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Cars have long had their special place in America.
The open roads, the wind in your hair, the feeling of freedom when you drive. Cars have been celebrated in movies and immortalized in songs to evoke all of this.
And right now, that sense of freedom comes at a pretty high price. The average monthly car payment topped $700 a month earlier this year, the highest on record, according to Cox Automotive/Moody’s Analytics.
“I joke with people that every new car purchase is a luxury car purchase, I don’t care what you’re buying,” says Ivan Drury, senior insight manager at car-buying expert Edmunds.
However, cars are not only a symbol of freedom.
In fact, they play an essential role in the economy. People rely on cars to get to work – 3 out of 4 Americans drive to work. Then there are school drop-offs, doctor appointments, grocery shopping and more.
And yet, for more and more Americans owning a car is becoming unaffordable.
“Unfortunately for the segment of the population that probably needs it the most, it’s becoming more and more out of reach,” Drury notes.
Indeed, that high dollar figure doesn’t even include insurance or parking for those who have to pay for it. Not to mention gas prices that passed $5 a gallon recently and are still hovering near those record levels.
There is also no end in sight in an era when interest rates are rising and the cost of borrowing is likely to rise even further.
What is causing the price increase?
The main reason cars have become so expensive can be traced back to the computer chip shortage that started during the pandemic.
When car sales fell dramatically during the early parts of the lockdown, carmakers cut orders for the chips.
Around the same time, as schools and work went online, people bought additional laptops, iPads, TVs, video games and other electronic goods for their home. So chipmakers shifted their production to serve those companies.
Automakers are making more expensive cars
This was quickly followed by other major changes in the economy. People started moving from crowded cities to suburban locations and suddenly the demand for cars skyrocketed.
Automakers were caught flat-footed and unable to make enough cars because they didn’t have enough microchips, which play a huge role in today’s cars, controlling everything from the windows to the navigation screen to to the passenger seat sensors.
With a limited supply of chips, automakers cut back and made fewer cars. They decided to put their chips into making bigger, more expensive vehicles – feature-laden SUVs – to get more bang for their buck.
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It also means that automakers have produced fewer compact cars and sedans, more affordable vehicles.
The average cost of a new car has exceeded $47,000
The result is that prices have risen to astronomical levels. The average cost of a new car is at the highest level on record, surpassing $47,000 per car.
Drury says get used to these prices: “We’re not going to see a sudden drop in price anytime soon because there doesn’t seem to be any solution to the chip crisis.”
And used cars? Forget it. They are equally unaffordable
Those who have sought relief by buying used cars are also facing sticker shock.
Used car prices rose even more than new car prices, up 16.1% from a year ago compared to a 12.6% increase in new car prices.
Johnny Navarro experienced that contagious shock firsthand after a recent car accident. No one was hurt, but his car was destroyed. When he went to the dealership, he found that the monthly payments had doubled for the cars he had seen just a few years ago.
“To see it jump from $300 to $600 for a Corolla or Civic was like, I should be driving like a Mustang for that much money, you know?” Navarro said in disbelief.
But people still love their cars
After much shopping, Navarro found a used Lexus online. His car payment was $580 a month, over $200 more a month than he was paying before. That’s before adding to his insurance bill and parking fees in downtown Los Angeles, where he lives.
“I’ll definitely have to pick up another shift or two a week,” Navarro says, referring to his job as a server at a restaurant in Santa Monica, California. Driving cuts his journey in half an hour, but it doesn’t. the only reason he took the car.
“I just like to get in my car with friends and listen to music. I actually have a karaoke microphone,” he says. “That’s always really fun.”
Navarro is like many Americans – he loves his car. As long as he can afford it, he will have one.