Report: Regular People Cannot Afford New Cars Anymore

Matt Posky
by Matt Posky

The average monthly payment for a new car sold within the United States has reached a record $777, according to Kelley Blue Book’s parent Cox Automotive. That represents roughly one-sixth of the median household income and is about twice the price of what would have been considered average in 2019. How the hell has it managed to come to this?


Well, Bloomberg has effectively accused automakers of intentionally keeping inventories low so they can maximize profitability – which doesn’t sound all that far-fetched if you’ve been following the market closely these last few years. The outlet claimed that chip shortages are becoming a thing of the past, with inflationary pressures and corporate greed now being the largest contributing factors to record prices. That certainly was the case with dealerships, with many putting ridiculous markups on vehicles in the hope that panic buyers would go along with the price.


The spike in profits was impossible to ignore and it wasn’t long before automakers were conducting widespread price adjustments of their own. But it’s still unclear just how much was the result of industrial snafus stemming from lockdowns, inflationary adjustments created by unfettered government spending, or executives noticing they could probably goose their customers for more money.


From Bloomberg:


At the root of the problem is automakers’ new mantra: Keep inventory lean and price tags fat. Three years after the pandemic triggered a global shortage of semiconductor chips and crippled car manufacturing, Ford Motor Co., General Motors Co. and their overseas rivals are notching big profits. Even as the chip crunch shows signs of easing, they’re pledging to keep production in check.
And because electric vehicles cost about 25 [percent] more than the average car, the shift to plug-ins is about to make the affordability crisis even worse. Add soaring interest rates to the mix, and new cars — like home ownership and a college education — are fast becoming the domain of the rich.
“The idea of a new car in every American’s driveway is not the world we live in,” said Charlie Chesbrough, a senior economist at Cox.


That’s a bummer because average folks having the ability to purchase a new automobile used to be one of the metrics by which American excellence was measured. But the whole situation seems to have come undone in a staggeringly short amount of time. Jonathan Smoke, the chief economist at Cox, told Bloomberg that the average new-car payment hovered around $400 a month for roughly a decade. But things began pitching up in 2019, with a brief reprieve at the start of the pandemic due to nobody leaving their homes to buy anything. Then feces made contact with the proverbial fan for consumers as we saw record-breaking prices month after month.


How is this even possible when the last couple of years represent the lowest sales volumes in over a decade? Easy. Automakers just started selling to people with more money or an unhealthy willingness to put themselves into severe debt. Based on data from JPMorgan, the average price for a new vehicle sold inside the U.S. has soared to almost $50,000. That represents a staggering 30 percent increase since 2019, which has been reflected in the overall profitability of automakers.


What are the chances of things going back to normal? It depends on who is answering that question. While we’ve seen wholesale used vehicle prices starting to come down from what can only be described as insane levels, they’re still quite a bit higher than they’ve been historically. Partially due to the fact that companies aren’t building enough new cars, the average payment on a secondhand vehicle is now $544 per month – more than the typical new car would have set you back just a few years ago.


Meanwhile, there are plenty of manufacturers signaling they’re not interested in giving consumers a break on new models because it’s so damned profitable to keep everyone desperate.


“We’ll never go back to the inventory levels that we were at in the past,” General Motors CEO Mary Barra told investors last year.


Vehicle inventories remain low, averaging about half of what would have been considered normal prior to 2019, and that’s just fine with most automakers. By producing the bare minimum, manufacturers can reduce overhead and maintain higher prices by avoiding any temporary vehicle surpluses that would encourage discounts/incentives. Ford, Nissan, Toyota, Ford, and a slew of other big names have signaled this will more-or-less become the dominant corporate strategy moving forward. Though the official strategy varies between brands.


“You’re not going to see most manufacturers go back to where it was three or four years ago,” Judy Wheeler, vice president of U.S. vehicle sales for Nissan, told Bloomberg. “We’ll keep that supply and demand in a level state.”


Whether or not that’s tenable down the road is another matter, however. Some dealerships have signaled that they’re not all that excited about the long-term prospects of this strategy. With automakers having spent the last decade eliminating small, affordable models from the U.S. market (to pursue higher margin pickups, SUVs, and crossovers) the lower end of the new vehicle market doesn’t really exist anymore. But not every brand can pivot toward selling luxury products and it's absolutely crazy to pretend excluding a large subset of consumers is somehow indicative of the industry being in good health.


Nearly 30 percent of the market now stems from households with annual income above $150,000. Mark Wakefield, managing director at consulting firm AlixPartners, said that’s up from 22 percent in 2016. With a widening wealth gap in most developed countries, this phenomenon is likewise expected to increase – even if vehicle prices do end up coming down slightly.


“You’ve seen a move to more wealthy people buying cars,” Wakefield said. “The bottom part of the market sort of fell out.”


While this is probably of little comfort to our readers in North America, Europe reportedly still has it worse than we do. Cox predicts that the average price of a new vehicle will likely drop by 4 percent this year on our market. But Europe isn’t expected to see any declines in pricing for 2023, with average transactions staying at (if not exceeding) the present record levels.


Our advice? Unless you're in desperate need of a new automobile, there's nothing to be gained by feeding into this. Automakers seem broadly committed to testing the outer limits of what they can get away with and likely won't begin acting differently until it becomes crystal clear that their consumer base refuses to tolerate such treatment. It may likewise be important to oppose any future government bailouts that would seek to financially advantage companies that have been profiteering off the widespread economic duress incurred since 2020.


[Image: Michael Warwick/Shutterstock]

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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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  • Ed Ed on Feb 16, 2023

    @28-cars-later

    That’s great and all, but an entirely different argument.


    The average new car transaction price is now over $48k. The average *used* car transaction price is over $28k.


    Every one of the many new cars I’ve listed above sticker for less than the cost of an average USED car transaction.


    With about 37,000,000 new and used cars sold in the US in 2022, the point stands:


    Plenty of people can afford new cars if they buy what they need rather than way too much car for way too much money. Looking at a 2023 Kia Soul (to used one example out of many) and a 1993 Honda Civic with A/C and an automatic, the Kia is actually considerably MORE affordable, and you get far more for your money than you used to, in every way.








  • Master Baiter Master Baiter on Feb 17, 2023

    "They don't care about volume any more because there is no prize for that."


    Seems you're suggesting the marginal profit on each new vehicle sold is 0 or negative. I find that hard to believe.

  • Chiefmonkey Bet on it getting 5-10 MPG less than the advertised rating.
  • FreedMike Maybe they will be the Alpine distributors.
  • TheEndlessEnigma The Mitsubishi hate and snark in many of these comments is expected. I really do need to challenge anyone here who bristles at the mention of Mitsu and immediately begins a Tourette's inspired flow of vitriol. Before you rant on about how bad Mitsu's are, get into one and drive it. Surprise surprise, they are good vehicles, it's just kewl and hip to be a lemming and blindly follow the "Mitsubishi Sucks Because Doug DeMuro Told Me So" crowd.
  • EBFlex Remember when they introduced legislation to take natural gas stoves away? Now they want to charge electric trucks with it? If liberals didn’t have double standards they wouldn’t have any at all.
  • Glennbk First, Cadillac no longer has brand cache. And as such, the prices need to drop. Second, reliability. Cadillac doesn't have that either. Dedicate GM funds to re-design the High Value Engines. Third, interiors are too gimmicky. Take a step back and bring back more buttons and less black plasti-chrome. Forth, noise isolation. These are supposed to be luxury cars, but sound like a Malibu inside.
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