The High Cost of Driving: Are New Cars Out of Reach for Americans?

The high cost of new cars is forcing even high-income Americans to look elsewhere. Photo: The New York Times.

Marc Levine was used to leasing a new Mercedes-Benz GLE SUV every three years, much like one would with a timepiece. He enjoyed driving a new car under lease as it freed him from concerns about maintenance or the expiration of warranties.

But when he returned to the dealership last year to replace his 2018 GLE 350, he was in for a shock: The monthly payments for the newer version of the same model would double, from $640 to nearly $1,200.

“Are you kidding me?” the 61-year-old cardiologist, who lives with his family in South Florida, asked the dealer.

He considered more mainstream brands – a Jeep Grand Cherokee and a Toyota Highlander – but the monthly payments for those vehicles had risen to almost what he had been paying for his previous Mercedes. So, eventually, he had to ask, “Do you have any used cars?”

And that’s how Levine, a lifelong new car driver, joined the growing ranks of used car buyers in the US, according to Bloomberg.

Nightmare Comes True

Levine eventually purchased a three-year-old Mercedes E-Class sedan with monthly payments of $748. He describes buying a used car as the “new normal” because the prices of new cars have become “ridiculous.”

“I’ve never been a used car buyer because it felt like someone else’s nightmare that I didn’t want to take on. But what other choice do I have now?” Levine said.

Car buyers across the US – even those with high incomes like Levine – are turning away from the new car market.

Even high-income Americans are being priced out of the new car market.

Jared Buccola and his wife, Amanda, are expecting their first child, a baby boy, in December, and they hope to upgrade to a three-row SUV. But they couldn’t find anything within their budget, so they’re sticking with Amanda’s 2019 Hyundai Tucson, a compact two-row SUV.

Paying more than $700 per month, which is the average amount new car buyers are paying these days, is “out of the question” for Jared, a 36-year-old marketing director living in Phoenix, and his wife, a 32-year-old data analyst.

“Anything over $400 a month is scary,” Jared said.

The couple will try to find an affordable three-row SUV next year when the lease on Jared’s Subaru Crosstrek ends. But Jared has come to terms with the fact that they may be priced out of the new car market.

While the pandemic-induced supply shortages that sent car prices soaring have eased, the cost of a new car continues to rise. According to Cox Automotive Inc., a market research company, the average price of a new car this year is $48,205, a 21% increase compared to five years ago.

The high prices are scaring off potential buyers.

A recent survey by Edmunds.com, an automotive research company, found that nearly half of US buyers expected to pay $35,000 or less for a new car. This makes sense, as the average age of vehicles on the road is six years, meaning these buyers last purchased a new car when the average price was in the mid-$30,000s.

When they return to the showroom and find that they’ll have to pay nearly $50,000, they walk away. The Edmunds survey showed that 73% of consumers are delaying their new car purchases due to high costs.

“The prices are really shocking people,” said Jessica Caldwell, executive director of insights at Edmunds. “They’re asking, ‘Why is it $300 more a month to buy the same car?'”

According to Cox, the average monthly payments for new car loans this year are $767, a 17% increase compared to four years ago. And one-sixth of new car buyers this year will be paying more than $1,000 per month.

New Cars Only for the Wealthy

While the soaring costs of housing and groceries have dominated the inflation debate, which has become a hot topic in the presidential election, the car affordability crisis is undermining a basic aspiration of American life: owning a new car is now only for the wealthy.

Only the wealthy can afford new cars now.

According to research conducted by AlixPartners LLP for Bloomberg, the lowest-income consumers, those making less than $16,000 in 2023, have been completely priced out of the new car market in the past two years, while those making $16,000-$41,000 accounted for just 6% of new car sales in 2023.

“The new car market has shifted to wealthier buyers. The average person has to buy used and has to keep their car longer,” said Mark Wakefield, co-leader of the automotive practice at AlixPartners.

Inflation has also pushed up the prices of key automotive materials, such as steel. Additionally, manufacturers have equipped cars with expensive new technologies, including large dashboard touchscreen displays and a host of collision-avoidance sensors and protective features, some of which are mandated by government regulators.

“Hyperinflation has made these vehicles really, really expensive,” said Rhett Ricart, a dealer in Columbus, Ohio, who sells Ford, General Motors, Hyundai, and other brands.

Automakers also have little incentive to address the affordability crisis, as they make more money by selling fewer cars to wealthier buyers.

Despite Americans driving more than ever, the new car market is shrinking. Cox predicts that Americans will buy 15.7 million new cars and trucks this year, one million fewer than in the years before the pandemic.

Cars priced under $20,000 – the type that young Americans used to drive – have essentially disappeared, accounting for just 0.1% of the new car market this year.

“Low-income buyers have been left behind in the used car market,” said Charlie Chesbrough, senior economist at Cox.

Even used cars are out of reach for some buyers, with the average price reaching $27,422 in September, a 32% increase compared to five years ago, and the average monthly payment climbing to $549 last month, up from $416 in September 2019, according to Edmunds.

You may also like

The American Market’s Shift in Preference: Downsizing from Large Cars to Affordable, Compact Vehicles

Soaring gas prices and hefty monthly expenses have Americans seeking more affordable options. This shift in consumer behavior has led to a rising interest in smaller, more economical vehicles. The focus on cost-effective choices doesn’t mean a compromise on quality or features, but rather a smarter approach to car ownership.

Make America’s Affordable Cars Great (and Expensive) Again

The proposed tax policy could see the average price of a new car in the US surge by an estimated $3,000.

The Great Stock Clearance: Car Manufacturer Steps Up Promotions to Clear Inventory

The automotive industry in the US is facing a challenge: overflowing inventory. To address this, car manufacturers are taking a strategic pause in production or ramping up incentives to clear out stock before the new year rolls in.

The Price of New Cars is Outpacing Americans’ Expected Spending

The average price of a new car in the United States hovers around a staggering $48,000. However, the majority of buyers in this market are only willing to commit to a much lower price point.

The Ever-Declining Price of New Cars

The economic downturn and high inventory have led to a continuous decline in new car prices in the US.