
5. Know your finance options
Most people finance a new-car purchase in some way. Just remember finance proposed by a dealer is not your only option: they may have lower-interest or interest-free options available, or you might find a loan cheaper from another finance house.
Now you can buy a car through our network of top dealers around the UK. Search for the latest deals…
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