The Rising Costs Of Car Ownership In America: A 2024 Perspective

For decades, car ownership has been a trademark of the American lifestyle, with vehicles becoming symbols of freedom, independence, and even rebellion, as well as a necessity. However, in 2024, this legendary love story with the automobile appears to have reached a crucial point of potential no return, as cars have become unaffordable to millions.

Life has generally gotten more expensive in the aftermath of the pandemic, including the cost of cars, car insurance, and car repairs. The economic landscape has shifted dramatically, impacting how Americans view car ownership.

Both new and used car prices rose to record highs during the pandemic, driven largely by supply chain disruptions and chip shortages. Since 2020, new car prices have risen by 30 percent, while used car prices have jumped by 38 percent, according to data shared by AI car shopping app CoPilot.

In 2023—a year during which inflation slowed down, the Federal Reserve decided to stop hiking rates—new car prices rose by 1 percent to an average of $50,364, while used car prices fell by only 2 percent to an average of $31,030. This indicates that while the market is stabilizing, affordability remains a significant issue for many.

As it stands, cars are still prohibitively expensive for most Americans. Only 10 percent of new car listings are currently priced below $30,000, and in the used car market, only 28 percent of listings are priced below $20,000. This stark reality highlights the financial strain on consumers.

According to an October report by Market Watch, Americans now need an annual income of at least $100,000 to afford a car, adhering to the common budgeting advice of spending no more than 10 percent of monthly income on car-related expenses. Consequently, over 60 percent of American households cannot afford to buy a new car based on Census data, and the situation is even more dire for individuals, with 82 percent earning below the $100,000 threshold.

Understanding the Causes Behind Rising Car Costs

There is no doubt that 2023 was one of the most challenging years to buy a car, especially for budget-conscious consumers. CoPilot CEO Pat Ryan stated that prices saw a substantial run-up in the spring, fueled by confident consumers at the upper end of the market, and they have not fully recovered.

Across various brands and segments, car prices have remained stagnant from the levels at the beginning of the year. Coupled with multiple interest rate hikes, this has left car shoppers with few deals to consider.

Simply put, cars have become significantly more expensive. Joseph Yoon, a consumer insights analyst at Edmunds, indicated that the average transaction price for a new vehicle jumped from $38,500 in November 2019 to $47,939 in November 2023. This escalation has made it increasingly difficult for average Americans to keep up with car ownership costs.

The pandemic's disruption of manufacturing supply chains, alongside heightened consumer demand in 2021, strained vehicle inventories and significantly drove up prices. Dealers often had customers lined up to buy vehicles that were unavailable, and supply chain issues compelled manufacturers to focus on producing more profitable, high-end vehicles.

Future Trends in Car Pricing

Karl Brauer, an executive analyst at iSeeCars, anticipates that used car prices will continue to fall modestly in 2024. The backlog of new and used car demand that grew during the pandemic is slowly moderating, but with over two years of restricted new car production, it will take significant time for supply to catch up.

Macroeconomic factors, such as inflation and higher interest rates, are also contributing to reduced vehicle demand. However, these factors alone are not enough to lead to a significant drop in car prices in the foreseeable future.

Moreover, a shift in automaker focus is evident, with an increasing emphasis on producing expensive SUVs and trucks at the expense of smaller, more affordable vehicles. Manufacturers cite disappointing sales results as a primary reason for discontinuing these smaller offerings.

Consumer preferences have also shifted dramatically toward larger vehicles with advanced technological features, which are often costlier. Unfortunately, these enhancements come at a price that exceeds the average yearly wage for many Americans, making car ownership an increasingly challenging goal.

Are you struggling to find a vehicle you can afford? Contact g.carbonaro@newsweek.com.