Yahoo Autos New cars now just for the rich as automakers rake in profits
A shiny new car in the driveway has been an emblem of middle-class prosperity for generations. But for the typical American family, it’s now a distant dream.
The average monthly payment for a new car has soared to a record $777, nearly doubling from late 2019, according to Kelley Blue Book owner Cox Automotive. That’s almost a sixth of the median after-tax income for U.S. households. Even used models have climbed to $544 a month on average.
The sticker shock extends well beyond the U.S., where inflation is a thorny political issue for President Joe Biden as the 2024 election looms. In Europe, prices are flirting with records. Used-car prices soared in Japan last year, and in China, a rapid push to electric vehicles means consumers will have to pay more in some cities.
At the root of the problem is automakers’ new mantra: Keep inventory lean and price tags fat. Three years after the pandemic triggered a global shortage of semiconductor chips and crippled car manufacturing, Ford, GM and their overseas rivals are notching big profits. Even as the chip crunch shows signs of easing, they’re pledging to keep production in check.
And because electric vehicles cost about 25% more than the average car, the shift to plug-ins is about to make the affordability crisis even worse. Add soaring interest rates to the mix, and new cars — like home ownership and a college education — are fast becoming the domain of the rich.
“The idea of a new car in every American’s driveway is not the world we live in,” said Charlie Chesbrough, a senior economist at Cox.
Sky-high payments
For a decade, the average new-car payment in the US bumped along at roughly $400 a month. That’s about as much as the typical American household can shell out and still meet other major expenses, said Jonathan Smoke, chief economist at Cox. But it crossed that mark in November 2019 and has been soaring ever since.
The average price for a new vehicle in the US has jumped to almost $50,000, up 30% since 2019, according to JPMorgan. Though prices have retreated somewhat in recent weeks as production recovers, the pullback isn’t enough for most consumers to comfortably buy a new car. The average price of a used car, meanwhile, now stands at about $27,000, Cox data show.
• Read more: Americans fall behind on car payments at a higher rate than 2009
Manufacturers are reaping the benefits of selling fewer but more expensive cars. Last year, automakers sold about 13 million vehicles in the US, down 8% from 2021 and the lowest in a decade. But Ford’s gross profit rose 4.4% in 2022 from a year earlier, while GM’s adjusted earnings grew by about $200 million to reach $14.5 billion. Margins for some manufacturers are expected to narrow this year amid global economic weakness.
In Europe, meanwhile, new-car prices are at all-time highs and still climbing, according to data from ING Research. Vehicle shortages drove used-car prices up in Japan through most of last year. China’s economic slump has kept prices at bay, but major cities are making it difficult to register internal-combustion vehicles amid a push toward EVs, which tend to be more expensive.
