Most unaffordable car market in modern History
In this video I’m going to go over what’s going on in the current auto market because it seems like we’re living in the most unaffordable car market in modern history. At least that’s what some analysts are saying right now. It’s hard to argue that given some of the numbers we’re seeing at the moment.
According to Edmunds, In the second quarter of this year a record high, 17.1% of people who are financing a vehicle paid more than $1000 a month. $1000 per month! To give you some perspective on how drastic of an increase that is, in the second quarter of 2019 before the pandemic the percentage of people with that high of a payment was 4.3%.
Just like the housing market, car buyers are dealing with high prices and high interest rates. Normally, high rates should bring down the price of vehicles, but right now Cox Automotive is showing the average price for a new vehicle is over $48,000.00. In 2019 they were closer to $39,000.
In fact, Wells Fargo analysts had a report that stated that “Pricing has been growing at a 6.6% Compound Annual Growth Rate since 2019, outpacing the historical Compound Annual Growth Rate of less than 2%”.
When the pandemic started, car prices increased due to supply chain issues that slowed down the production of new cars. And because of the demand and restricted supply of new cars, prices on new cars kept climbing.
But even before the pandemic people started to prefer more luxurious cars. They wanted more features and bigger vehicles. we started to see sedans replaced with more SUVs and trucks kept getting bigger and bigger. Dealers started keeping more of these feature rich vehicles in stock which only magnified the price when the shortage of cars started.
The shortage caused more and more demand even though car makers were still having issues with getting semi-conductors. The Russian-Ukraine war made matters even worse and before we knew it car prices were at an all time high and rates were up because of inflation.
You would think these higher car prices and higher rates would drop the number of new cars being sold and it has, but not by as much as it should have to be honest. People in the U.S. are purchasing about 15 million new cars a year, before the pandemic that number was about 17 million. Close to a 12% decrease. It definitely shows that more and more people are being priced out of the market but, for carmakers, it’s a non issue. They’re more than making up for the lost volume by squeezing out bigger margins on their high end trims.
In fact, in the third quarter of 2022, domestic car manufacturers saw profits of $32 billion dollars which was the highest it’s been since 2016. I’m going to read you some quotes from industry leaders regarding lower production levels:
Mary Barra, the CEO of GM stated “Overall, we’re going to remain disciplined. I do think there’s an opportunity to drive strong margins”
Ford CFO, John Lawler said “As we’re working through this lower inventory and these opportunities we’re seeing today, we’re working on how we make them a normal part of our business world as we go forward”
And Ford’s CEO, Jim Farley added “I want to make it extremely clear to everyone, we are going to run our business with a lower day supply than we have had in the recent past because it’s good for our company”
To me that sounds like business is good despite the drop in sales. So good in fact that car dealerships also saw record profits in 2022. To add to the already increased prices, dealerships added ridiculous mark-ups on vehicles. A study reported by The Wall Street Journal showed that new vehicle profit margins for dealerships was at 11.5 percent in 2022. In 2019 that percentage was 4.9 percent. That’s more than double and the crazy part is that car manufactures actually hate it, although it does make me wonder if dealers went to a direct to consumer model like Tesla if it would actually make cars cheaper or if they’d absorb those dealer profits for themselves.
All I know is that right now, cars, which is the second biggest expense for most people after housing, is becoming more and more out of reach for everyday Americans.
Stats show the average vehicle age is about 13 years. People are choosing and to be honest some have no choice than to repair their current vehicles instead of jumping into the current car market. The downside there is that vehicle repairs are also up. According to an article from Carscoop.com, vehicle repairs have skyrocketed 20 percent in the last 12 months. That’s right those greedy dealers are not only forcing you to pay huge mark-ups, they’re also making more money than before off of people who keep their older cars. According to the National Automobile Dealers Association, Parts and Service account for about 44 percent of dealership profits.
Credit to : The Golden Fox