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.
Used cars shot way up but have actually dropped some, like housing, after the initial frantic market rush.
“Try to find a good used vehicle now for that price. $6,000-7,000 more like it at minimum.”
Actually, I can and just did 4 months ago. It is more difficult and takes more time to find one than before but still very doable.
That is also happening right now as well. There are people who could afford a new car but are holding off for one or more reasons.
I think most new car buyers are payment shoppers with little savings. At one time, my sister was paying $550 a month for a used truck because she kept rolling negative equity. She finally downsized last year to a 2009 Civic with a 72 month loan. All that matters is the payment.
Most shoppers with a $777 payment went into the dealership not willing to pay over $500 a month.
I live in Maryland. The racist democrats in the state legislature have an inspection system for car purchases that is completely broken.
Check this scenario: An 18 year old city kid gets offered a job paying $15 an hour, but it’s not near a bus route. He wants to get a good start and earn his way off the streets.
He gets a friend to drive him to work for two weeks and saves every penny. He earns $900 after taxes.
He goes to Facebook Marketplace and buys a cheap old beater for $600. Before he can get license plates, he needs to get an inspection. The inspection is $80. The inspection finds $1500 worth of “safety” which must be fixed before he can title the car.
Let me tell you some of the “safety” I’ve encountered in some of these inspections.
A loose front grille had to be completely replaced, not just fixed with a cable tie.
a rear door lock that didn’t engage
auxiliary fog lights that were cracked. (Auxiliary, not even standard equipment. The mechanic did me a solid on that one since replacement was going to be over $700. he painted over the lights so they didn’t exist anymore)
I once bought a $500 car that ended up costing almost $2000 by the time it was titled.
The racist system is keeping poor black kids out of the economy and in the hoods.
Imagine if this dumb system was not in place. That kid could work two weeks and buy a $500 beater. Then in a couple months he could replace it with one he paid $2000 for. Six months later, he gets a decent $6000 car and he’s good for a year or two and earning money and being a success. The pride of work makes him a great citizen (and instill some conservative principles)
5 years ago, I drove to another state to buy a 2009 Acura RDX with a bad Carfax due to a rear end accident. It had been moving from car lot to car lot without selling for a year. I walked in, drove it and bought it.
The lot specialized in upbadged cars with over 100k miles.
I thanked No Joke Biden profusely last night after putting half a tank in my car.
“Until you can’t gets parts for it.”
Are you kidding me? I can easily get parts for my classic cars.The only difficult one is my 49 Chevy 3/4 ton, and for that I just swap out for modern parts, like the rear axle.
There is a huge aftermarket for small block Chevys. And remember, these are simpler cars without any computer assisted ash trays.
Well these auto manufacturers have a nice dream but its illogical to believe they can just cut a huge segment of buyers out of the equation.
We have a 2003 Dodge Ram truck and a 2006 Honda CRV that are both in great condition. Mr. GG2 replaces parts himself. Occasionally we pay Jiffy Lube for an oil change if he doesn’t feel like doing it. Next year when prices drop which they will we’re going to replace the truck with a small runaround like a Nissan Frontier. Until then we just keep driving what we have.
Yep, that;w the way to do it as long as you don’t live in a county that requires an emissions test, My county just stopped that last year.
What it boils down to right now is supply. Still hard to get new vehicles. Used cars have reaped the windfall of the chip shortage. So now theres a strong demand for new and used vehicles. That makes it a sellers market. The manufacturer will force new cars to go at list... max. Cant gouge but used cars are entirely different. Its where dealers make their money on the sales side of things and theyve optimized it during the pandemic. I think most folks these days know what theyre in for when they show up. They know what they want, what theyll qualify for , they know the terms theyll be offered....they are just either intent on getting what they want...for whatever price or used of paying more for everything and accept this higher cost of driving a car as part of doing business. I’m not even sure its new vs used as much as how much and what’s available. The used cars come with strong warranties and lowish miles...that makes them appealing and as you point out sometimes folks will entertain a used option even if they were planning to buy a new model.
The finance side of things can get creative and many folks will forgo lower rates for an extended terms...just to make the car “affordable”....even with used cars.
Its clear regular people are buying them, lots of them.
Thanks
Small parts aren’t the problem.
Transmissions and engines are. Small blocks are still semi easy to acquire, depending on where you are, but in another 10-20 years it won’t be.
I can do a small block carb swap into my fuel injected 4 banger jeep easily enough if I wanted. Hell I can swap a ford lima 4 banger into it easily enough, but try doing an amc swap that’s not a gm bolt pattern or a ford engine into your GMs. I have a vast range of engine options due to the jeep aftermarket and amc’s love of gm motors that GM doesn’t have.
“I have a vast range of engine options due to the jeep aftermarket and amc’s love of gm motors that GM doesn’t have.”
You clearly don’t know how large the GM aftermarket is. Heck, even the flathead Ford market has suppliers.
Filthy GREED. Notice the gender of the two executives quoted. Money grubbing gutter snipes.
After that, cars are just too complex to be either reliable or affordable. After power windows and door locks they have moved into extreme excess. Nobody needs a vehicle with an electronics operating manual two inches thick. No sane person wants one.
And she will never believe you. She will vote democrap long after she is dead.
I’ve a 2008 Milan that is on its last legs ( got over 200,000 out of her) At 70 years old it is cheaper for me to lease a 2023. With 2500 down and a 36 month lease, 1500 mile limit per month I should be able to get it at $350 per month.
Yes, indeed. There are a lot of the same issues here in CA but not as bad yet. I always budget an additional $600 on top of the $1500-$2000 purchase price for a private mechanic to inspect the vehicle before purchase to ensure it checks out with no major issues.
Maybe I am unusually fortunate but can typically find a decent dependable vehicle within a week despite the shortage of used vehicles I keep hearing about.
That would be a recipe for bankruptcy. Nobody buys a basic car.
I’ve only ran a new car dealership for 32 years.
How are I phones selling compared to flip phones?
I would buy a basic new car in a heartbeat. Waaayyy too much electronic crap in them now.
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