Owning a car is the new nightmare of 2024 for Americans
Finally, a modest downward trend in prices has given a well-deserved respite to Americans grappling with the worst inflation in the last four decades. But behind the wheel things are very different: Almost everything about owning a car has become more and more expensive.
Between insurance, taxes, repairs, parking, and tolls, the real cost of owning a vehicle in the United States surpassed the consumer price index last month. Analyst Jessica Caldwell of online automotive inventory and information resource Edmunds told The Wall Street Journal, “This has been the biggest increase in the shortest period that we have seen.”
According to the Journal, auto insurance premiums rose 20.6% in January from a year earlier. But another Bankrate report places the increase at 26%, that is, an average of US$2,543 per year, or US$212 per month. That is 3.41% of the annual income of those with a salary of US$74,580 (the median family income, according to the latest data from the Census Bureau).
Experts believe the rise is closely linked to the high prices of new vehicles, which are now equipped with advanced technology. For consumers, opting for more sophisticated cars this year will also mean that “visits to the mechanic could become a luxury.”
Modern cars, more complications
A recent CNBC report revealed that there is a troubling crisis in auto mechanic shops, as technicians grapple with a painful combination of challenges: heavier and more complex vehicles, new materials and manufacturing methods, a growing shortage of skilled workers, and supply chain problems that persist even after the pandemic.
“Customers are struggling to pay our bills, I’ve had to make cuts,” David Goldsmith, owner of a vehicle repair business in Brooklyn and a mechanic for more than 40 years, told CNBC. “I’m working harder than ever, and all my expenses are higher […] all the professional services we provide now cost more.”
Added to this is that today’s cars are heavier and faster, which translates into more significant infrastructure damage if an accident occurs (the main cause of visits to the workshop) and, consequently, higher repair costs.
Like Goldsmith, many repair shop owners say they can’t find enough employees despite paying six-figure salaries. Many technicians have left the industry, and to attract new talent, shop owners now have to pay more. “They deserve every penny, I wish I could pay them more. They are highly trained and hard to get,” Goldsmith said.
Many people cannot meet payment deadlines
Transportation is Americans’ second-largest expense, after housing, and for many people, it is an absolute necessity, even if they can’t keep up with payments. According to data from the New York Federal Reserve reported by the Journal, 7.7% of auto loans on an annual basis became delinquent in the fourth quarter of last year. It is the highest rate in 13 years.
The total annual cost of owning a new car, including expenses like gas and insurance, rose to $12,182 in 2023, up from $10,728 in 2022, according to the latest estimates from the American Automobile Association (AAA). A large part of that increase is due to higher interest rates, which raise the cost of borrowing to buy a car.
New car prices have also increased, with the average current transaction going from $39,813 in January 2021 to $47,358 last month. Not to mention that drivers literally fight against the passage of time and a disadvantage that very few consider: the depreciation.
With every kilometer traveled, cars lose value. In 2023, AAA estimated that depreciation would cost drivers in the United States a search of US$4,538 if they drove 15,000 miles (24,000 kilometers), an increase from the estimated US$3,656 in 2022.
Is it worth buying a car in 2024?
There are experts who say yes. As interest rates drop and the supply chain stabilizes, it is very likely that inventory will begin to see a significant boost. “2024 will be a much better time to buy a car, compared to this year,” Paul Waatti, an industry analyst at market research firm AutoPacific, told CNBC in December.
In 2023, low inventory in a high-demand market left little room for discounts. Waatti believes that will change, since dealers will feel motivated to sell more cars in lots. “As supply increases, we tend to see more incentives,” he said.
Car buyers could also see more models with lower sticker prices before discounts. As supply chains continue to normalize, “we will start to see automakers build more lower-end models, which are more affordable, and that should help reduce the average monthly payment,” the analyst said.