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Cars have long had a special place of their own in America.
The road is wide and wide, the wind is blowing in the hair, the feeling of freedom when driving. Cars have been glorified in movies and eternally in songs for evoking all of that.
And right now, that sense of freedom comes with a pretty hefty price tag. Follow 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,” said Ivan Drury, senior manager at car buying specialist Edmunds.
However, the car is not just a symbol of freedom.
In fact, they play an essential role in the economy. People rely on cars to get to work – 3 in 4 Americans go to work by car. Then there are school breaks, doctor’s appointments, grocery shopping, and more.
However, for more and more Americans owning a car is becoming unable to pay.
“Unfortunately for the segment of the population that probably needs it most, it’s increasingly out of reach,” notes Drury.
Indeed, that high dollar figure doesn’t even take into account insurance or parking for those who have to pay for it. Not to mention the price of gas has passed the $5/gallon mark recently and is still hovering near these record levels.
Nor does it end in an age where interest rates are rising and borrowing costs are likely to rise even higher.
What caused the price to spike?
The main reason why cars are so expensive can be traced back to the shortage of computer chips that started during the pandemic.
As auto sales plummeted during the early part of the shutdown, automakers cut back on orders for the chip.
At the same time, as school and work go online, people buy more laptops, iPads, TVs, video games, and other electronic items for their homes. So chip makers have shifted their manufacturing operations to serve those companies.
Automakers are making more expensive cars
This was quickly followed by other major changes in the economy. People started moving away from crowded cities to suburban locations, and suddenly the demand for cars skyrocketed.
Automakers were forced to go barefoot and couldn’t make enough cars because they didn’t have enough microchips, which play a huge role in cars today, controlling everything from windows to screens navigation to even the passenger seat sensor.
With a limited supply of chips, automakers cut back and produced fewer cars. They decided to put their chips into making bigger, more expensive cars – feature-packed SUVs – to get more profit.
Photo Bill Pugliano / Getty
It also means that automakers have produced fewer compact cars and sedans, which are more affordable vehicles.
The average cost of a new car has gone up to $47,000
As a result, the price has climbed to astronomical levels. The average price of a new car is hovering at an all-time high, topping $47,000 a pop.
Get used to these prices, says Drury: “We’re not going to see a sudden drop in prices anytime soon because there doesn’t seem to be any solution to the chip crisis.”
And used cars? Forget. They can’t afford it either
Those who have sought respite by buying used cars are also facing sticker shock.
The price of used cars has increased even more rapidly than the price of new cars, increasing 16.1% from a year ago compared to a 12.6% increase in new car prices.
Johnny Navarro experienced that sticker shock first-hand after a recent car accident. No one was injured, but his car was injured in total. When he went to the dealership, he noticed that the monthly payment had doubled for the cars he had viewed just a few years earlier.
“To see it go from $300 to $600 for a Corolla or Civic, I should drive like a Mustang for that much money, you know?” Navarro said suspiciously.
But people still love their cars
After much shopping, Navarro found a used Lexus online. His car payments amounted to $580 a month, $200 more per month than he used to pay. That was before adding to his insurance bill and parking fees in downtown Los Angeles, where he lives.
“I’m definitely going to have to take another shift or two a week,” said Navarro, referring to his job as a waiter at a restaurant in Santa Monica, California. Driving cuts his hour-long commute in half, but it doesn’t. the only reason for him to get the car.
“I just love riding in cars with friends and listening to music. I actually have a carpool karaoke mic,” he said. “That’s always really fun.”
Navarro is like a lot of Americans – he loves his car. As long as he can afford it, he’ll own one.