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.”