DETROIT (AP) - After several years of sharing a 2019 Chevrolet Trax, Dana Eble and Tyler Marcus are now on the hunt for a second vehicle. However, they face uncertainty regarding their budget as they enter the market.
Eble, who works as an account manager for a public relations agency, expressed the financial strain they're experiencing: “I just keep seeing a lot of different aspects of life getting more expensive, and it’s harder." Traditionally, car ownership has been a central part of the American dream, but recent trends have created challenges for buyers. Manufacturers are reducing production of affordable models to meet the demands of those looking for larger vehicles like SUVs and pickups, resulting in increased prices just as inflation continues to strain budgets.
The Labor Department reported that consumer prices rose 3.3% in March, the largest yearly increase since May 2024, while the cost of new cars surged by 12.6% compared to the previous year. Currently, new vehicles average nearly $50,000, a staggering 30% increase over the past six years, and average monthly payments have climbed to $775 based on a 10% down payment over a six-year loan. The portion of vehicles available for less than $30,000 has plummeted to about 13%, from 40% five years ago, according to data from CarGurus.
Many buyers are responding to the high prices by extending their loan terms. More than 12% of car sales now involve seven-year loans, an increase from nearly 8% a year ago, according to J.D. Power. While this can lower short-term payments, it ultimately leads to higher overall costs due to increased interest payments.
Charlie Chesbrough, a senior economist at Cox Automotive, remarked, “The ability to buy transportation is still out there. The question is just, what do you get for your money?” The rise in car costs adds to broader affordability worries that American consumers are grappling with, especially younger generations. Many report that essential expenses like housing, food, utilities, and childcare are becoming increasingly unaffordable, with wages lagging behind these rising costs.
This situation poses challenges for political figures, particularly Republicans, as midterm elections approach. The conflict in Iran has exacerbated gas prices, further escalating the financial burden associated with car ownership.
Automakers have noticed that consumer demand is shifting towards larger and pricier SUVs and trucks, which yield higher profits, leading to the discontinuation of smaller sedans. This trend is especially prominent among domestic manufacturers like Ford, General Motors, and Stellantis, which have seen higher average selling prices than their Asian counterparts, such as Honda and Hyundai.
Moreover, auto companies strategically place popular features in premium trim levels to entice buyers into spending more than they originally intended. Required safety technologies, like rear-view cameras, also contribute to the overall pricing of vehicles.
The economic disruption caused by the COVID-19 pandemic initially pushed car prices higher due to reduced production, affecting both the new and used vehicle markets. Despite some recovery in production, ongoing supply chain disturbances and tariffs continue to impact prices. Luxury also extends to car insurance, which has risen 55% since before the pandemic, and repair costs have increased by 48% on average.
The share of new car buyers earning under $100,000 decreased from 50% in 2020 to just 37% last year, according to statistics from Cox Automotive. In response to these affordability concerns, some automakers have pledged to offer vehicles priced below $40,000 in the coming years. Companies like GM highlight options from their Buick and Chevrolet lines, including the Trax, as more accessible alternatives.
As buyers seek to alleviate financial pressure, many are turning to the used vehicle market, which presents its own set of challenges. A report from CarGurus indicates that the percentage of used cars priced below $30,000 has dropped from 78% in 2021 to 69% in February of this year. The average price for a used vehicle is around $25,000, with average monthly payments reaching $560.
The lack of affordable options in the used market is partly due to consumers holding onto their cars longer, with the average vehicle age now nearing 13 years, an increase of 18 months compared to a decade prior. Additionally, a decline in leasing popularity has resulted in fewer relatively new cars entering the market after lease terminations.
Leasing can be an attractive option, with estimates suggesting consumers could save nearly $140 per month compared to financing, especially for those with predictable mileage. However, experts still identify significant affordability challenges within the current market landscape.
Sam Dykhuis, a 27-year-old from Chicago, recently purchased her first car after starting a job with United Airlines. She searched for a used model under $20,000 and ended up spending slightly above that for a 2021 Mazda CX-5. To keep costs down, she utilized personal savings for the purchase and opted for semi-annual insurance payments to manage expenses efficiently.
Eble and Marcus view car shopping with cautious optimism, seeking vehicles in the $20,000 to $30,000 range. They are considering models like a newer Trax or possibly an electric vehicle, aware of the initial higher costs of EVs but also mindful of potential long-term savings. They are also contemplating purchasing outright to avoid monthly payments entirely, reflecting a broader concern about the stability of their finances in a fluctuating economic landscape.
