Posted on 02/15/2023 6:02:24 PM PST by george76
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.
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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.
Well than, it’s a good thing (according to the media disinformation) Biden has gotten the run away inflation under control./s
All this has been manufactured in order to get people OUT of having ICE cars.
Americans Are Falling Behind On Auto Loans at an Alarming Rate..
I could afford a new car. I choose not to.
Governments mandating insane efficiency standards has, of course, nothing to do with it.
$50,000 for a new car financed over 5 years at 0% APR is $833/mo which is why I have not purchased a new car since 2006. Everything since then has been a used vehicle from private sellers. Typically paid $1500 for a good used vehicle, drive it for 3-4 years until something major goes wrong then junk it and buy another. Lather, rinse and repeat.
By my accounting, I have paid $10,000 for 6 vehicles in the past 17 years and have zero regrets but a heck of a lot more money than had I been purchasing new ones.
I still can’t afford a new car. Lease returns can be good deals though.
Cash for Clunkers.
You can thank Barack Hussein Obama for the loss of millions of cars.
Its called Fundamental Transformation.
It sucks.
The last new car I purchased was in 1965, and I will never buy another new one.
Remember to thank your local Democrat for all they have done for you.
;-)
Cars are getting cheaper relative to general prices.
Inter the motor scooter, stage left....
The Climate Crusaders Are Coming for Electric Cars Too..
https://freerepublic.com/focus/f-chat/4130861/posts
NWO - WEF is thrilled. All going to plan.
All personal vehicles are FREEDOM.
My housekeeper was lamenting her inability to find a good used car. I told her part of that is on her buddy Obama, and Cash for Clunkers. The car market hadn’t fully recovered from that, when the Covid disruptions hit the market for a double whammy.
I paid sixteen hundred dollars for a '92 f250 some one hundred thousand plus miles ago. Still going strong.
A utilitarian, well made car is needed.
My keeping my 57 Bel Air, 67 Camaro and 59 Chevy pickup in top shape seems smarter and smarter every day. Infinitely reparable.
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