Car Affordability Plummets in America – Many Can No Longer Afford Their Cars

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Car ownership has long been synonymous with the American way of life, embodying notions of freedom, independence, and even rebellion, while also serving as a practical necessity. However, in 2024, the enduring romance between Americans and their automobiles appears to be at a critical juncture, with many facing the stark reality of unaffordable cars.

In the wake of the pandemic, the cost of living has surged, impacting various aspects of daily expenses, including cars, insurance, and repairs. During the pandemic, both new and used car prices soared to unprecedented levels due to disruptions in the supply chain and chip shortages plaguing the automotive industry. Since 2020, new car prices have surged by 30 percent, while used car prices have spiked by 38 percent, according to data from CoPilot, an AI car shopping app.

In 2023, despite a slowdown in inflation prompting the Federal Reserve to halt rate hikes, new car prices averaged $50,364, with used car prices hovering around $31,030. However, affordability remains a pressing issue for many Americans, with only a small fraction of new and used car listings falling within relatively affordable price ranges.

According to Market Watch, the affordability threshold for car ownership suggests that an annual income of at least $100,000 is necessary, considering the recommended guideline of not allocating more than 10 percent of monthly income to car-related expenses. Census data indicates that over 60 percent of American households currently fall short of this benchmark, with an even higher percentage of individuals unable to afford a new car.

Various factors have contributed to the soaring costs of cars. Pat Ryan, CEO of CoPilot, highlighted the significant price hikes driven by confident consumers and minimal recovery in prices, exacerbated by multiple interest rate hikes. Joseph Yoon, a consumer insights analyst at Edmunds, attributed the price surge to disruptions in manufacturing supply chains, heightened consumer demand, and a shift towards prioritizing higher-profit vehicles by manufacturers.

Looking ahead, analysts anticipate modest declines in used car prices in 2024, albeit with a prolonged recovery period for supply to meet demand. However, beyond pandemic-related disruptions, the absence of affordable cars in the U.S. can also be attributed to automakers’ emphasis on producing expensive SUVs and trucks at the expense of smaller, more economical vehicles.

Yoon emphasized the shift in consumer preferences towards larger vehicles equipped with advanced technologies and comfort features, which inevitably come at a premium price. This trend, coupled with manufacturers discontinuing smaller, affordable models due to sluggish sales, underscores the challenge of reconciling consumer demand with economic realities for many Americans.

Sources: MarketWatch, Newsweek, Edmunds


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