Talk about sticker shock.
The average monthly payment for a new car in the U.S. is $733.
The average monthly payments for used and leased cars are $571 and $598, respectively. Car buyers face average financing rates of 11.1 percent for used cars and 7 percent for new ones.
That is according to July data from the Edmunds.com (car buying and automotive group and popular consumer website).
Those sky-high prices and higher interest debt are leaving many consumers on some rough roads. Edmunds’ consumer insights analyst Joseph Yoon said both sides of the car-buying coin are working against buyers right now.
“You need cars to be cheap. You need the money to be cheap,” Yoon said. “Right now, neither of those things are true.”
The current average monthly new car payment is up $242 per month (or 49.3 percent) from early 2015 and $158 per month (or 27.5 percent) since the coronavirus pandemic started in early 2020.
The average payment for a new car was $575 in February 2020 before the pandemic emergence in the U.S. and $491 in January 2015, according to Edmunds data.
The average price of a new car is $48,334 with luxury purchases averaging $63,552, according to numbers released Aug. 9 by Kelly Blue Book, another much-watched car-buying resource.
Edmunds currently pegs the average new car price in the U.S. at $47,561 and average used car price at $29,179.
Seven years ago, in 2016, used car prices averaged $18,661 while new cars cost $33,618. Before COVID-19, new cars were in the $38,000 range and used cars averaged around $20,500, according to Edmunds.
“It’s wild, too,” he said, of the roughly $10,000 increases in average automobile prices since 2020.
Monthly used car payments are up from $367 per month in early 2015 (a $204 monthly increase or 56 percent more). They are up from $412 in early 2020, before the pandemic ($159 more each month or 38.6 percent), according to Edmunds data.
The age of finding a cheap used car is in the rear-view mirror.
Record consumer debt
High car prices have added to U.S. households’ recent financial strains.
Americans saw record-high gasoline prices last year along with 40-year highs with inflation (including groceries). The current housing crunch has combined higher prices with limited supplies of affordable residences. They now face higher interest rates on car payments and credit cards after 10 rate hikes by the Federal Reserve since last year to battle inflation induced by central bank and fiscal infusions. All that came after employers cut 22 million jobs at the beginning of COVID-19 in 2020.
Those rate hikes are adding interest to car loans and other consumer financing.
New car buyers are now paying $8,997 in interest on the vehicles they are buying.
“You are buying a $48,000 car for $56,000,” Yoon said. “That’s obviously having a huge impact on monthly payments.”
In January 2015, U.S. car buyers were paying $3,831 in interest on new car loans. That number is now more than $5,100 higher.
Used car buyers — who are now seeing double-digit interest rates — have seen their interest payments go from $4,392 over the course of car loan in early 2015 to $10,802 now, according to July data from Los Angeles-based Edmunds.
That translates into used car buyers financing $29,685 vehicles and paying more than $10,800 in interest.
The upswing in car prices and associated debt is part of a broader tidal wave of consumer debt.
U.S. household debt totaled a record $17.06 trillion in the second quarter of 2023 — including $1.03 trillion in credit card debt and $1.58 trillion in auto loan debt, according to the New York Federal Reserve Bank’s Center for Microeconomic Data.
Auto loan debt is up $20 billion from the first quarter of 2023 and $80 billion from a year ago, according to the regional arm of the U.S central bank. Consumer debt has increased $2.9 trillion since the pandemic, according to the New York Fed.
Other factors
Pandemic-related shutdowns of computer ship plants and ports (including in China) helped reduce inventories. Supply chains, auto plants and car dealerships are still trying to make up for that lost ground.
A number of smaller, independent, “mom and pop” used car dealerships have disappeared from the marketplace with auction prices for previously owned vehicles also increasing with supplies low and lot prices high, Yoon said.
Car dealerships and automakers have also been pushing more expensive trim levels to customers with more expensive packages and models being more readily available at the retail level in a climate with limited inventories.
How about leasing?
Yoon said the financial advantages of leasing cars (including dealer incentives) have disappeared.
In July, the average lease payment for cars was $598 per month, up from $468 per month before the pandemic hit in 2020 and $426 per month in early 2015.
“That’s a pretty significant and notable increase,” Yoon said.
The price of leased cars and trucks was up 10.8 percent in the latest Consumer Price Index. Car repairs are up 19.5 percent. Car insurance is up 17.8 percent. Those all outpace the overall 3.2 percent inflation rate in the July CPI.
With the payment price gap between leasing and buying evaporating, more buyers are opting to purchase.
Leasing’s share of the U.S. automotive marketplace has gone from 32 percent pre-pandemic to 21 percent in July, Edmunds reports.
That helps drive demand for new cars and cuts previously relied upon supplies of used cars — another double whammy for consumers.
No American appetite for cheap cars
Yoon said from the consumer side of car buying, American buyers have shown no interest in some time for purchasing low-budget automobiles.
While there is a market for mini-cars and mini-trucks that can cost under $6,000 in China, India and African markets, it’s not in the U.S.
“The American consumer doesn’t want that,” the Edmunds analyst said, pointing to past low-budget flops in the U.S. market such as the Yugo. “We don’t want budget vehicles.”
U.S. consumers’ expectations for items such as rear-view cameras, high-tech display panels and climate-controlled seats offer ample evidence and are displayed in the costs of cars.
“Those things all cost money,” Yoon said, pointing out the challenges of finding a used car under $25,000.
(1) comment
I found the numbers and analysis in this article to be a very interesting and informative reading…. Up to the last section called “No American appetite for cheap cars” which, I think, should be re-written as “No American present multinational corporations appetite for selling cheap cars”.
And my favorite line is as follows:
“Car dealerships and automakers have also been pushing more expensive trim levels to customers with more expensive packages and models being more readily available at the retail level in a climate with limited inventories.”
Now to the last section. “No American present multinational corporations appetite for selling cheap cars”.
Here is an apparent contradiction:
(1) ‘“You need cars to be cheap. [...]” Yoon said.’ vs
(2) ‘Yoon said from the consumer side of car buying, American buyers have shown no interest in some time for purchasing low-budget automobiles.’
The truth is that the Detroit, and the European conglomerates, and the American present Asian behemoths are so used to a fat profit margins and the expectations are for the profits to grow exponentially. So they ALL ditched out the small budget base models in favor of luxury and mandatory “standard option”, and then the corporate adverting professional wizards made Americans to “want” them. For example, Consumer report “compact car” section dissapeaed entirely, starting with “discontinued” Ford Focus, and followed by Dodge Neon, Hyundai Accent, Mazda Protege, Subaru Justy, Honda Fit, Toyota Yaris, and ending with Chevrolet Spark which was the GM’s hostile “acquisition” of Korean Daewoo Motors with Italian “face-lift” and the GM corporate culture quality.
Here we are. “The average price of a new car is $48,334 with luxury purchases averaging $63,552, according to numbers released Aug. 9 by Kelly Blue Book”. And the corporate adverting professional wizards made Americans to “want” them. That’s why “The American consumer doesn’t want that,” the Edmunds analyst said, pointing to past low-budget flops in the U.S. market such as the Yugo. “We don’t want budget vehicles.”
And by the way, for the record the last 1,412 cars of the Yugoslavian Yugo was sold in the United States in 1992 on the rubbles of communist Yugoslavia is an old story. All this happened well before the rise of the Chinese dragon.
Ask your-self, Would you like to purchases a new decent quality car for your teenager or a US college kid for under $6,000 instead of a used $29,179 gas guzzler? I think the answer is, of cause, yes! So the statements in the conclusion of the article appears as an outright lie: “While there is a market for mini-cars and mini-trucks that can cost under $6,000 in China, India and African markets, it’s not in the U.S.”
I agree, “U.S. consumers’ expectations for items such as rear-view cameras, high-tech display panels and climate-controlled seats offer ample evidence and are displayed in the costs of cars.” But Mike Sunnucks forgot to mention that these expectations are manufactured by the corporate adverting professional wizards, and at the end of the day, the adverting expenses are added to the price of a new cars, making them even more costly.
Finally we are getting to the elephants in the room Mr Mike Sunnucks had failed to mention:
(1) United States government car and truck tariffs, and
(2) excessive US car emissions standards.
They both are (1) preventing $6000 Chinese decent quality new cars of reaching American market, (2) stifling innovation and healthy free enterprise competition, (3) making fat wall street corporate profit possible, and (4) forcing the American consumers to pay much more than then they should.
This is an enormously important and wide subject, but unfortunately not quit suitable for a reader comment section newspaper format.
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