So they plan to fix the Nissan, which is paid for. Blame the manufacturers and dealers for charging so much for new cars.
“They’re going to price out a certain segment of the market and the population,” Ramirez said. “But that’s something they probably agree with.”
Even as inflation eases and global chip supply shortages begin to resolve, more Americans are being priced out of the country’s new-car market, industry and government data suggest. Spending on new cars by the bottom 20 percent of incomes fell to its lowest level in 11 years. Meanwhile, spending on new cars by the top 20% hit its highest level on record, dating back to 1984, according to the most recent data from the 2021 Survey of Consumer Expenditures, not adjusted for inflation.
“New vehicles may never have been a product for everyone in America,” Charles Chesbrough, senior economist at Cox Automotive, said at an automotive conference earlier this year. “We like to believe they were, but they probably haven’t been for a long time. But they are certainly even less so today.”
The problems with pushing new cars out of reach are twofold. On the demand side, rising interest rates have made car loans much more expensive, with the average monthly payment reaching $686 by mid-2022, according to Edmunds data. Last month it reached $730.
But even if buyers can get a decent interest rate, the supply of cars available for purchase has been much more expensive, in part because manufacturers have been funneling resources into improved versions of expensive models and cutting back on cheaper options.
In late April, General Motors announced it would end production of its best-selling electric vehicle, the Chevy Bolt, killing one of America’s most affordable electric vehicles by the end of the year. This continues a long-standing trend. In 2017, for example, there were 11 models available in the U.S. market for less than $20,000, according to Cox data. By the end of 2022, there were four. Then in March 2023, only 2.
The end result is a widening gap between those who can afford new cars and those who can’t. The average price of a new car in the United States reached $48,008 in March, up 30 percent from March 2020, according to Kelley Blue Book.
Automakers are selling fewer new vehicles in the US than before the pandemic: about 13.9 million last year, down from 17 million in 2019. But their 2022 revenue was still $15 billion higher than in 2019 , because the combination they sell is more expensive. , according to Cox Automotive.
One of the main reasons automakers have leaned heavily on more expensive vehicles is the global chip shortage. Shortages of tiny electronic components, caused by supply and demand swings related to the pandemic, forced automakers to cut production, driving up prices for new and used vehicles. The shortage forced automakers to ration their components, which they did by reserving them for their more profitable, high-end vehicles.
Automakers have also faced higher production costs, thanks to factory closures in China during the pandemic and ongoing labor shortage. Some of these problems are being reduced. But manufacturers have started to hold more parts in inventory to protect against future shortages, a strategy that increases their costs, said Ambrose Conroy, an automotive expert at consulting firm Seraph.
Meanwhile, the auto industry is pouring big money into overhauling factories to produce electric vehicles, a major expense that’s also contributing to higher prices, Conroy added.
Those changes accelerated a years-long trend that was already squeezing affordable cars from the U.S. market, as automakers shifted to producing more high-margin SUVs and trucks. For more than a decade, automakers increased American advertising of pickup trucks and SUVs, which were more profitable to sell in the U.S. because a 25 percent import tariff protected many of them from foreign competition.
“Everyone seems to have been conditioned to drive an SUV these days,” Conroy said.
Among the cars that were discontinued last year was the Chevy Spark, the cheapest of which started at $13,600. Chevy sold more than 24,400 of these cars in 2021, more than most luxury models can claim.
Now Chevy’s cheapest models cost more than $20,000.
At the same time, the number of models selling for more than $60,000 continues to climb: 61 in 2017, then 76 in 2021, then 90 in 2022. In March, the category grew to 94 models.
In Austin, Johnny Loredo and his wife paid $38,000 for a new Nissan Frontier truck two years ago. “I was in sticker shock … and it was a basic model,” he said. If they hadn’t had a used Suburban to trade in, they wouldn’t have been able to afford it, he said.
“I think they’ve exceeded what people are charging,” said Loredo, the hotel’s manager. “When we’re doing increases here, we’re giving the basic increase of two, three and four percent, but that can’t sustain a new car. That’s why you see a lot of used cars and people are just fixing their cars.”
Manufacturers determine which cars are sent to dealers, and typically won’t ship new inventory until the current stock is sold. In Maryland, where Andrea White has expensive cars on her lot, she said she’s “just going through it.”
“We have some final edition Dodge Challengers for $80,000 or $90,000,” White said. “We don’t want another one.”
Dealers say manufacturers are raising prices beyond what customers will be looking for, in some cases leaving dealers stuck with models they can’t sell. Earlier this spring, White had 76 new vehicles on the lot of his Annapolis, Md., car dealership. At the time, it had no buyers for the $88,000 Jeep Wagoneer. The $115,000 Grand Wagoneer? don’t move Many of their cars cost between $50,000 and $60,000.
“I have a few that are so expensive I would do anything to get them off the lot,” White said. “I’m just pricing people out so we can just break even. That’s how desperate I am to throw this expensive stuff away, because it’s hurting us.”
The mismatch also stems from automakers’ response to how consumers behaved at the height of the pandemic, when many Americans had more money to spend on goods and were demanding new vehicles with lots of extra features.
“These big Suburbans and Yukons and Expeditions, they were loaded. So when you look at some of those numbers, some of that was self-inflicted by the consumer,” said Pete DeLongchamps, senior vice president of Group 1 Automotive, owner of 150 dealerships of automobiles in the US, at a recent automotive conference. “But I think now that rates have gone up and we’re seeing some of those monthly prices, there’s some moderation.”
Automaker officials disagree with producing cars out of reach, adding that the models on sale reflect customer interests and demand for SUVs and trucks. In a statement, John Bozzella, president and CEO of the Alliance for Automotive Innovation, said “the beauty of the auto industry, and this has always been true, is that there is literally something to to everyone”.
“More than 400 models from different manufacturers, configurations, prices and now a choice of engines – conventional or electric,” he said. “Why are there so many van and utility models for sale? Because customers really like this category of vehicles.”
Having even more buyers budgets are increasing monthly payments. That’s largely because the Federal Reserve has been raising interest rates for more than a year, moving at the fastest pace in decades to curb inflation. This week, the central bank raised interest rates for the 10th time, bringing the Fed’s benchmark interest rate to between 5 percent and 5.25 percent. It is not clear if they will walk again.
Interest rate hikes bounce with all kinds of loans to curb consumer demand. The goal is to get borrowing costs high enough to put people off buying cars, for example, until supply can catch up with demand.
But the side effect it is a broadening in the accessibility gap. In the years before the pandemic, the average monthly payment for a new car ranged from $500 to $600. That quickly changed when the Fed began raising rates in March 2022.
“When you do the math on what that means for the median household, it’s essentially pricing the median completely out of the new vehicle market and leaving higher-income households who disproportionately have more wealth, better credit, and , as a result, they can afford even more expensive vehicles, so the migration even accelerates at those price points,” said Jonathan Smoke, chief economist at Cox Automotive.
That has economists and auto experts closely watching car repossession rates, which are approaching pre-pandemic levels. During the covid crisis, lenders became more lenient with late payments and stimulus checks helped people keep up. There appears to be little risk, so far, of a wave of car repossessions. But the buffers are drying up, especially for consumers with less credit who make up the subprime loan market. Their recovery rates are now higher than in 2019, according to Kelley Blue Book.
Some dealers say they are starting to see an increase in late loan payments, especially among buyers with poor credit. “Especially at that lower FICO score, we’re seeing a big increase in delinquency today, all because of affordability,” said DeLongchamps, the auto dealer.
He added that as customers try to lower their monthly payments, loan terms are lengthening, in some cases 72 or 73 months.
Andrew Van Dam contributed to this report.
