New cars, once part of the American Dream, now out of reach for many

 Juan David Ramirez knows that his 2012 Nissan Juke SL is on its last legs. But buying a new car in the Orlando area these days reminds him of car buying in his home country in Colombia, where only the wealthy can afford new cars.

Ramirez, 33, and his wife Angelica Castro-Calle really want a new, small SUV with a little space for camping and paddleboarding gear. But despite good jobs in finance and business contracting, the couple’s monthly loan payment would run around $700 for the $35,000 models they are looking at, before dealer markups.

So they plan to patch up the Nissan, which is paid off. He blames the manufacturers and dealers for charging so much for new cars.

“They’re going to price out a certain segment of the market and of the demographic,” Ramirez said. “But that’s something they’re probably okay with.”

Even as inflation is easing and global chip supply shortages are beginning to resolve, more Americans are being priced out of the nation’s new car market, industry and government data suggests. Spending on new cars by the lowest 20 percent of earners dropped to its lowest level in 11 years. Meanwhile, spending on new cars by the top 20 percent reached its highest level on record, going back to 1984, according to the most recent data from the 2021 Consumer Expenditure Survey, not adjusted for inflation.

“New vehicles were maybe never an everyman product in America,” Charles Chesbrough, senior economist at Cox Automotive, said at an automotive conference earlier this year. “We like to believe that they were, but they probably haven’t been for a long time. But certainly they are even less so today.”

The problems pushing new cars out of reach are twofold. On the demand side, rising interest rates have made car loans far more costly — the average monthly payment reached $686 in mid-2022, according to data from Edmunds. Last month, it hit $730.

But even if shoppers can snag a decent interest rate, the supply of cars available for purchase has been trending far more expensive, in part because manufacturers have been funneling resources into souped-up versions of pricey models and cutting back on cheaper options.

In late April, General Motors announced it would scrap production of its top-selling electric vehicle, the Chevy Bolt, wiping out one of the most affordable EVs in the United States by the end of the year. That continues a longtime trend. In 2017, for example, there were 11 models available on the U.S. market for less than $20,000, according to Cox data. By the end of 2022, there were four. Then, by March 2023, only 2.

The end result is a widening gap between those who can afford new cars and those who can’t. The average price of a new car in the United States hit $48,008 in March, up 30 percent from March 2020, according to Kelley Blue Book.

Automakers are selling fewer new vehicles in the United States than they did before the pandemic — about 13.9 million last year, versus 17 million in 2019. But their 2022 revenue were still $15 billion higher than in 2019, because the mix they are selling is more expensive, according to Cox Automotive.

Which electric vehicle is right for you? Check out our guide.

A big reason auto manufacturers have leaned heavily into pricier vehicles is the global chip shortage. The dearth of the tiny electronic components, caused by pandemic-related gyrations in supply and demand, forced automakers to slash output, sending prices for new and used vehicles up. The scarcity forced carmakers to ration their components, which they did by reserving them for their most profitable, high-end vehicles.

Automakers have also faced steeper production costs, thanks to factory closures in China during the pandemic and ongoing labor shortages. Some of those troubles are easing. But manufacturers have started holding more parts in inventory to guard against future shortages, a strategy that raises their costs, said Ambrose Conroy, an automotive expert at the consultancy Seraph.

Meanwhile, the auto industry is investing big money to overhaul factories to produce electric vehicles, a major expense that also contributes to rising prices, Conroy added.

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