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.
...
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.
I was talking to people about that the other day - that technology may “roll back” to make them easier and less costly to build and of course buy.
‘fossil fool’ and tool Biden
I’m half blind...
...thought the title said “cats”.
That’s what I paid for a large camp with a drilled well, power and 31 acres.
Funny, Nissan sells two low end cars, the versa starts at about 15,500, and the sentra around 18,000.
Low end Kias start at 17,000 and 20,000.
Detroit doesn’t want to play in the low end market, they want to be like Mercedes, Audi, and BMW. It’s not very ESG to sell lots of low end product. Sucks to be Detroit.
That may come to pass, but despite some slight decreases over the past couple months, used car prices are still very high.
Used car prices are expected to decline by about 10% this year, but they need to come down 30%.
plenty of govt workers and retirees that can afford these things.....
Truth
And yet Intel profits fell due to a chip glut??
“Typically paid $1500 for a good used vehicle,”
Try to find a good used vehicle now for that price. $6,000-7,000 more like it at minimum.
About the best thing I ever did for my son was to tell him I would give him $1k with one string attached - it had to be invested. I think he's got that account up to $35k now, and talks like a seasoned investor (although I can't take his advice because he's too risk-averse - go figure!)
“Best car in the world, Toyota Camry tops off in the high 30,000s.”
Yeah, I checked in my state. Lots of the high trim models for 37-38-39, one for 43k, but I’m not sure it that includes adjusted market value crap.
I got an email yesterday from a Hyundai dealer other than the one I leased my Tucson from offering me 120 percent of blackbook value and other inducements on a new car. Weird.
On a related note, from NYS...
I work for a Toyota dealer in a large metro dealership. Lots if “regular” people still buy new cars.
‘I could afford a new car. I choose not to.”
Same here.
Being in the
business you can correct me if my observations are wrong.
Car dealers have fewer employees, have less competition, get closer to list price, have their high prices closer to used car prices making them easier to consider, have made good annual returns.
Used cars are still priced much higher than in previous years and consumers maintain them better.
Wages have gone up and loans are still relatively low as a percentage of income.
Dealers like the low volume but it does hurt the sales staff numbers.
Many average buyers are so stunned by used prices that new seems a better investment.
Until you can’t gets parts for it.
One of the biggest reasons I went and picked up my 91 YJ was this very reason. YJ’s and late CJ7’s have a lot of aftermarket parts available.
I can’t afford to to purchase an EV.
Aren’t cars priced to sell and make the most money for the manufacturers? No one has to buy a new car.
I see a problem with housing priced beyond a lot of buyers, but not with cars.
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