Average Americans Can No Longer Afford Average New Cars

 

Some people say capitalism and alligators have much in common — both eat their young. While the rich get richer (and will get richer still if the #FakePresident has his way), ordinary schlubs who are working one, two, or sometimes three jobs to make ends meet are finding they can no longer afford to buy average new cars.

average car price

That’s according to a new study by Bankrate.com. It finds that people living in 24 of the 25 largest metropolitan areas in the US cannot afford the average price of new cars, which was $33,000 in May according to Kelly Blue Book. In six of those cities, people struggle to afford cars cost half that much.

Only in Washington, DC, where the median income is over $100,000, are people able to afford a new car. But the statistics for the nation’s capitol are wildly skewed by all the millionaires in Congress and the $1,000 an hour lobbyists who grease the wheels of democracy.

“Affordability” is a relative term, of course. For purposes of the Bankrate study, analysts used the so-called 20/4/10 rule. It assumes a 20 percent down payment, a 48 month loan, and a total of of insurance and loan payments that does not exceed 10 percent of a family’s gross income.

“The [average] household can’t comfortably afford to buy a new vehicle,” said Claes Bell, a Bankrate.com analyst. “That means a lot of households are overextending themselves on car costs, and that can potentially crowd out other priorities such as saving for retirement.”

 

“This issue of affordability isn’t just about the price of cars. It’s about the stagnation of wages,” Bell said. “Car costs are not rising all that quickly over time, but things like health care and college costs are going up and wages aren’t [keeping up]. Budgets are being stretched.”

“People should prepare for a car purchase by saving for a down payment,” Bell said. “Sometimes people impulsively go to a car lot and get sold on buying a new car. But if they don’t have a sufficient down payment saved, it will be hard to fit the payment into their budget.”

The total of auto loan indebtedness now stands at $1.2 trillion — about 10% of all consumer debt according to the Federal Reserve. Late payments on car loans is rising. Nearly 4% were delinquent at the end of March according to data compiled by the Federal Reserve Bank of New York.

“People fall in love with cars they can’t afford, and that’s how they get in trouble,” said John Gajkowski, a certified financial planner and co-founder of Money Managers Financial Group.

Capitalism assumes constant growth — a model that is inherently unsustainable. Real wages for workers have been falling slowly but surely in America for 40 years. The cost of living continues its upward climb while globalization forces American workers to compete with the low paid labor in other parts of the world.

Car makers are subsidizing sales with low interest rates and extended term loans. On some high end models, it is now possible to get loans that extend out to 96 months or more. But people seldom keep a car that long, which means they find themselves owing more than their car is worth when it comes time to go car shopping again. It’s a vicious circle that is not likely to end well for manufacturers or consumers.

Source: CNBC





About the Author

I have been a car nut since the days when Rob Walker and Henry N. Manney, III graced the pages of Road & Track. Today, I use my trusty Miata for TSD rallies and occasional track days at Lime Rock and Watkins Glen. If it moves on wheels, I'm interested in it. Please follow me on Google + and Twitter.
  • Kenneth Segovia

    So capitalism is to blame? Steve, have even heard of Cuba? Look at what THEY drive. You are showing signs of a growing illness in this country: snowflakeness. I’m dropping this website like sponsors are dropping CNN.

    • Mister Sterling

      Late capitalism is indeed to blame. When it was working well (1950-1973), an American could buy a new car every 4 years. But with companies refusing to pay higher wages since 2010, and the price of an average new car now hovering at the $30,000 mark, Americans are keeping their cars longer (10 years in some regions) and more and more people can’t afford to buy new.

      • Jim Smith

        No, government has been driving up the cost of new cars faster than anything else. Mountains of regulations add thousands to the price of new cars. Not to mention fiat currency destroying the value of each dollar.

        • Tadeusz Piskozub

          I beg to differ. Adjusted for inflation the cost of cars didn’t go up more than 10% during the last 15 years, and that number is still debatable given that nowadays cars are safer, more reliable and have much more features.

          • Jim Smith

            nice straw man. Your statements did nothing to address my point that government regulation is the cause of price rises.

          • Tadeusz Piskozub

            Because your statement is false. There’s no indication that that’s the case.

            If anything regulations force automakers to produce safer, cleaner cars and apparently market forces allow that to happen without increasing the price.

          • Jim Smith

            What universe do you live in? You think new features and compliance paperwork, compliance qualification, etc… are free?

            There is zero evidence to support your statements. Cars have gotten safer every year since their inception. most of that time was with ZERO crippling government regulations. Simply google: “regulation cost on cars” and educate yourself.

          • Tadeusz Piskozub

            They are not, but the free market always finds a way to do all that efficiently – as evidenced by the lack of a substantial increase in car prices.

            The car market has been consistently growing for the last 100 years or so. If your statements were true, it would not.

            What’s really “crippling” is the lack of regulations which was causing so many deaths each year.

            Case in point: leaded fuel.

          • Jim Smith

            sorry, you have zero clue on the subject. Some simple googling as i have outlined will educate you on the subject.

          • Tadeusz Piskozub

            I could really same the same about you. I gave nothing of substance.

          • bioburner

            The increasing popularity of big dollar pickup trucks and SUVs also play a large roll in increasing the “cost” of a new car.

          • Jim Smith

            If you do not understand price indices like the clueless EPA, sure. However, when one understands what a price index is, that is not true. Government regulation is the reason prices have been going up so much. Prices had been falling on new vehicles, adjusted for inflation.

        • Epicurus

          Specifically, what regulations are driving up the cost of new cars?

          • Jim Smith

            i posted a link, but links have to be approved and i guess it did not.

          • Steve Hanley

            Send me the link and I will post it. Disqus is funny like that sometimes. Do you still have my e-mail address?

          • Jim Smith

            That is one. Compliance adds cost. Never mind car manufacturers were adding seat belts to their cars long before the government got involved, but why let reality into the picture?

        • Daniel V

          Wow will never understand, or now I understand since watching your last election about how many of your brain washed foxnews American are. The hatred for government is insane. Do you think that car companies would have self regulate to put speed limit, seat belt, alcohol restriction etc for the security of most people. Your concept of capitalism is flawed because your political system is completely corrupted by campaign donors. The best example is health care where your big pharma industry has put legislation so that you pay many time more for the same medication than other countries because your government cannot negotiate prices. And why just use Cuba as an example, why not Germany or Scandinavian countries who are doing better than the US economically.

          • Jim Smith

            It is interesting when people comment on things they know nothing about. Talk about brainwashed…wow. The government of the USA is terrible.

            Power corrupts. Politicians (Democrats and Republicans) are bought because they have power to sell. Remove the power and there is nothing to sell. See how simple it is? Even a gullible, brainwashed progressive/socialist like you should be able to understand that but you are so brainwashed you can’t comprehend what freedom is.

            Car companies were installing seat belts long before the US government got involved, because that is what their customers wanted. Amazing how markets work, isn’t it?

            Agree, the Failed Obamacare is a complete disaster and a massive gift to the insurance and pharma companies. The government should be completely out of healthcare so markets can work and drive down costs. Unfortunately, people are so gullible and brainwashed, they do not understand that.

      • JWHacket

        Not debating the cause, but there’s nothing wrong with holding on to a car for longer than four years. People are brainwashed into thinking they have to have the latest model with the newest technology. A car is a tool intended to take you from one point to the next. As long as it runs safely and the features continue to work, keeping a car for 5 years, 10 years or even longer can save you a lot of money.

        • yeah, I’ve had my 4runner since 2004. I’ll keep it till Toyota makes an electric van that looks as cool as their FJ Cruiser and gets Tesla level range. Then I’ll sell it to someone who’ll drive it for another 200,000 miles.

    • Steve Hanley

      Thanks for offering nothing in the form of thoughtful input. See ya. Don’t let the door hit you in the…..well, you know the rest.

    • dogphlap dogphlap

      You do realise the US has had sanctions on Cuba since 1958 (el bloqueo) in the form of commercial, economic and financial embargoes. Of course you do but you prefer to ignore reality. Despite that they still have a better health care system than the US.

      • jeff benson

        Only the USA does. Why isn’t Japan selling cars in Cuba? Because the evil Commie government won’t allow it. And the healthcare foe average Cuban’s is abysmal. Stop the lies.

      • Biker Bob

        You are retarded

        • dogphlap dogphlap

          Infant mortality rate in the US 5.82 deaths per thousand.
          Infant mortality rate in Cuba 5 deaths per thousand.

          • Biker Bob

            How long have you lived in Cuba?

          • dogphlap dogphlap

            I’ve never lived in Cuba. I would hate to live under a one party communist system so just as well from my standpoint. I only got sucked into this thread after reading Kenneth Segovia’s comment (which has 5 likes) where he celebrates an approach to life that seems to admire the bully and despises those he refers to as snowflakes. In my experience those that get worthwhile things accomplished are not thugs but rather thinkers who can get people co-operating towards a worthwhile goal. There is a place for patriotism at a time of war when your back is against the wall but to ignore problems in society just stores up trouble for the future. Does it not trouble you that the US has a higher incarceration rate than any other democracy ? It does trouble me.

  • Disqusor

    Up until 1913 the inflation was equal ZERO for 100 years………
    What IS Money 2.pdf

  • airchompers

    So what? The used cars that are affordable are better than new cars circa 1990. The average worker is better off now than in 1990 – that’s a fact.

    But even if people prioritize new cars, there are still affordable new cars. The Mirage and Versa are perfectly fine cars and most working people could find a way to swing one of those. Car sales reflect our bifurcated economy – it’s a good time to sell luxury SUVs and trucks, it’s not a good time to sell compact cars – but eventually those luxury SUVs will be used and affordable – or some of them will be. Thank God people buy new Lexuses, each new one should provide 20 years of reliable transportation to someone.

    There’s a clear path to making cars less expensive – remove the most expensive emissions and safety requirements. If we had circa-2000 cars, we might have a better chance of paying circa-2000 prices for cars.

  • Karl Kolchak

    If America had decent public transportation, this would be great news. Unfortunately, we do not.

    • that’s changing in LA. We are building a world-class metro system (long before Elon started digging tunnels), and putting roads on diets and providing free EV car share in low income neighborhoods. Plus there’s Lyft and others making owning a car just a silly waste of money for a lot of Angelenos. I’m hoping Atlanta follows our example soon.

  • GregS

    Ok dumb question time. Will this not be self correcting? What I mean is, if the average person cannot afford the average priced new car, then will the price of the average new car not fall until they can? Or are they just saying that folks in 24 or the largest 25 metropolitan areas are too stupid to live within their budget?

    • Jim Smith

      No, prices are rising and will continue to rise due to the huge costs of government regulation.

    • yeah, and the weaker companies like FCA will go out of business.

  • arguablybetter

    I love how the author blames capitalism in the same article where he mentions millionaire politicians and lobbyists that pay them to write regulation and law that prevents capitalism (competition) from addressing the high cost of new cars…

  • Anne Cole

    Retirement income will be gone as they bankers will take everything from us. The financial situation is ripe for a huge fall globally. If you don’t have physical precious metals, valuable things to trade like food, water, bullets or skills you will die of starvation. The retirement accounts are on the brink and there won’t be social security either.

  • JJ

    Your man Obama promised to fix everything and all he did was lick Wall Street’s rear ends. I work 2 blocks from the White House. I have never seen a poor liberal Democrat politician. Even your boy Sanders is worth millions. Suckas! You got what you voted for so STFU! lol

    • Jim Smith

      How many houses does the man of the people have? Choice of deodorant is bad but choice of houses is fine.

  • Alan Sikorski

    eliminate all their advertising and the price of a new car would be half. 3 to 4 car commercials every programming break.

    • Why would you want to eliminate a viable sector of the economy which produces jobs? That’s as ridiculous as the author’s critique of “capitalism”, which has made a decent, comfortable lifestyle possible. And why should we all drive new cars? I drove my last car for fifteen years.

  • Olek

    Screw you Hanley…..you just had to throw that Fake President line in the piece in what should have been a nuts and bolts article. Your bias ruins your rep. Give up journalism, you are more suited to be a used car salesman.

  • Lorungee

    Shoot….this is news ? I’ve been locked out of the car “market” for 15 years now.

  • vfrtower

    Really, Steve Hanley…#FakePresident?

    What country are you writing from? Not the United States of America, that’s for sure. We don’t have a fake president. We have a President that was legally and officially elected.

    OR…IF YOU ARE writing while living in America, folks would probably take you seriously if you did not use the term #FakePresident in your opening paragraph…or, anywhere in your article…assuming you want people to take your serious. Otherwise, you’re just being silly.

  • general

    Study our founders on this stating that capital is to be controlled by the people not banks, there was plenty of battle on this and why the Constitution has any money shall be backed by gold and silver for they knew if it was set on fait content where it is today by the illegal 1913 private federal reserve controlled by the banks and Roosevelt in the 40`s illegally took us off the gold, and Nixon took us illegally off silver, this was never to be used. Study Kenzien philosophy and how it was one of several actions used.
    When dollar 1960 was worth 100 cents, today it is worth 10 cents, a 90% reduction.
    Also 20 trillion in debt, yearly expense, 280 trillion total deficit of the US and growing faster than the nation will ever pay back. Illinois has a 800 billion deficit and growing as well as several other states and it is not changing.
    President Trump is trying to slow this destruction down and trying to get the industry back here to stop this mess from the last 80+ years, only time and our need to stop it may work…..

  • Iain MacAllester

    $30k to $40k

    $600 a month. Who can afford that?

    I have only purchased a new car once, when I was young and dumb. Since then I’ve only purchased used cars. My current car is 11 years old. I work on it myself and it’s cherry.

    If I wanted a new car, I’d lease it.

    That said, this Hanley dude is an idiot.

  • xercise

    Steve is a fake fucking author

  • Lindsay Zipprich

    Would the fake President have been Obama? He sure did a whole lot to destroy the country.

  • Kmat

    1940 chevy coupe was was $600 New. Average Wage took 3500 to 4000 hours ($0.15 to $0.17 per hour) to pay for it. $35,000 car today would take $10 to $8.75 per hour to pay for it. 1940 Chevy Coupe would run 25,000 before it needed a valve job, 50.000 before it needed and engine rebuild. Today’s cars will last 250,000 miles with very little trouble.

    I have purchased 2 New Cars in 45 years. The rest were year old used. I also run them to the point the Car Deals thank me for not trading them in. What you can afford, depends on what you want to afford.

  • Volvo is going to offer electrified versions of all new models after 2019. Volvo will continue to build internal combustion engines in its cars and trucks for many, many years. As they should. Electric still isn’t ready- far from it. Sorry. 🙁