Attention, Plebs: New Cars Are Becoming Prohibitively Expensive

Matt Posky
by Matt Posky

As new vehicle prices continue to climb, many wonder how high MSRPs can go before the public decides to take a pass — assuming they haven’t already. Sales growth is slowing, even in seemingly bulletproof markets like China. Even before this ominous backdrop unfurled, dealers were making noise about new car prices that had grown overly ambitious, claiming they couldn’t endure another period of sustained economic hardship.

Edmunds estimates that the average transaction price of a new vehicles reached $36,495 in December 2018 — a 3 percent increase compared to December of 2016 and a 13 percent increase compared to December of 2012. Taking that knowledge, Road & Track compiled a broader picture of the new-car market and where it might be going.

Spoilers ahead if you don’t want the unpleasant non-surprise ruined.

From Road & Track:

It’s not just in our heads, either. Cars have actually gotten more expensive over the past 10 years, and not just by a little bit. Edmunds says that, on average, new cars sold for more than $36,000 in February, up 29 percent from the same month in 2009. Meanwhile, median household income in the U.S. has only risen to around $62,000, an increase of about six percent over the past decade. Even more cringeworthy? Interest rates have also risen in that time period, from an average of five percent to around 6.26 percent. Not only are cars more expensive, but your auto loan will now cost you more money.

While 2009 was a peak recession year, the fact of the matter is that new cars aren’t keeping pace with inflation and certainly haven’t matched median incomes. The Detroit News reports that this will ultimately push more customers into the secondhand market. However, those vehicles only represent a comparative bargain, as the average transaction price of a used vehicle rose by a hefty 36 percent between 2009 and 2018.

“Vehicle prices have been rising all year but really hit a crescendo in December. Even though holiday bonus checks likely played a role in boosting down payments to record levels, when buyers are willing to put down more than $4,000 for a new car, it says something,” explained Jessica Caldwell, executive director of industry analysis at Edmunds. “There are fewer buyers in the market right now, but those who are there are not only feeling confident, they’re willing to shell out the extra cash to get a larger vehicle with all the bells and whistles. They know what they want and they are willing to accept the higher costs.”

That’s great for them, but what will the plebeian masses eat drive when there isn’t enough money? Extra-crappy used cars or, perhaps, they’re supposed to just embrace mobility and take scooters or cabs everywhere? How is this going to be sustainable for an industry that’s predominantly comprised of businesses that need to sell a substantial amount of product every year to stay in the black?

It might not be. Road & Track speculates that the automotive industry could be heading toward a collapse reminiscent of the mortgage industry crisis that kicked off in 2007. If you’ll recall, that economic setback didn’t pan out particularly well for automakers, either, forcing the U.S. government to intervene. To their credit, carmakers seem to be more cautious this time around. Warning signs of a possible recession are being heeded. Unfortunately, major price reductions don’t appear to be a large part of any automaker’s plan.

While there may be a little room left before the walls come crashing down around our collective head, the Federal Reserve Bank reported that roughly seven million Americans were 90 days or more past due on their car loans at the end of last year. That’s one million more people than in 2017.

[Images: General Motors]

Matt Posky
Matt Posky

A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.

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  • Jimmyy Jimmyy on Apr 05, 2019

    For years, I have driven Honda and Toyota products. Recently, I was given a F150 V8 4X4 XLT for a rental. It was nearly brand new and I loved it. So, when I got back to California, I decided to buy one of those. Out the door, the price tag was well onto the 40s. Forget that. I am wealthy and not stupid. Ford is not lining their pockets with my money. Now, I am shopping for a new Toyota 4Runner. A dealer way out in the San Fernando valley is offering me a deal ... in the low 30s. If I can't find a similar deal in Orange County, I will be doing the drive soon. So, for you auto guys that think I should just whip out the money for a F150 because I have it ... are you that stupid? Ford, you lost your chance to get a customer.

    • See 4 previous
    • DenverMike DenverMike on Apr 06, 2019

      @jimmyy The 4Runner, Part-Time 4wd starts at $36.4K. The F-150 4wd Crew Cab XLT V8 starts at $45.7K MSRP and $10K off this specific pickup isn't a problem, even in California. If by "foreign vehicles" you mean Mercedes and BMW, I'd say yeah smart move switching from those turkeys, financially (resale value) and otherwise. And I really sorta like those cars actually, they're especially pleasing to the eyes, compared to Japanese luxury, but yeah. I really like Newport Beach, but I'd rather have the worst house in La Jolla. Now that you mention it, I'm gonna start looking.

  • Ponchoman49 Ponchoman49 on Apr 09, 2019

    I bought my 2017 Impala LT 2.5 with convenience package a year ago with only 13k miles for 18K. It still looked and smelled like new and drove flawlessly and I was the first registered owner. It now has 28K miles and is still perfect. I couldn't touch a new Impala LT at the time for under 28K. This is the way I have bought my last 3 cars. One year old low mileage models that dealers eventually run specials on. I do a search for the lowest priced cars and try and find the cleanest lowest mileage one that hasn't had body work and go from there. This practice has served me quite well and my last 3 Impala's have been great reliable cars. Buying new is a waste of money for me.

  • AZFelix Hilux technical, preferably with a swivel mount.
  • ToolGuy This is the kind of thing you get when you give people faster internet.
  • ToolGuy North America is already the greatest country on the planet, and I have learned to be careful about what I wish for in terms of making changes. I mean, if Greenland wants to buy JDM vehicles, isn't that for the Danes to decide?
  • ToolGuy Once again my home did not catch on fire and my fire extinguisher(s) stayed in the closet, unused. I guess I threw my money away on fire extinguishers.(And by fire extinguishers I mean nuclear missiles.)
  • Carson D The UAW has succeeded in organizing a US VW plant before. There's a reason they don't teach history in the schools any longer. People wouldn't make the same mistakes.
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