Buying a new car in America is becoming increasingly difficult for anyone who isn’t financially well-off. While prices and borrowing costs are stubbornly high, wealthy buyers help keep the market moving.
According to a recent analysis from Cox Automotive, the industry is becoming increasingly dependent on affluent households whose investment gains give them greater purchasing power. These customers can often afford to pay cash rather than take out expensive loans.
That creates a growing divide between Americans who can buy the cars they want and those struggling to afford even a used vehicle. Higher interest rates have made financing quite painful for buyers who don’t have substantial savings.
Strong sales among wealthy households don’t necessarily mean the average American can afford a new car, and this situation raises concerns about the market’s sustainability.
Wealthy Buyers Are Keeping The Market Moving
According to Cox Automotive chief economist Jeremy Robb, the wealthiest 10 percent of American households now control approximately 82 percent of financial assets outside retirement accounts. That figure stood at around 75 percent before the pandemic.
Those assets include stocks, mutual funds, bonds, and savings that can help finance major purchases. Rising investment values have given wealthier households an advantage that ordinary wage growth hasn’t necessarily provided.
Car Loans Are Becoming Painfully Expensive
Cox Automotive reports that prime used-car loan rates reached 12.9 percent in October, up from September. Meanwhile, the total interest paid over the life of a typical used-car loan has nearly doubled since 2019.
Back then, buyers paid approximately $5,600 in interest, representing 19 percent of their total payments. Today, that figure is approaching $11,000, meaning roughly 26 percent of the money spent paying off a used car goes toward interest.
Owning A Car Isn’t Getting Cheaper Either
Financing is only part of the affordability problem, as maintenance and repair costs rose 5.8 percent year over year in September. Those expenses have climbed approximately 65 percent since January 2018.
There is some relief in insurance costs, which declined around 5 percent over the past year. However, keeping an older vehicle running is expensive, making it difficult for cash-strapped households to escape rising ownership costs.
What Happens If The Stock Market Takes A Hit?
The industry’s reliance on affluent customers also comes with risks, particularly when much of their purchasing power is tied to financial markets. A significant stock-market downturn could make even wealthy buyers reconsider expensive purchases.
Meanwhile, Americans who can’t afford a new vehicle simply aren’t represented in sales figures. Automakers may continue selling expensive cars, but that doesn’t mean the affordability problem has gone away.