Mark Levin was accustomed to leasing a new Mercedes-Benz SUV every three years, enjoying the benefits of driving a new car without maintenance hassles. However, during his recent visit to the dealer, he was shocked to find the monthly leasing cost had nearly doubled from $640 to almost $1,200. Even alternative options like a Jeep Grand Cherokee or Toyota Highlander had monthly payments matching his previous Mercedes-Benz expense. Eventually, Levin opted for a used car, joining many others turning to the second-hand market.
Car buyers across the U.S., including those with higher incomes, are retreating from the new car market. While the pandemic-related supply shortages that initially drove up prices have eased, new car prices remain high. According to Cox Automotive, the average price for a new car this year is $48,205, a 21% increase over the past five years. Frustration over unaffordable vehicles is becoming a common economic grievance.
The rising sticker prices are deterring potential buyers. A recent survey by automotive research firm Edmunds found that nearly half of American car consumers aim to spend no more than $35,000 on a new car, a reflection of the average price six years ago. When faced with current prices nearing $50,000, many opted not to buy, with 73% of respondents postponing their purchase due to costs.
Financing a new car is also costly, with average loan rates in September at 7.1% for new cars and 11.2% for used cars, compared to 5.7% and 8.4% five years ago. Experts note that recent interest rate cuts by the Federal Reserve will take time to impact auto loan rates, potentially reducing monthly payments by only $10 to $20.
The pandemic-induced computer chip shortage disrupted vehicle production, leading to reduced dealership inventories and bolstered prices. Inflation has also increased the cost of essential car materials like steel. Additionally, automakers have incorporated costly new technologies, such as advanced touchscreen displays and collision-avoidance sensors, some of which are mandated by government regulations.
Dealers like Rhett Ricart in Columbus, Ohio, note that inflation has made cars extremely expensive, despite advancements in technology and safety. Automakers have little incentive to address the affordability crisis, as they can still profit by selling to wealthier buyers.
Vehicles priced under $20,000, once popular among young Americans, have nearly disappeared from the market. Even used cars are becoming unaffordable for some, with the average used vehicle price reaching $27,422 in September, a 32% increase over five years, and average monthly payments rising from $416 in September 2019 to $549 last month.
