Why Are Americans Paying More for New Cars Than Ever Before?

Hint: Technically speaking, cars aren’t the problem.

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Anyone who’s recently been poking around a new car dealership (or just paying close attention to car reviews) probably has gotten the sensation that cars these days aren’t cheap. It’s not just you. A recent study by JD Power and Associates and LCM Automotive has the objective numbers to back up your subjective thoughts: The average price of a new passenger vehicle sits at record highs these days.

Average Price? $34,217

According to the study, in October 2019, the average new vehicle purchase price in the United States broke through the $34,000 barrier for the first time, hitting an estimated $34,217. That’s around $1,300 more than the same figure from just one year prior. It also happens to be in spite of a projected sales drop for that month versus the same one last year; in 2019, the study estimates 1.34 million units moved off showroom floors in the tenth month of the year, a 1.3 percent decrease over 2018.

Blame the Trucks

So why are new car prices climbing higher and higher? Well, as it turns out, it’s not the cars that are the problem; it’s the trucks and SUVs that Americans are opting for in ever-increasing numbers. In October 2019, pickup trucks and sport-utility vehicles made up more than 72 percent of new car sales, versus closer to 69 percent one year earlier. Those burly beasts tend to cost more than lighter, smaller cars; the average truck/SUV transaction price in October was $36,474, versus $27,739 for sedans, coupes, wagons and convertibles.

It’s not just the added material costs that make trucks and SUVs more expensive than cars. While trucks were once seen as cheap, utilitarian vehicles, regular folks have been drawn to them in recent years by the added capability and commanding height they offer over cars, prompting automakers to begin loading them up with comfort and convenience features previously only found on sedans and the like — and giving them the chance to pump up the prices accordingly. The Jeep Gladiator, for example, starts at $33,545, but a fully-loaded one can go past $60,000. (And people don’t seem to mind; the average transaction price in May, for example, was over $56,000.)

Long Loans Make the Price Seem Lower

Most of us don’t have $30,000+ cash lying around to pay off a new car outright, of course; that’s why most people finance their automotive purchases. Still, at the average new car loan interest rate of 6%, that $34,217 car would wind up costing $804 per month — putting it out of reach of many average Americans.

So how are we buying all these pricey rides? Longer loans. These days, auto loans can stretch out for more time than ever before (the average one is 69 months, according to the Consumer Financial Protection Bureau, with the Wall Street Journal reporting that loans of 85 months or more make up 1.5 percent of loans). That can make expensive vehicles available at lower monthly payments, encouraging buyers to go for fancier, newer vehicles — and creating a recipe for ever-rising new car transaction prices.

Learn More: Here

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