Consumers Having Trouble Affording New Cars
Families are feeling the pinch. Consumer confidence is up a little, thanks to a rising job market and increasing house values. But boy, cars are expensive and gas has risen again, to reach $3.78 a gallon across the U.S. Despite slumping crude oil prices around the world, we’re headed for more hikes. According to USA Today, experts “expect prices to rise another 20 cents a gallon before peaking just below $4 in late March or early April.” Yes, the dark days of 2008 are back.
On top of that, the average American—that mainstay of the auto business—is no longer in a financial position to afford a median new car, Interest.com reports. According to TrueCar.com, that car cost $30,500 in 2012, out of reach for people with the median family income of $50,054 in 2011. That's a big problem, obviously, and it's a sign that auto companies are pricing a lot of people out of the market--especially with full-sized family sedans. The 2013 Ford Taurus, for instance, exactly the kind of car driven by average Americans (if there is such a thing) starts at $26,700 MSRP. The good news is that there are finally some excellent choices in under-$15,000 subcompacts that also offer great gas mileage (see below).
The Interest survey found that only in Washington, D.C. are family units with average income able to afford that new car. In every other city surveyed, they’re short from 12 percent (San Francisco) to more than 50 percent (Tampa). That Tampa family would be fine if average new cars cost $14,516, but that’s less than half the actual bottom line. Even in relatively affluent New York, there’s a big gap between the family budget and new car payments.
It’s kind of ironic, since auto companies are actually on a roll like no other industry at the moment. Kelley Blue Book predicts a 15.3 million year, which is a 3.4 percent improvement over a pretty good last year. Luring consumers in are low finance rates, as well as “new and compelling product,” says Alec Gutierrez, senior market analyst at KBB. Those factors are getting people to buy, but maybe they’re buying cars they can’t actually afford.
One factor forcing people into showrooms is that their old vehicles are wearing out. People are keeping their cars longer than ever, an average of 10.8 years. Gone are the days when Uncle Jack turned in his Chevy every year for a brand-new one. Of course, through the ‘60s GM and other carmakers totally revamped styling every year for those customers. Today, you’re hard-pressed to tell a ’12 from a ’13.
High car prices, expensive gasoline and a stubborn (if improving) recession are big hurdles for consumers to get over. Reader’s Digest, the family institution that has filed for bankruptcy four times (most recently this month), knows how tough it is to make the budget. And maybe that’s why it sent me a list of “Best Cars for $15,000” this week. The good news: Consumers in every American city on the Interest.com list could afford to buy one of these.
- The best car “for bargain hunters,” Reader’s Digest said, is the Ford Fiesta, which delivers up to 37 mpg and starts at $13,200. The good news is that Ford and other automakers are really putting work into their economy car lines, so you get Ford SYNC multimedia in even entry-level models. These subcompacts (previously pariahs on the American market) now have it all—affordability and great gas mileage. “Kelley Blue Book anticipates strong demand for fuel-efficient vehicles in February,” said Gutierrez.
- The best car “for high-tech drivers” is the Kia Soul, with up to 30 mpg and $14,400 as the entry price. Again, you get Bluetooth and a USB port. Choose the recommended Eco package and you get low-rolling-resistance tires and a start-stop system that turns the engine off at stoplights, yielding a “micro-hybrid.”
- The best car for “sports car fans” is the Chevy Sonic, $14,200, with up to 35 mpg. It’s tiny, but it’s also selling in a way it never would have a decade ago. Not really a sports car, the Sonic does boast a “motorcycle-inspired” gauge cluster, and a nice-shifting six-speed manual.
Yes, if times are tough for you, do think of buying used. A MSN Autos story on people who make the minimum wage (approximately $18,000 a year) suggests a 2002 Toyota Camry, a 2004 Ford F-150 or a 2003 Chrysler Town & Country.
An epidemic of recalls and false-mpg claims would seem likely to erode consumer confidence in new cars, but a new Swaplease.com poll finds 44.3 percent saying that the recall problem is “somewhat noticeable, but it’s part of our car culture.” They’re shrugging it off.
And, finally, Americans have a bit more confidence about buying electric cars, says Global Information. “They hybrid and pure-electric vehicle market will continue to prosper in 2013,” the company said, “driven in large part by reduced total cost of ownership, better performance and increased environmental regulations.”
That’s true, but EVs—especially battery-only cars—will have to come down in price before they appear on the must-have list of those average Americans who now struggle to buy a plain-Jane Chevy or Ford.