No Fixed Abode: Who Can Afford a New Car, Anyway?

It’s just the title of a recent Charlie Hunter album, but it says a lot about life in post-2008 America: Not Getting Behind Is The New Getting Ahead.

Here’s one example: According to Business Insider, the average middle-class family can no longer afford the average new car. Is that true? And if it is true, how and why did that happen, and what can be done to fix this sad state of affairs?

The first thing we have to do is figure out what the average new car costs: USA Today says that it is north of $33,500. But that’s not really the median price, and it’s wildly distorted by the so-called one percent and its indiscriminate purchases from the top shelf of the luxury-car offerings.

A new Camry LE is $23,905. That’s as close as we can come to the traditional American automobile nowadays. The Highlander LE is $29,990, and that’s as close as we can come to the traditional American family wagon today. Let’s split the difference between them and call it $27,000.

Add tax and title to that, subtract a little discount money, and the average customer for that average imaginary Camry-Highlander halfway point will pay $28,000, which at current interest rates over five years is about $510. Figure another $100 to insure it; I pay less in Ohio, but you’d pay more on the coasts. That’s $600 or so every month, rain or shine.

Now let’s figure out what the average middle-class family earns. As it happens, that varies widely by state. Again, we’ll use Business Insider as our source: it offers median incomes ranging from $38,000 in Mississippi to $72,000 in Maryland. Let’s target the middle of that range and say $57,000. If you earned $57,000 in Ohio, you’d take home $798/week.

When you figure the cost of putting fuel in your new Toyota and keeping it serviced, it’s easy to see how you could spend one of your four paychecks every month just on your car. Except, of course, nobody really takes home $798 a week from $57,000. To begin with, there’s Obamacare, which costs most families between $125 and $200 per week for a “bronze” plan that still leaves them open to $6,500 per year of expenses before insurance pays a dime. The true net cost, after you figure out the tax advantages, is probably about $200 per week if you actually use the plan at all. So that drops our $798 paycheck to $598. We’d also like to save something for retirement — say 10-percent pre-tax. That will cost you another $75 or so per week, so now we’re closer to $525 per week.

If you have $2,100/month to pay your mortgage and feed your kids on, you’re not going to be springing for a brand-new Toyota. It’s just that simple. The hype is correct: the average middle-class family is now no longer a candidate for a brand-new midsize family sedan. The only way they can really make it work is if they have some additional savings or income they can use to help during the five-year payment period. Once the car is paid off, they can drive it another five years at a lower cost, while saving some of that missing payment towards the future. When the car is ten years old, it will be worth five or six grand, which along with whatever savings they’ve been able to put together will make the next car significantly more affordable.

There’s your middle-class new-car strategy in a nutshell; buy a new car every ten years and rigorously control your spending at all times. Alternately, you could lease. Right now, Honda will put you in a new Accord for three years and 36,000 miles for slightly under $300/month if you have no money down. That makes the numbers work out a bit better, and — if you can always get a deal like that — it allows you to fix your costs at a level that isn’t much worse than the new-every-ten plan while still giving you three new cars during that same time.

The alert reader will note that so far we’ve only discussed the idea of one car for a middle-income family. In truth, of course, most families will need two cars for a society where both parents have to work just to stay within shouting distance of the lifestyle that their parents created with just one working parent. That $57,000 number, as modest as it sounds, is more often the product of two lower-paying gigs than it is a situation consisting of a $25/hour dad and a stay-at-home mom.

It’s almost too depressing to consider at any length, particularly for children of the ’70s, like your humble author, who grew up in neighborhoods where everybody’s dad got a new company car every year and Mom had some sort of decent station wagon or van with which to do her shopping. When my father was just 35 years old, we had three new cars and lived in a house that would fetch $750,000 today. Plus my brother Bark and I both went to private school. Dad wasn’t a rich man, nor was he unusually successful. The economy was simply different. Maybe it was because we didn’t each have to own a new iPad every six months. Maybe it was because we ate our meals at home. Maybe it was because Mom cheaped out and made me wear Toughskin jeans. Ugh. I wonder how many punk bands were formed out of the seething resentment enjoyed by every young Toughskins wearer.

Hey, come to think of it, maybe it was because we didn’t have eleven million “undocumented” immigrants and close to one million H1-B contract workers to keep wages low and corporate profits high. If only there was a way to make America great again, or some kind of little Birdie who could balance the scales between rich and poor just a tiny amount. But that’s a discussion for another time, and another forum. TTAC is a car blog, so let’s focus on what this means to the auto business.

It’s as simple as this: Once upon a time, middle-class families could buy new cars on a regular basis. Today, they either have to extend their ownership into the 100,000-mile zone or hope for some luck with a manufacturer-subsidized lease program.

This goes a long way towards explaining why the new-car buyer demographic skews old and rich, whether you’re talking Lexus LS460 or Honda Civic. It explains why automakers have ruthlessly “optimized” their equipment package and color choices: it reduces risk for the banks and captive finance companies when lease returns cross the auction lane. It explains the meteoric rise of vehicles that are easier for 40-somethings and their elders to step into, and it explains why manual transmissions and roll-up windows have mostly disappeared from showrooms.

In short, the new-car world still revolves around Old Economy Steve, even though he’s in his 50s or 60s by now. The automakers are dependent on CUVs and SUVs to make the books balance — or do you really think there’s $6,000-worth of extra content in a four-cylinder Highlander as opposed to a four-cylinder Camry? Surely you’ve noticed that the Japanese cars that used to be redesigned every four years like clockwork are stretching to five, six, or even seven years; that’s a cost-cutting measure to try to keep the Camry, Accord, and Altima within distant early warning range of a middle-income family’s purchasing power. It also helps lease residuals when new-model cycles lengthen a bit.

Today’s entry-level family car, as with the famous Porsche-CEO quote, is a used entry-level family car. It’s not as tragic as it sounds, because a five-year-old Camry with 75,000 miles on the clock has more useful life in it than a brand-new 1980 Oldsmobile Cutlass Supreme did sitting on the showroom floor. So while your family is used-car shopping, the manufacturers will stay busy creating new four-door coupes and CUV-alike-thingys with luxury trimmings to milk the last few bucks out of the Boomers.

I tell you this, however: a change is gonna come. Ten years from now, the Boomers will be unable to drive. Generation X will be hip-deep in medical debt and struggling to figure out retirement. The new-car market in this country will have to undergo a complete transformation. Pulled kicking and screaming from the old-people teat, everybody from Chevrolet to VW is going to have to figure out to how to sell cars that 30 year olds with no IPO money or trustafarian fiscal padding can afford.

Such cars already exist, of course. The Dacia Duster is a prime example of a car that is affordable to young families and non-gold-collar 20-somethings. The question is how our society will adjust to a world where their next car has fewer features and less power, not more of everything. Maybe we’ll just have to accept that not getting behind is the new getting ahead.