DETROIT (AFP) – Two years after the pandemic hit the economy, America’s auto market looks something like this: prices have skyrocketed. The offer has been greatly reduced. And gasoline costs significantly more.
Results? A widening disparity between the richest buyers and everyone else.
Wealthier buyers continue to spend a lot of money on new cars, including the least fuel-efficient – trucks, SUVs, large sedans.
As for the rest of America, millions are feeling their price hike outside the new car market. They are competing instead for a diminishing supply of used cars, especially smaller, less expensive ones that use less fuel. The jump in pump prices since the Russian invasion of Ukraine has intensified the desire to keep costs low.
It’s people like Natalia Ponce de Leon from North Palm Beach, Florida. She had rented a Toyota Tacoma pickup that she had gotten as new four years ago and had been using it in her fabric trade. When it came time to replace it recently, you didn’t even think about a new car.
Instead, she settled on a 9-year-old with 14,000 miles – a Toyota RAV4, a small SUV, she bought at Earl Stewart Toyota in North Palm Beach. Although it cost her $23,000 to buy the SUV and pay off the remainder of her lease, Ponce de Leon is happy with her decision. For just under $400 a month for six years, she says, she has a car that’s easier to drive than her old pickup truck, but roomy enough to carry a 6-foot ladder for her business.
Best of all, with gasoline going up to $4 a gallon nationally, it’s very fuel efficient.
“I think I will save, per month, between $100 and $200” — the money she plans to spend on internet marketing to help grow her business, Ponce de Leon said.
The new car market is another story entirely. Of all new car purchases last month, nearly 79% were from trucks and SUVs. A decade ago, that percentage was just 52%.
And that’s despite the massive 22% jump in the average new car price since the pandemic hit two years ago — to more than $46,000, as of December.
Based on prices and interest rates for March, the average monthly payment on a new car would be $691 — well out of reach for a family with an average gross income of $65,732, according to Cox Automotive and Moody’s calculations.
Not so for the many affluent-than-average buyers who now dominate the new car market.
“Those who can afford it still buy what they want,” said Jeff Schuster, head of global forecasting at LMC Automotive, a consulting firm.
Evan Drury, a senior manager at automobile site Edmunds.com, was surprised by the demand among wealthy buyers for expensive new cars.
“I can’t imagine a situation where we had so many people willing to spend so much money,” Drury said. “It’s not normal for someone to go out and spend (the sticker price) or higher. I can’t think of any other period of time unless you’re on specific models. And that’s every car on the road.”
Having largely left this pool, buyers of more modest means have been vying for the most fuel-efficient used cars – and raising their prices. At auctions where dealers buy many of their cars, the average price of a two- to eight-year-old compact car has increased 1.1% over the past three weeks to an average of $12,560. This is an annual rate of close to 20%. The price of vintage cars has gone up even more, according to data compiled by Black Book, which monitors those prices.
By contrast, over the same period, the average 2- to 8-year-old full-size SUV fell 2.3%, to $32,700.
“Demand is driving merchants to buy smaller, more efficient and older cars,” said Alex Yurchenko, chief data officer at BlackBook.
Behind this trend lies an economic truth: Americans as a whole have less money to spend. Although the job market in America is strong and many people have received wage increases in recent months, accelerating inflation has wiped out those gains in most cases.
Consumer prices have risen 8.5% over the past year, the fastest such pace in four decades. In addition, stimulus checks and other federal aid that most families received after the pandemic have long since expired.
In many cases, too, families withdrew much of the cash they had stored during the pandemic. In response, Americans as a whole are delving into debt to pay for their expenses.
“People in the lower price range are in a jam,” Drury noted. “It’s weird that you have a lot of people who have a lot of money, and we have this other group of consumers who say, ‘I got laid off.'”
Further emphasizing the lower-priced market is the diminishing availability of rental, which has allowed ordinary families to keep monthly payments low. Leasing has almost dried up because automakers no longer offer attractive deals.
“They don’t have to because supplies (for cars) are low,” said Jonathan Smoke, chief economist at Cox Automotive.
Even among higher-income families, the rise in gas prices has left more buyers focused on fuel efficiency. Edmunds.com, in particular, says many have been buying electric cars, whose sales have jumped 66% over the past year. However, the share of electric vehicles in the total car market remains only about 4%.
In the meantime, prices for new and used cars began to fall or stabilize. From February to March, average prices for used cars and trucks fell by about 4%. This may indicate that people have contracted it and will not continue to pay inflated prices, Drury said. Automakers have even started increasing discounts on pickup trucks.
“They may have taken advantage of consumers who pay whatever price to get what they want,” Drury said.