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Cars have long had their special place in America.
The wide open roads, the wind in your hair, the feeling of freedom behind the wheel. Cars have been celebrated in movies and immortalized in songs to evoke it all.
And right now, that feeling of freedom comes at a pretty steep 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 buy,” says Ivan Drury, senior knowledge manager at car buying expert Edmunds.
However, cars are not only a symbol of freedom.
In fact, they play a vital role in the economy. People rely on cars to get to work – 3 out of 4 Americans drive to work. Then there’s back to school, doctor’s 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 increasingly out of reach,” Drury notes.
Indeed, this high dollar figure does not even take into account insurance or parking for those who have to pay for it. Not to mention gasoline prices that recently topped $5 a gallon and are still near those record highs.
Nor is there an end in sight in an era of rising interest rates and the cost of borrowing will likely rise even further.
What drives prices up?
The main reason why cars have become so expensive can be attributed to the shortage of computer chips that started during the pandemic.
When car sales fell dramatically at the start of the lockdown, automakers reduced chip orders.
Around the same time, as schools and work went online, people were buying laptops, iPads, TVs, video games, and other electronics for their homes. Chipmakers have therefore shifted their production to serve these companies.
Automakers make more expensive cars
This was soon followed by other big changes in the economy. People started moving from crowded cities to the suburbs, and the demand for cars suddenly skyrocketed.
Automakers were caught off guard and unable to make enough cars because they didn’t have enough microchips, which play an important role in today’s cars, controlling everything from windows to screens. navigation system, via the sensors in the passenger seat.
With a limited supply of chips, automakers downsized 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 automakers are making fewer compact cars and sedans, the more affordable vehicles.
The average cost of a new car has exceeded $47,000
The result is that prices have soared to astronomical levels. The average cost of a new car is at an all-time high, topping $47,000 per person.
Drury says you have to get used to these prices: “We’re not going to see a sudden drop in prices anytime soon, because there doesn’t seem to be a solution to the chip crisis.”
What about used cars? Forget. They are just as unaffordable
Those who have sought respite by buying used cars are also facing sticker shock.
Used car prices rose even more dramatically than new car prices, up 16.1% from a year ago, compared to a 12.6% rise in new car prices .
Johnny Navarro experienced this sticker shock firsthand after a recent car accident. No one was injured, but his car was destroyed. When he went to the dealership, he found that monthly payments had doubled for cars he had reviewed a few years earlier.
“To see it go from $300 to $600 for a Corolla or a Civic was like I had to drive like a Mustang for that much money, you know?” Navarro said in disbelief.
But people still love their cars
After a lot of shopping, Navarro found a used Lexus online. His car payment was $580 per month, more than $200 more per month than he was paying before. That’s before adding his insurance bill and parking fees in downtown Los Angeles, where he lives.
“I’m definitely going to have to take an extra shift or two a week,” Navarro says, referring to his job as a waiter at a restaurant in Santa Monica, Calif. Driving cuts his one-hour commute in half, but that’s not the only reason he got the car.
“I just like to ride in my car with friends and listen to music. I actually have a karaoke microphone for carpooling,” he says. “It’s always great fun.”
Navarro is like many Americans: he loves his car. As long as he can afford it, he will own one.