The Patriot Post® · Joe Biden Wrecked the Car (Market)
And then there was one. One new car left in America that still sells for less than $20,000 — the base model Mitsubishi Mirage.
One year ago, there were a dozen vehicles still under that price point. Now, there are 32 models that sell for more than one … hundred thousand dollars.
One phrase comes to mind: “Let’s go Brandon.”
Here are a few other eye-popping numbers from this week’s report from Cox Automotive: The average price for a new car is up 25% from before COVID and is now more than $48,000. The average for the highly vaunted (and subsidized and mandated) electric vehicles is closer to $60,000. Even so, 7.7 million new vehicles have been sold in the U.S. so far in 2023.
Clearly, a lot of Americans are biting the bullet and buying that needed car anyway, but why buy new? In part because used cars are difficult to come by and their prices are up 30% from two years ago. The average used vehicle retails for $27,000, which is about 30% more than that new Mitsubishi.
The other reason for new over used is interest rates. Buying a new car with 0% interest feels like a distant memory, though that wasn’t an uncommon offer a few years back. The average new car loan now carries an interest rate of 9.5%, while used cars run more than 13.7%. The Federal Reserve almost certainly isn’t done raising rates, either.
Not only that, but the average car loan term is now almost six years. Even then, average monthly payments for new cars topped $750, more than what many folks paid for a mortgage not that long ago. And the typical American now needs 42 weeks of income to pay off the loan, instead of the pre-pandemic 33 weeks. Consequently, loan defaults are surging.
Clearly, the car market has turned into a demolition derby for family budgets.
There are many reasons for the shift, and some of them are even driven by consumer choice. For example, Americans have gravitated toward trucks and SUVs for the last couple of decades to the point that GM, Ford, and Stellantis (formerly Chrysler) no longer offer much in the way of small cars. Even Toyota and Honda aren’t selling many subcompacts anymore. Small cars have small profit margins, and if customers don’t want them in high volume, there’s not much incentive to make or sell them. Just 5,300 of the nearly eight million new cars sold this year were a Mitsubishi Mirage — a 44% drop from last year — which is why Mitsubishi plans to stop making it in the next couple of years.
Bigger cars — with a lot more bells and whistles — are in high demand and manufacturers make a lot more money on them.
We mentioned EVs above, and that’s another factor driving up prices. EVs are taxpayer subsidized and are on the path to being mandated, which means automakers can charge more for them. That provides more cushion for pricing gas-powered cars higher as well.
Modern cars generally require a lot more semiconductor chips for all those fancy features, and that’s yet another reason for the price spike. Supply chain disruptions led to huge shortages of chips and therefore fewer cars on dealer lots. Ergo, higher prices.
Dealers couldn’t keep cars on the lots a year ago, as customers immediately snatched them up. Now, skyrocketing interest rates mean dealer lots are filling up with cars people can no longer afford.
Which brings us to our title assertion: Joe Biden wrecked the car (market). Obviously, it’s not all on one man, but he led the charge for a slew of totally unnecessary “pandemic relief” spending in early 2021 that caused inflation to rise from about 1.5% to a high of 9.1% before settling to the current rate of 3.2% — and only then because of soaring interest rates severely suppressing demand. We often reiterate that the cumulative inflation rate is nearly 17% since January 2021, and that’s just on the “basket of goods” measured by the Commerce Department. As the car market illustrates, some areas are way beyond 17%.
Cars are becoming more unaffordable all the time, but hey, at least Joe didn’t lose his ‘67 Corvette in that infamous house fire.