The car market is in crisis, as is the American middle class. Even amid a scenario of falling used car prices, the cost of a vehicle is still out of reach for most middle-income households, a new study shows. In the past, new cars were a symbol of the strength of the middle class, but now only wealthy Americans can afford to buy a new vehicle at today’s prices, especially considering that interest rates are adding nearly $7,000 to the average car loan. a car. Since 2017, while the price of a new car has increased by a whopping $14,000, median wages have increased by just $1,000. According to some big names in the auto industry, including executives from major companies like Toyota and Nissan, although the prices of some vehicles may go down, from now on, cars will still be expensive for middle-class families and prices will never go down again. be the same they were in 2020. In today’s video, we’ll expose why owning a car is becoming a distant dream for millions of working Americans.
Today, the median monthly payment for a new car is at a record $777, nearly double from 2019, while used models have climbed to $544 per month on average, according to owner Kelley Blue Book. , Cox Automotive. A monthly payment of $777 corresponds to almost one-sixth of the after-tax income of middle-income American households.
It’s no wonder why many people borrow more, for longer periods of time, to finance a car purchase. Experian Automotive said that in the first quarter of this year, the proportion of new cars purchased with the help of financing skyrocketed to more than 86%, and the average loan size exceeded a staggering $41,000, which is the highest since that the company began tracking the data. The average term for a new car loan is now 72 months or six years, but longer-term loans carry more risk.
The Consumer Financial Protection Bureau warns that borrowers who take out long-term loans end up paying more for the car overall and are also at greater risk of being “backwards” on their loans, meaning they owe more than they owe. worth the car.
The price of a typical used car is now about $27,000, reports Cox. But an average monthly payment of $544 is still too much for people of average income. For more than a decade, the median payment for a new car in the US has climbed to around $400 per month and $300 for used cars. That’s all the typical American household can afford and still cover other major expenses, said Jonathan Smoke, Cox’s chief economist. But since he crossed that mark in November 2019, it’s only gone higher and higher.
For those looking for a cheap new car, the options are extremely limited. Domestic automakers stopped making compact cars in the US because they couldn’t make money from them. The root of the problem is the automakers’ pricing strategy: keep inventory tight to keep prices up. Now they are giving preference to more luxurious cars that can bring in higher revenue than cheaper popular models, which have significantly lower profit margins.
Add historically high interest rates to the mix, and cars, like home ownership and a college education, are fast becoming the domain of the rich. After all, the car market crisis is also a social crisis. It is a clear demonstration that the majority of working Americans can no longer afford to live in the United States.