Even some high income earners are at a loss when it comes to buying new cars in the US – prices are skyrocketing

Mark Levine visits Germany every three years.mercedes・ The decision was to lease a new sports utility vehicle (SUV) from the Benz Group. I loved being able to drive a new car and not worry about maintenance or warranty expiring. However, when Levine went to a dealer last year to refinance his 2018 GLE 350, he was confronted with a startling reality. I tried to lease a newer version of the same GLE 350, but the dealer told me the monthly payment would be around $1,200 (about 180,000 yen). It was almost double the previous price ($640).

“Are you kidding me?” Levine, a cardiologist who lives with his family in south Florida, asked the salesman. He considered popular car brands such as Stellantis’ Jeep Grand Cherokee and Toyota’s Highlander, but even those cars had monthly payments close to those of his previous Mercedes car. Mr. Levine had no choice but to visit. “Do you have any used cars?”

In this way, Mr. Levine has become a new addition to the growing number of used car buyers. Levine bought a three-year-old Mercedes E-Class sedan with monthly payments of $748. Levine explained that buying used cars has become the “new normal” because new cars have become “ridiculous” prices. But I am not satisfied.

“I’ve never bought a used car before, because buying a used car is someone else’s nightmare and I didn’t want that to happen,” said Levine, 61. He continued, “But what choice I had?”

Used cars lined up at dealer (Indianapolis)

Photographer: Jonathan Weiss/Alamy

In the United States, even people like Levine, who earn a good income, are being forced out of the new car market. The supply shortage caused by the coronavirus pandemic, which caused prices to skyrocket, is now a thing of the past, but the cost of new cars is still rising. research companycox carThe average price of a new car this year is $48,205, an increase of 21% from five years ago. Among consumers, growing dissatisfaction with the price of cars has become an economic concern in their daily lives, and this awareness is likely to be on the minds of voters as they head to the polls. opinion in the presidential election on the 5th.

Due to the high price, more and more people are reluctant to buy them. A recent study by the automotive market research firm Edmunds.com found that nearly half of American car buyers plan to spend less than $35,000 on a new car. In a sense, this is natural. On average, the cars consumers trade in are worth six years, and the average price of their last new car was in the mid-$30,000 range. If a customer returns to the showroom and finds out that he or she has to pay close to $50,000, he or she will walk away without doing anything. Edmunds research shows that 73% of consumers hold off on buying a new car because of cost.

Jessica Caldwell, director of insight at Edmunds, said consumers are simply shocked by the high prices, asking, “Why would I pay $300 more a month for the same car? “

The average monthly payment on a new car loan now averages $767, up 17% from four years ago, Cox said. According to Edmunds, one in six new car buyers will have monthly payments of more than $1,000 this year. Advances in technology, automakers’ pursuit of higher profit margins, and sharp increases in auto loan interest rates have dramatically increased costs for buyers.

In the debate about inflation, which is one of the issues in the presidential election, the increase in housing and food costs is the biggest focus. But the car price crisis is undermining a basic desire in American life: to keep a new car in the family garage. Today, it is becoming an area that only the rich can enjoy.

Last year, the top 20 percent of U.S. households with an average annual income of $265,000 accounted for 55 percent of spending on new cars, according to a study commissioned by Bloomberg and a AlixPartners council. This ratio was 40% in 2020. The lowest income groups (those making less than $16,000 a year in 2023) are completely excluded from the new car market for the past two years. In 2023, consumers with annual incomes between $16,000 and $41,000 accounted for just 6% of new car sales.

“The new car market is shifting to more affluent buyers,” said Mark Wakefield of Alix Partners. “Consumers are being forced to buy used cars and keep the same car for longer periods of time.”

In addition to prices, high loan interest rates are also exacerbating the situation. The average car loan interest rate in September was 7.1% for new car purchases and 11.2% for used cars. Five years ago, they were 5.7% and 8.4%, respectively. In September, the US Federal Open Market Committee (FOMC)Interest rate cut 0.5 pointHowever, experts say it will take time for the interest rate cuts to be reflected in car loans, and even when they do, they will only reduce your monthly payments by about $10 to $20. In response to this situation, buyers are forced to find ways to keep their monthly payments within a reasonable range. According to Edmunds, about one in five car loans currently have a term of seven years. A few years ago, five-year loan terms were common.

(Original article published in “Bloomberg Businessweek” magazine)

news-rsf-original-reference paywall">Original title:Even some high-income Americans can’t afford new cars(section)