As new vehicle prices continue to climb, many wonder how high MSRPs can go before the public decides to take a pass — assuming they haven’t already. Sales growth is slowing, even in seemingly bulletproof markets like China. Even before this ominous backdrop unfurled, dealers were making noise about new car prices that had grown overly ambitious, claiming they couldn’t endure another period of sustained economic hardship.
Edmunds estimates that the average transaction price of a new vehicles reached $36,495 in December 2018 — a 3 percent increase compared to December of 2016 and a 13 percent increase compared to December of 2012. Taking that knowledge, Road & Track compiled a broader picture of the new-car market and where it might be going.
Spoilers ahead if you don’t want the unpleasant non-surprise ruined.
From Road & Track:
It’s not just in our heads, either. Cars have actually gotten more expensive over the past 10 years, and not just by a little bit. Edmunds says that, on average, new cars sold for more than $36,000 in February, up 29 percent from the same month in 2009. Meanwhile, median household income in the U.S. has only risen to around $62,000, an increase of about six percent over the past decade. Even more cringeworthy? Interest rates have also risen in that time period, from an average of five percent to around 6.26 percent. Not only are cars more expensive, but your auto loan will now cost you more money.
While 2009 was a peak recession year, the fact of the matter is that new cars aren’t keeping pace with inflation and certainly haven’t matched median incomes. The Detroit News reports that this will ultimately push more customers into the secondhand market. However, those vehicles only represent a comparative bargain, as the average transaction price of a used vehicle rose by a hefty 36 percent between 2009 and 2018.
“Vehicle prices have been rising all year but really hit a crescendo in December. Even though holiday bonus checks likely played a role in boosting down payments to record levels, when buyers are willing to put down more than $4,000 for a new car, it says something,” explained Jessica Caldwell, executive director of industry analysis at Edmunds. “There are fewer buyers in the market right now, but those who are there are not only feeling confident, they’re willing to shell out the extra cash to get a larger vehicle with all the bells and whistles. They know what they want and they are willing to accept the higher costs.”
That’s great for them, but what will the plebeian masses eat drive when there isn’t enough money? Extra-crappy used cars or, perhaps, they’re supposed to just embrace mobility and take scooters or cabs everywhere? How is this going to be sustainable for an industry that’s predominantly comprised of businesses that need to sell a substantial amount of product every year to stay in the black?
It might not be. Road & Track speculates that the automotive industry could be heading toward a collapse reminiscent of the mortgage industry crisis that kicked off in 2007. If you’ll recall, that economic setback didn’t pan out particularly well for automakers, either, forcing the U.S. government to intervene. To their credit, carmakers seem to be more cautious this time around. Warning signs of a possible recession are being heeded. Unfortunately, major price reductions don’t appear to be a large part of any automaker’s plan.
While there may be a little room left before the walls come crashing down around our collective head, the Federal Reserve Bank reported that roughly seven million Americans were 90 days or more past due on their car loans at the end of last year. That’s one million more people than in 2017.
[Images: General Motors]