The American middle class is slowly being priced out of the new-car market, a recent study may indicate.
According to data compiled by Experian, the cost of an average new-vehicle loan hit $32,119 in Q2 2019, which is up $448 year-over-year.
Experian also found that there is roughly a $12,000 difference in the loan amounts given for new vehicles compared with used vehicles, evidence of the sharp uptick in vehicle prices that has taken place in recent years.
Additionally, Q2 2019 saw increases in the percent of used vehicles being financed, with used-car financing up 1.2 percent compared to Q2 2018. The middle class is also relying more on leases to get themselves into a new car as well, with the amount of cars being leased rising 0.62% in just one year’s time.
New-car prices have risen a staggering 38 percent in the past 10 years as well, so it’s no shock that auto loans and lease rates are rising – especially when the median household income has barely risen. According to Car and Driver, the median household income in 2009 was around $59,000, while the average household income in 2018 sat at around $62,000. That means car prices have jumped nearly 40 percent, but the median household incomes has risen just over six percent. It’s not hard to see why many middle class families are finding it hard to find a new car that suits their budget.
There’s very little reason to believe new car prices will come down, either. With safety agencies pushing automakers to include more standard safety features and governments looking to put increasingly strict emissions standards in place, the cost of developing and manufacturing new cars looks as though it may keep on rising. Those who can afford a new car are flocking to crossovers, SUVs and trucks as well, which typically carry a higher price tag. With demand for larger vehicles on the rise, some automakers are killing off their more affordable car lineups – like GM and Ford have done in recent years with cars like the Chevrolet Cruze and Ford Focus.
CBS News recently covered the problem of rising car costs and spoke to CJ Faison, whose family sells repossessed cars through an auction in Delaware. Faison said he has been getting “tons” more business in recent years, with more people defaulting on their car payments and more people looking to scoop up used vehicles for a bargain.
“I would say (business has) probably doubled, if not tripled,” Faison said. “I think mainly because there are people who are going longer terms on cars. They’re more expensive. You owe more on the car than what it’s worth.”
“They have priced cars out of a lot of people’s budgets,” Faison added. “There are finance companies through these manufacturers now to let people afford these cars by stretching the loans out to six, seven, eight years on a car. That blows my mind.”
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Source: Car and Driver/CBS News
Comments
Nothing new here and this has been a major concern for MFGs for a while as labor, development cost and material cost have been out pacing income for a while.
Dealing with all these and then trying to make a profit while trying to still keep prices affordable.
We may not like it but plants in Mexico an imported parts are not just for profit but hold the line on prices too.
Now you mix in Hybrids and EV models that cost even more it makes cars even harder to buy.
Let’s face it the Bolt is an $18k car if it had a ICE engine,
Some of what is driving the compact CUV market is the cost less and they still hold good utility to haul people and cargo over many sedans.
Companies like Hyundai can short cut things and save on labor in non union plants. This helps cut prices and sells more cars.
Price is even hurting Honda and a Toyota.
The real fear is China comes up with a car people like and they sell below the cost of the others. While many say they will not buy Chinese cars more will have no option price wise. Wal mart has dominated the market with imported products that everyone complains about yet buy due to low cost.
This is a problem because of one thing, and skewed by another
The problem: wages have not kept up
The skewed: there are more luxury vehicles and segments now that skew average prices higher.
$60k SUV now has the same ‘value’ it did 10 years ago. Same with a $20k economy car.
Take a Silverado, Malibu or Cruze, it does not matter and compare it to it’s similar counterpart from 10-15-20 years ago and calc inflation and today’s vehicles are within a few percent and sometimes end up being cheaper.
These narrow minded articles and studies (blaming your referenced article, mostly) don’t help the perception and needed solution. This isn’t the automaker problem, it’s a nation wage and consumer purchasing power problem. Learn it.
Nailed it⬆️⬆️⬆️⬆️⬆️
I think a lot of people these days dont want to drive what they can really afford. In order to avoid driving a s–t box they will finance for as long a term as they can in order to get a nicer vehicle. In all honesty i am one of those people.
There aren’t many s–t boxes these days though. A $25,000 sedan is pretty damn nice. It’s not the quality and appointment of cars, it’s the temptation and weakness of consumers that get them financing for 8 years and trading up multiple times
for $25K you can buy a nice and reliable car. unless you have a litter of kids, a family doesn’t need a huge SUV.
when the next recession hits, a lot of people are going to be wondering why they spent so much on a vehicle they didn’t need and could barely afford.
Vehicles today are more complex, have more standard features, more reliable, last longer, and are far safer than ever before. Of course they are more expensive. Is anyone surprised? You can still get a base camaro or equinox for around 20k. Neither of those are “sh*t boxes”, not even close. They all have power windows, cruise control, fully modern infotainment and bluetooth. My AWD 2LT 2.0T Equinox was 25k, which is a very reasonable price for what I got. It has heated power seats, blind spot alert, power tailgate, its got everything pretty much except fake leather seats. People complain alot about prices of new vehicles, but it is YOUR choice if you want to go out and buy a vehicle for 35 or 40k. You can find a Silverado on sale for 35-37k easy, and thats LT models with good options. You can find equinoxes all day for 23-25k with good options. All far below the average transaction price for a vehicle in the US. The point is, there are affordable, attainable vehicles being made all the time, and they sell tons of them. Yet somehow people have this idea in their heads that cars are “too expensive”. Thats BS. What is really going on is that people are idiots and put themselves in debt to buy a vehicle they can’t really afford. Here’s a thought–don’t complain about high prices and then walk into a dealer and finance a $60,000 truck.
Some people have different opinions of s–t box. I have owned a base Equinox, and it was a cheaply built s–t box. Of course thats a personal opinion from a Cadillac owner.
I had a ’94 geo metro and that was a sh-tbox. The driver side interior door release handle once just broke off in my hand. The hood latch failed on the highway one time and almost killed me. Seat cloth coming apart at the seams. That’s my definition of a sh-tbox: a vehicle that is so cheaply made that things just fall apart under normal use.
A modern base equinox…it might be cheap, but the door handles are nice and solid, there is no play in them. Panel fit is good. All knobs/buttons work well and feel good. Cloth seats are high quality. Yea theres hard plastic but there should be on a family cuv. Point is, the vehicle is well put-together and feels solid. Not a sh-tbox by any stretch.
Need a Tahoe, but can’t afford it? We have a nice lil 3 cylinder cvt trailblazer over here for ya 😉 Please leave your nuts at the door, thanks.
Exactly !!
LOL. That one did make me crack up.
However, there really are a LOT of people out there who really don’t NEED the Tahoe. The want it, but don’t need it. Same could be said about the tons of people out there (they are all over LA area) driving a $40,000+ Jeep Wrangler 4dr and you only see one or two people in them and they never really go off-roading.
I wish gm made a reliable good midsize suv. There is no good reason GM cant make a 4Runner competitor.
The Federal Reserve keeping interest rates low artificially inflate car prices with cheap debt, plain & simple.
What this article fails to mention (but Cadillac Matt partly made this point) is that people are self-inflicting this upon themselves. In a large part, this is because the buying public feels they must have all this stuff on their car/SUV’s/vans/trucks and it costs money! Do we need 20-24″ rims? Hell no, but so many feel they need it. Do we need much of the stuff being placed on cars? No. We have lost sight of true driving of cars and now it’s all about “connectivity” and WiFi and anything that will allow us to hear that last text that just came through. You know, because if we don’t know what that text says, then we might just die! I’m being somewhat dramatic here, but there’s a huge amount of truth in it all.
I’ve said this for a long time and had a similar discussion on this site months ago about why trucks are so darned expensive. My point was then and still is now that all brands must make and offer basic trucks. Try finding a base v6 automatic Chevy or GMC or Ford truck that has an MSRP for less than $25,000. Can’t be done. One person commenting months back made a point about a dealer by him (maybe he actually worked there?) who had numerous base trucks and the dealership lost money on them to just sell them. His point was well taken, but also brings us back to this article. We, all of us, are to blame in a huge way for demanding that our vehicles do so much and have all the toys. The bubble will burst soon enough and we will be back to 2008.
The truth is the difference between the most expensive models and the Sh#t box is not really that much.
The base price on most models are high and 3/4 of the price. Often the top models enjoy large rebates that bring the price down fast to where only a few hundred to a grand more will move you up.
My truck was discounted to were it was only $400 more for the Denali that had much more than $400 of content over the SLT I was going to buy.
At resale generally I make back the additional cost. Like my GTP Comp G it sold faster and at a better price than the lesser GT was at the time.
The bottom line though is that if you want resale then buy a truck. You get so much more back on a truck vs a car.
There’s nothing wrong with taking a finance term out to 72 or 84 months if you can get a great interest-rate and put down a decent amount of money say 15 to 20% down for those customers who keep their vehicles long term. Personally I like leasing my new cars because the payments are generally 30 to 40% less there’s no long-term maintenance and they require nothing down with good credit and you can buy extra miles and not have to worry about playing the trade game since most folks trade every 3 to 4 years on average.
The definite increase in government regulations in regards to safety features such as all the nanny controls we have now with blind spot warning, automatic braking etc…has made vehicles way more complex to not only build, but to repair. This by itself, including the latest and greatest tech features has made cars, trucks and CUV/SUV’s a lot more expensive to buy for the average American.
Sure labor cost plays a role in the price increases,. but I don’t remember a time where so much advancements in cars today have accelerated so quickly that a car that’s only a few years old, seems so outdated from an interior and tech standpoint.
There’s was a time when vehicles didn’t change much for decades. The 1950’s-1970’s vehicles were pretty much the same, a big sedan or truck that was RWD and a V8. The only advancement made throughout that time was mostly the introduction of the 8 track and tape cassette. It wasn’t until the 90’s when drivetrain and emissions advancements really improved fuel efficiency, pollution levels, horsepower and reliability.
All the nanny safety’ tech didn’t arrive up until recently, including the touch screens that are as smooth to operate as your newest smartphone. That stuff is super expensive to design and engineer to get right.
But based off a quality of materials being used, there’s way more cheap plastic to break in newer vehicles compared to cars and trucks from decades prior,, and the lightening up on curb weights doesn’t give many cars or CUV’s that substantial feel that much anymore. Closing the doors on my old Cadillacs (1964 Deville and 87 Brougham, or even my previous 94 Fleetwood Bro) for instance is pure harmony to my ears and body. You feel a nice clank or thunk upon closing each door, everything about each of those cars feels very substantial compared to even the new CT6. You simply can’t beat an old school full framed Cadillac in riding comfort, it is very tough to do in a unibody design especially when it comes to NVH. Cars feel cheaper and look cheaply made, yet they cost so much more money now then they have ever have in the past. Yes wage growth has lagged big time as prices for all kinds of commodities has risen sharply.
Things are more expensive today relative to years ago. Try buying a home in CA in the 1980’s or even 90’s, it wasn’t much of a problem for the majority of middle class residents to afford, but flash forward 20+ years later, and the middle class are being priced out of these same previously affordable areas of the state.
Only the wealthy are able to have access to what used to be called the “American dream”.
CAFE and safety regulations have forced automakers to use more expensive features:
-tiny, high output turbo motors
-rear facing cameras
-lighter, more expensive materials such as aluminum
-9-10 speed transmissions
-“fuel saving” features of dubious value to the consumer – such as automatic start/stop, cylinder deactivation, etc
-new active safety features, such as automatic braking and lane-keep assist are not only optional- but standard in many cases.
The consumer demands for quality, comfort, features, and reliability haven’t changed. It just got much more expensive to deliver that.
The truth is money is made from options not gutted cars.
Marketing pushes the options as that is how they make money.
If everyone bought a base car mfgs would not last.
When i was a kid our family had one car. Now, every driver needs a car, and it better be cool.
So, I’m in the “self-inflicted” camp. As mentioned earlier, $25K will get you a nice car in about any type. Middle Class can afford $25K.
My other 2 cents is that I believe everybody would prefer a new car over a used car, even if it doesn’t make financial sense. Financial sense has its limits when you factor in the unknown past crashes and current hidden chronic issues. Anybody who has been down the used 3-series road know this to a painful degree.
Somewhere in all of our talking about this, we need to collectively reach a logical position where it makes perfect sense for all of us to go out and purchase a new C8.
Ford CEO Hackett is pondering this very problem too. He questions the wisdom of equipping cars with CD players when few buyers use them. It goes much deeper than that.
The problem is manufacturers make you take certain “packages” when equipping a car. Want auto high beam? You have to get the “driver assistance “ pack which might have a bunch of stuff you DONT want but pay for. Leather interior? That comes with a sunroof and they’re not throwing that in, it adds an additional grand. Premium pack, performance pack, technology pack….it’s ridiculous. It’s time for ala carte options – get what you want and only what you want. That’s a good place to start toward bring prices down.
Yet another item pushing the “transportation service” business model. You don’t own your car but you pay for the service indefinitely. They would love to have their hand in your pocket every month forever instead of maybe every 5 or so years.
I have purchased 10 new cars over the years but the last one was in 2013. This is partly due to the price of new vehicles and partly due to GM not building much that I am interested in. I don’t want an SUV or CUV. I would like a performance oriented sedan with a manual transmission for around 30k but that doesn’t exist.
Not from GM.
Civic Si?
The trend is evident – The American middle class is slowly being priced out of the new-car market. The same trend is happening in other “developed” countries. So, what is GM doing about it? The answer is lots. For them the future is electric AVs. They have been very plain about this, especially Barra.
What will most AVs be? Before long many will be autonomous taxis (ATs). Eventually their fares will only be about 20 cents per mile. It will no longer make sense to pay 70 cents per mile to be a car owner. Most people will stop owning cars and just use ATs instead. More convenient and much cheaper. Believe it. Go to https://www.rethinkx.com/fullsummary and/or https://research.ark-invest.com/big-ideas-2019.
Good article – and replies. Keep up the good work GM authority!
The trend is evident – The American middle class is slowly being priced out of the new-car market. The same trend is happening in other “developed” countries. So, what is GM doing about it? The answer is lots. For them the future is electric AVs. They have been very plain about this, especially Barra.
What will most AVs be? Before long many will be autonomous taxis (ATs). Eventually their fares will only be about 20 cents per mile. It will no longer make sense to pay 70 cents per mile to be a car owner. Most people will stop owning cars and just use ATs instead. More convenient and much cheaper. Believe it. Go to https://www.rethinkx.com/fullsummary and/or https://research.ark-invest.com/big-ideas-2019.
The trend is evident – The American middle class is slowly being priced out of the new-car market. The same trend is happening in other “developed” countries. So, what is GM doing about it? The answer is lots. For them the future is electric AVs. They have been very plain about this, especially Barra.
What will most AVs be? Before long many will be autonomous taxis (ATs). Eventually their fares will only be about 20 cents per mile. It will no longer make sense to pay 70 cents per mile to be a car owner. Most people will stop owning cars and just use ATs instead. More convenient and much cheaper. Refer to https://www.rethinkx.com/fullsummary and/or https://research.ark-invest.com/big-ideas-2019.
The trend is evident – The American middle class is slowly being priced out of the new-car market. The same trend is happening in other “developed” countries. So, what is GM doing about it? The answer is lots. For them the future is electric AVs. They have been very plain about this, especially Barra.
What will most AVs be? Before long many will be autonomous taxis (ATs). Eventually their fares will only be about 20 cents per mile. It will no longer make sense to pay 70 cents per mile to be a car owner. Most people will stop owning cars and just use ATs instead. More convenient and much cheaper.