Two years after the pandemic tore through the economy, the US car market looks something like this: Prices have risen drastically. The supply is falling drastically. And gasoline costs drastically more.
The result? A growing difference between the richest buyers and everyone else.
The wealthiest buyers keep on swallowing big bucks for new vehicles, including the least fuel efficient among them – trucks, SUVs, large sedans.
As for the rest of America, millions are increasingly feeling priced out of the market for new vehicles. Instead, they are competing for a shrinking supply of used cars, especially smaller, cheaper cars that use less fuel. The jump in pump prices since Russia’s invasion of Ukraine has only intensified their urge to keep costs down.
They are people like Natalia Ponce De Leon from North Palm Beach, Florida. She had leased a Toyota Tacoma pickup, which she bought as new four years ago, and had used for her custom-designed business. When it was time to replace it recently, she did not even consider a new vehicle.
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Instead, she settled on a 9,000-year-old 9,000-mile vehicle – a Toyota RAV4, a small SUV she bought from Earl Stewart Toyota in North Palm Beach. Although it cost her $ 23,000 to buy the SUV and pay the rest of her lease, Ponce De Leon is happy with her decision. For just under $ 400 a month for six years, she said, she has a vehicle that is easier to drive than her old pickup, yet spacious enough to carry a 6-foot ladder to her business.
Best of all, she enjoys superior fuel efficiency as gasoline has reached $ 4 per gallon. gallon at the national level.
“I think I’ll save between $ 100 and $ 200 a month,” said Ponce De Leon – money she plans to use for online marketing to help grow her business.
The market for new vehicles is a whole other story. Among all purchases of new cars last month, nearly 79% were trucks and SUVs. A decade ago, this share was only 52%.
And that is despite a huge jump of 22% in the average price of a new car since the pandemic hit two years ago – to more than $ 46,000 in December.
Based on March prices and interest rates, the monthly payment on an average new vehicle would be $ 691 – far out of reach of what a household with a median gross income of $ 65,732 should spend, according to calculations by Cox Automotive and Moody’s.
Not so for many of the richer than average buyers who now dominate the market for new vehicles.
“Those who can afford it are still buying what they want,” said Jeff Schuster, president of global forecasting for LMC Automotive, a consulting firm.
Ivan Drury, a senior manager at Edmunds.com auto site, has been surprised by the demand among wealthy buyers for expensive new vehicles.
“I can not imagine a situation where we have had so many people willing to spend so much money,” Drury said. “It’s just abnormal that someone goes out and uses (brand price) or above. I can not think of any other time period unless it was on specific models. And this is every car on the road.”
Omitted largely outside this pool, buyers of more modest means have been fighting for the most fuel-efficient used vehicles – forcing their prices up. At auctions where dealers buy many of their vehicles, the average price of a 2- to 8-year-old compact car rose 1.1% over the past three weeks to an average of $ 12,560. It is an annual rate of almost 20%. The price of older cars has risen even more, according to data collected by the Black Book, which monitors such prices.
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In contrast, the average for a 2-8 year old full-size SUV dropped in the same period by 2.3% to $ 32,700.
“Demand is pushing dealers to buy smaller, more efficient and older vehicles,” said Alex Yurchenko, Chief Data Officer for the Black Book.
Behind that trend lies an economic reality: Americans as a whole have less money to spend. Although the U.S. labor market is robust, and many people have received wage increases in recent months, the acceleration of inflation has more than obliterated these gains in most cases.
Consumer prices have risen by 8.5% over the past year, the fastest pace in four decades. In addition, stimulus checks and other federal assistance that most households received after the pandemic have long since expired.
Also, in many cases, households have withdrawn much of the money they had stockpiled during the pandemic. In response, Americans as a whole are going deeper into debt to pay their expenses.
“People in the lower price range are just sitting in a pinch,” Drury remarked. “It’s weird to have so many people with so much money, and we have this second row of consumers saying, ‘I’ve been pulled out.'” “
Further underscoring the market at lower prices is the declining availability of leasing, which has long made it possible for ordinary households to keep their monthly payments low. Leasing is almost dried out because car manufacturers no longer offer attractive deals.
“They do not have to,” said Jonathan Smoke, chief economist at Cox Automotive, “because (auto) supplies are low.”
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Even among higher-income households, the rise in gas prices has led more buyers to focus on fuel efficiency. In particular, many have seized electric vehicles whose sales have increased by 66% over the past year, says Edmunds.com. Nevertheless, the share of electric cars in the total car market is only around 4%.
Meanwhile, the prices of both new and used vehicles have begun to fall or level off. From February to March, average prices for used cars and trucks actually fell by almost 4%. It may indicate, Drury said, that people have had it and will not continue to pay high prices. Car manufacturers have even started raising discounts on pickup trucks.
“They may have pulled out of consumers paying any price to get what they want,” Drury said.