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Sticker shock is increasingly scaring off many buyers of new and used cars. A recent survey he conducted Edmunds.com It found that nearly half of American car shoppers expect to pay $35,000 or less for a new car. Today’s average trade-in is six years old, which means they cost $35,000 or less when new. But when they want to replace it with the same or similar model, they find that the price has risen to $50,000. This is the point where many of them decide to walk away. The Edmunds survey found that 73 percent of consumers are reluctant to buy a new car because of the cost. “The prices are shocking to people,” says Jessica Caldwell, head of insights at Edmunds. “They wonder: Why does it cost $300 more a month to buy the same car?”
Average monthly payments on new car loans are now $767, 17 percent more than four years ago, according to Cox. Edmunds says about 18 percent of new car buyers this year will have payments of more than $1,000 a month. Blame inflated sticker prices resulting from more technology, automakers’ pursuit of greater profit margins, and the rapid increase in auto loan rates. America’s affordability crisis is disrupting the fundamental aspiration of American life—a new car in the driveway. But this status symbol is now largely only available to wealthy buyers, according to The Verge Bloomberg,
The rich are doing well
The top fifth of American households, with an average annual income of $265,000, accounted for 55 percent of spending on new cars last year, up from 40 percent in 2020, according to research conducted for Bloomberg By consultant AlexPartners. Consumers with the lowest incomes, less than $16,000 for 2023, have been excluded from the new car market entirely over the past two years, while those with incomes between $16,000 to $41,000 account for just 6 percent of new car sales in 2023. “The new car market has moved to more affluent buyers,” says Mark Wakefield of AlixPartners. “People are having to buy used cars, and they’re having to keep vehicles on the road longer.”
The average price of a new car this year is $48,205, 21% more than it was five years ago, according to Cox Automotive. Auto loan interest rates averaged 7.1% on new cars and 11.2% on used cars in September 2024, up from 5.7% and 8.4% five years ago. The Fed cut interest rates by half a point on September 18, but it will take some time to trickle down to auto loans and will likely only lower the typical monthly payment by $20 or less. This has forced buyers to get creative to keep monthly payments within reason. Nearly 20 percent of auto loans are now for seven years. Five years was the norm just a few years ago, according to Edmunds.
A pandemic-era computer chip shortage, which has crippled auto manufacturing, emptied much of inventory at dealers and inflated sticker prices, has pushed up prices. Inflation has also raised the cost of materials vital to the automobile industry, such as steel. In addition, automakers have loaded cars with expensive new technology, including expansive dashboard touchscreens and an array of collision-avoidance sensors and protection features, some of which is required by government regulators. “Hyperinflation has made these cars really expensive,” says Rhett Rickart, a Columbus, Ohio, dealer who sells Ford, General Motors, Hyundai and other brands. “By increasing the technology content and safety content of these vehicles, we have piled up a lot of expenses.”
Here is the crux of the problem, according to Bloomberg. Automakers are poorly motivated to solve the affordability crisis because they make more money selling fewer cars to wealthier buyers. Although Americans are traveling by car more than ever, the market for new cars is shrinking. Cox expects Americans will buy 15.7 million new cars and trucks this year, more than a million fewer vehicles per year than were sold before the pandemic, when U.S. auto sales topped 17 million for five years through 2019. GM, Ford and Stellantis combined had net income of $34.7 billion last year, up more than 30% from 2022. “Every auto industry CFO said, ‘Oh my God, this is great,’” Wakefield says. “I’ll sell what I make money from.”
Ford, General Motors, Stellantis, and other loss-making small cars, once models that buyers on a limited budget could afford, have abandoned. In 2012, cars priced under $30,000 accounted for more than half of the new car market in terms of units, while models costing $50,000 and above accounted for a small percentage of U.S. car sales. Today, things have turned around. Models valued at more than $50,000 account for 44% of new car sales, while models sold for less than $30,000 represent only 12.7% of sales, according to Cox.
Cars priced under $20,000 – the models that America’s young people once drove – have essentially disappeared, representing a tiny 0.1% of the new car market this year. Low-income buyers “have been left behind in the used car market,” says Charlie Chesbrough, a senior economist at Cox. Even used cars are out of reach for some buyers, with prices averaging $27,422 in September, up 32% from five years ago, with average monthly payments of $549 last month, up from $416 in September 2019, according to Edmunds. .
New or used? Repair or replace?
In the years following the pandemic, parts and production delays made it difficult for automakers to meet consumer demand, so they prioritized popular, higher-profit models like trucks and SUVs, many loaded with the latest and greatest optional equipment packages. Inflation has slowed, and the auto industry is back in operation at a steady pace. But high prices for parts and labor, coupled with the fact that dealerships are filled with cars loaded with options that add thousands of dollars to the base price, have all increased the amount consumers pay for a new car. New car prices are 30% higher than they were in March 2020 when the economic turmoil as a result of the Covid pandemic began, says Pat Ryan, founder of CoPilot, an AI-powered car-buying app. Here are some strategies that Consumer Reports It can help says:
- Get pre-qualified. That’s good advice in the best of times, but especially now, according to Credit Karma, an organization that helps car buyers get a credit score and track their personal car financing. Obtaining pre-qualification gives the buyer an advantage in the negotiation process that leans in the seller’s favor. Since you’re likely to pay more than usual for a car, the best deals to be found are on financing.
- Cast a wider net. If you’re looking for local agents, look outside your immediate area for more options. You can also shop for cars using a number of online search tools that usually allow you to specify the distance you are willing to travel to make a deal.
- Take advantage of your current car. Used car prices have fallen over the past two years, but dealers are still hungry to sell used cars to budget shoppers who may not be able to afford new car payments. This means that selling or trading in your old car can bring a significant reduction in the price of your new car.
- Look for incentives. Check dealer and manufacturer websites for local and national incentives such as cash back offers, low financing rates, and lease deals with low monthly payments. Chances are, if you search among the less popular offers, you may find attractive deals.
- Be flexible. You might want a red 3-row SUV with heated seats and built-in navigation, but if you’re willing to compromise on color, equipment and even style, you’re more likely to get a vehicle that suits your needs and specifications. budget,
- Fix your old car. Even expensive repairs like an engine rebuild or transmission replacement may be worthwhile if you can get a few extra years out of a reliable car. If you fall behind on routine maintenance, get back on schedule and stay on top of it so your car will last until interest rates drop again.
- Refinance your old car. If you tend to wait for more ideal purchase terms, refinancing your car loan can be a great way to save money if you’ve improved your credit score since you bought your car. Credit Karma has found that consumers can save an average of $3,000 — about $55 per month — over the life of the loan by refinancing.
Ready meals
It’s a tough time to buy a new or used car. Automakers don’t make many entry-level cars, so sticker prices are skyrocketing. High interest rates only add to the pain. The family car is a distant memory for many. However, the companies are protected from competition from Chinese-made cars that can cost much less than the average cost of a new car in the United States. Companies get tariff protection and bailouts if their guesses are wrong. Most consumers get bupkes. The situation is unlikely to change any time soon.
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