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New Cars Are Too Expensive For The Typical Family, Says Study (gulfnews.com)
An anonymous reader quotes a report from GulfNews: A new analysis from Bankrate.com found that a median-income household in the U.S. could not afford the average price of a new vehicle in any of the 50 largest cities in the country, though cars are more affordable in some cities than others. The average price of a new car or light truck in 2016 is about $34,000, according to Kelley Blue Book. That's in part because new cars are loaded with helpful but expensive safety features like collision-avoidance systems. Bankrate calculated an "affordable" purchase price for major cities, using median incomes from U.S. census data, and factoring in costs for sales taxes and insurance. In San Jose, California -- the heart of Silicon Valley -- the median income is about $84,000, and an "affordable" new car purchase price is about $33,000 -- close to, but still below, the average new car price. In lower-income cities, however, affordable purchase prices for a typical family are far below the average cost of a new car. In Hartford, Connecticut, where the median income is about $29,000, an affordable purchase price is about $8,000 -- about a quarter of the average new-car price. Experian Automotive said the number of new cars bought with financing rose to more than 86 percent (Source: may be paywalled) in the first quarter of this year. The average loan amount topped $30,000, with the average term for a new-car loan in the 68-month range -- some stretch as long as seven years.
Why do people think self driving cars will catch on? If anything, they will be more complex with even more sensors and systems needed to operate safely. If typical families already can't afford new cars, why would they be able to afford even more complex and expensive cars? The genius of Henry Ford wasn't building the best and most sophisticated car, but finding a way to lower production costs and make them affordable.
Some have suggested that self-driving cars will lead to a decline in personal vehicle ownership. Instead, people will rent a car from a membership pool when they need it, paying a simple fee per use or per month instead of bearing all the costs of insurance, inspection and registration on themselves.
Majority of young people are graduating with 20-100k of school debt. Then working at BestBuy. Their credit is shot, I work for a local car dealership. The only people who come in to buy new are the Elderly. 50+. They use it for a year, trade it in against the next year's new one. The Millennials drive old run down not fit for the road Honda Accords or moms minivan because they still live at home until they're 30.
HAHAHAHAA, sorry.
In a sane world with rational people, this would mean you'd budget for a new car and buy only what you can afford. Of course, you may very well plan on using leprechaun gold at that point, while we're playing make believe.
Meanwhile, in the real world, people will borrow way too much for way too long, then complain about how it's not their fault. If it happens often enough, the government will get involved, ala "government backed loans"...then it'll really get exciting.
Mod me down with all of your hatred and your journey towards the dark side will be complete!
Here's the depressing thing: cars aren't really more expensive than they used to be. This is not a shift in car prices. This is a shift in the financial solvency of the American people.
People don't want a dirty car that strangers have been in. They don't mind a dirty car that is one they only use.
People don't want a dirty car that strangers have been in. They don't mind a dirty car that is one they only use.
Plenty of people in cities get by on taxis and car-share, self driving cars will expand that to suburban areas.
None of the car-share cars I've used have been "dirty", they are regularly cleaned and maintained.
You should never spend more than 20% of you annual income on a car.
Where did that rule come from?
"First they came for the slanderers and i said nothing."
Why does everyone have to find a new car? I could easily afford a new car, but my last 3 purchases have all been for cars that are 2-4 years old. You save thousands of dollars that way, and you still have a very good car that will last you for years (provided you've done your research).
As soon as I saw the headline I thought "since when does the typical family buy a new car?" Upper middle class families can do that, but smarter upper middle class people aren't obsessed with being the first owner of a car, since you have to pay a huge premium for that privilege.
I've learned that they're worthless, so I don't read AC comments anymore.
That's why there are these magical things called loans
And there are magical things called second-hand cars too, which can reduce the cost.
If I've used the Inflation Calculator correctly, then the cumulative inflation of the U.S. dollar from 1969 to 2016 is 554.6%. And so that $13k Mercedes-Benz in 1969 would cost ~ $85k in 2016. Much more than the $30k you cited.
Yeah, and a lot more people should probably go that route of they can't afford a car. My income is ~80k/yr and I've never owned a new car in my life. The newest car I've ever had is a 2013 Camry that I bought in 2015 for less than half of its msrp, and I just paid cash for it. In fact I've never had to borrow money to buy a car, even in the days when my income was shit.
I've never owed a new car, I don't think its a very good value. Cars lose like half their value in the first few years, and the insurance kills you (and road taxes, some places charge road fees based on how old the car is.).
Peace, or Not?
84% of statistics are made up; however, GP is not 100% wrong, just wrong about what cost should not exceed 20% of your income.
According to AAA, an organization more reputable than Bankrate.com, the cost to own and drive a vehicle in the USA today is $8,558 per year. That's a number with a lot of precision but without a lot of accuracy. They have an article up on the web that talks through their assumptions and calculations, though. Fun fact: they note that the cost of owning and driving a car has fallen to a six-year low, so TFA's author can go peddle their papers someplace else.
Back to GP! 5 x $8,558 is $42,790, which is not so far off what actual people actually working actually make. If you're making less you should consider a small sedan, which AAA estimates costs only $6,579 annually. You can do a little better if you buy a good used car. You can't do much better, though, and there is an element of luck around whether you buy a car from a careful owner or a doofus.
I had a very different experience. I went shopping for used cars for my daughter and to replace my old car. I found used cars hold their value much, much better than they used to. 2-4 years in, they were only selling for a 20% discount under prices for new cars. It seems the days of a car losing half its value when it rolls over the dealer curb are over.
Came here to say this. The mean price is driven up by pickup trucks (the prices are skyrocketing on those due to the financing available for them, something like what happened to student loans) and possibly even 6/7-digit supercars. A regular midsize sedan costs somewhere in the ballpark of $18k~$25k, maybe a little more for a hybrid or EV. Surely well under $30k.
"When information is power, privacy is freedom" - Jah-Wren Ryel
It seems the days of a car losing half its value when it rolls over the dealer curb are over.
I had also noticed this in my own research the last time I was in the market for a car. I have a couple of theories that dovetail well with the premise of TFA:
First, as mentioned in TFA, the average quality level of most cars has been increasing. Even mid-market and entry level cars come with all sorts of safety options, better engineering and higher quality assemblies. The days of dirt cheap new cars, ala the "Barbecue that Seats Four" (aka the Ford Pinto) are definitely behind us now.
Second, cars last longer these days and Americans who do choose to own cars tend to drive them for longer periods of time before replacing them, partly because they can and partly because cars are much more costly to replace. When a new car could be had for well less than 10k back in the 1960s, 1970s and even into the 1980s in some cases it made more sense to trade up every 5 years or so. Now, as cars have become more complex, sophisticated and expensive that's not as true as it used to be.
Third, most of the quality well-maintained used cars tend to end up in the dealer certified "pre-owned" programs where people can purchase them from the dealer with warranty coverage similar to what they would be offered on a comparable new car purchase. This has reduced the number of good used cars for sale by individual private owners and made the transaction less attractive in any case because private owners don't offer warranties. This has also allowed dealers to capture a greater share of the best part of the used market.
Fourth, because of points 1-3 and the relatively recent "Cash 4 Clunkers", where many old but serviceable used vehicles that might have been attractive to the lower middle class and working poor were taken off the road by the government and crushed, the used car market outside of the dealer certified "pre-owned", which offers much more modest discounts over new prices, has been increasingly filled with shadiness and problem vehicles that have been abused rather than maintained. Unless you like to spend your weekends at AutoZone and do your own work, buying a car like that is going to be a bad move for most people.
These are just my own opinions, but I think that I cannot be the only one to see these trends. In the long run, especially with ride sharing services like Uber and the declining interest in car ownership among generation Y, as many of them choose urban living situations where cars are either less necessary or even problematic, we may see the new car and car ownership in general become more of a luxury item and less of an everyman purchase.
Unfortunately, holding on to a new car for more than 6 years stops helping much (annual costs become dominated by other factors).
???
I generally hold onto a car over 10 years, and it's never cost me that much extra. You *do* need to maintain it as you go along, and it depends on how much you drive, but my current car is from the 1990's and isn't yet in condition where it needs to be replaces, though it's getting there.
I think we've pushed this "anyone can grow up to be president" thing too far.
Many decent family cars out there are NOT, in any way, 34K new. A new Mazda 3 is a sensible car and starts under 20K. A Camry is 25K. You could buy a 350Z for less than 34K!
So plenty of families can afford new cars: They just can't afford large, over featured, expensive to repair urban assault vehicles. US streets would be better if nobody could.
Um, no. Unless your car is a complete shitbox to start with, or you drive ~100 miles per day every day, keeping it for 10-15 years will not cost you more than replacing it every six years. Depreciation is an accounting trick that only really works in aggregate. If your car is still running in six years time, keep it. You will save the cost of a new car. The fact that yours is worth zero on paper means absolutely nothing if it still works the way it's supposed to.
I have an 07 Chevy. The biggest expense I've had on my car was when it got hit by a forklift while parked. That was 3k in body work covered by insurance. The next biggest expense was about 700 to replace the brake disks because I let the brake pads wear down to the metal. Oops; everyone has to learn somehow to replace their brake pads regularly
Other than that, new brake pads and fuel injector cleaning every two years (200 a pop). New spark plugs every four years. New tires every ~3-4 years depending on mileage (again, 300-400 depending on tires). New battery and timing belt at six or seven years.(500-600, I don't recall). Oil changes every three months ($30). All of those are recurring costs no matter whether your car just came off the line or is ten years old.
And lastly it goes without saying that even if you do make mid six figures, a 25k car gets you to work on time just as well as a 50k car. There's not even that much difference in the bells and whistles these days.
Do the math.
Resale value varies a lot by car and by condition, but to have some numbers, lets look at a car that is worth 1/3rd it's upfront cost after 6 years, vs 10% after 10 years. The difference in depreciation is then 11% vs 9%, per year. If that were the only cost of car ownership, that would be significant - you could get a 20% better car by keeping it for 10 years instead of 6.
But other costs matter too. Maintenance (which does get worse over time), insurance, gas, parking, tolls, etc. So you're maybe looking at being able to get a 10% more expensive car at replacement time by keeping the car for 10 years rather than 6. That's not even a step up to the next model for most manufacturers.
So, for the same money, do you get better value by getting a $30k car every 6 years, or a $33k car every 10 years? Seems very subjective to me: if you value "newness", the former is a better deal, if you don't the latter, but it's a small enough difference either way.
What is a "20% better car"? Is there an objective absolute "car goodness" measurement scale I never heard of?
You seem so deeply embedded in the "car resale and buy new" paradigm that you cannot see that there is an entirely different way to manage you car needs. Buy a car and keep it on the road until such time that the repair costs are no longer economical when prorated over the additional mileage gained, or ti simply becomes too unreliable. I keep my car costs low by buying used (mostly, sometimes new) and then never selling the vehicle while it still runs, subject to the repair cost and reliability criteria just mentioned. "Resale value" is a piece of paper to me, I never resell until end of life.
But you are the source of the good deals on the used car market. Keep it up. I may buy your depreciated but perfectly serviceable car.
If you value "newness" you are absolutely going to spend big additional bucks over the years to satisfy this predilection. If you don't the difference is "not small either way" it is huge.
As you say, do the (real) math.
Starships were meant to fly, Hands up and touch the sky - Nicky Minaj
The diamond ring and the family car are both 20th century inventions. I thought the rule was spending 52 weeks income on a car and 4 weeks income on a diamond ring. Now it's 21 weeks for a suburban necessity and 13 weeks for a shiny decoration. What strange priorities for a not so brave, new world.
Having a car as a 20th Century invention is rooted in the undeniable utility of having a vehicle that can transport people and goods long distances quickly.
The "requirement" that every marriage requires a large investment up-front in a diamond is purely the product of a marketing campaign by a diamond cartel (i.e. a price-fixing monopoly). Here is a brief, but honest as far as it goes, account by an organization dedicated to selling you diamonds. Note that the founding of the American Gem Society, in 1934, precisely coincides with the start of the De Beers cartel hard sell. It is striking that a trade organization, founded as part of a marketing scheme, does not try to hide its own origin.
Lengthier accounts of this bizarre pure luxury business are easy to find.
Regarding those "guidelines" (treated as "rules" by the industry) for how much to spend in a diamond ring - if you let marketing literature tell you what you should spend money on, you are perhaps typical, but still you are just being a patsy.
When I got married, no diamond was involved. It was a ridiculous waste of money, absolutely not an investment (they are virtually impossible to resell, the industry makes sure of that), and at that time a prop for the Apartheid regime. That last reason had ended, and recent "conflict diamond" rules have greatly reduced the tendency of diamond purchases to support mass murderers, but not ended that last problem entirely.
Starships were meant to fly, Hands up and touch the sky - Nicky Minaj
Honestly, if you spend more than 30 grand on a new car, you're already rolling in a lot of superfluous or unused features. My family members always end up buying well-equipped (not best equipped) midsize sedans like Toyota Camry and Honda Accord in the low 20Ks, and usually under the sticker price. And in fact, Camry and Accord have gotten too fat to even be called mid-sized. So if you want to save more money, go for a 20K compact car, like a Corolla, Focus, or Civic, etc. This still have four doors and five seats. Plenty for an average family, specially with younger children.
That's in part because new cars are loaded with helpful but expensive safety features like collision-avoidance systems.
Wrong factors. Median income people haven't been able to afford new cars for a while. And this is more a function of loss in purchasing power than about new (and expensive) safety features.
People in such conditions do what they have done for a long time - buy used cars. #firstworldproblem.