- Driven by the chip shortage and rising interest rates, the average monthly car payment has never been higher.
- Not to mention other car-related expenses like gas, insurance, parking, and tolls, which add up for drivers.
- Most American households own and use a car, suggesting few will be able to avoid these expenses.
It's never been less fun to be a "car person."
In June, rising auto prices and interest rates on car loans pushed the average monthly car payment to a record-high $712, per a Cox Automotive/Moody's Analytics analysis. The median number of weeks of income required to purchase the average new vehicle also grew for the fourth consecutive month, reaching 41.3 weeks in May, the highest mark since at least 2012.
The cause of presently elevated car prices can be traced back to the early days of the pandemic, when a steep decline in demand led manufacturers to cut orders for computer chips that are crucial for car production. As demand returned — aided by stimulus measures and people moving away from cities — manufacturers were short on chips, and this problem has yet to be fully resolved.
The price of new cars is up 12.6% compared to a year ago, and used vehicles — which saw an uptick in demand in response to the new-car shortage — haven't provided the savings consumers might have hoped. Prices are up 16.1%.
As the Federal Reserve raises interest rates to combat inflation, this elevates the borrowing costs for Americans buying cars as well.
Rising car payments don't even account for gas prices, which — while potentially easing some in the coming weeks — remain well above where they were a year ago. Then there's car insurance, parking, and — god-forbid — speeding tickets. Per a 2017 analysis by the data and analytics company INRIX, the average US driver spent over $10,000 on maintenance, fuel, insurance, parking, toll fees and other miscellaneous expenses, a number that has likely risen in recent years due to inflation.
The "average maintenance transaction cost" for a an automobile rose from $232 in 2019 to $259 in 2021, per the fleet management company Emkay, driven by increasing prices for parts, labor, and the customers keeping their vehicles longer as maintenance costs for older cars tend to be higher.
With drivers returning to the road en masse as COVID restrictions have eased, the number of accidents is also up. And when a vehicle needs repair, inflation's impact on car parts has made this process more expensive. Consequently, many insurance carriers have raised premiums to help foot the bill for drivers' claims. Per a 2022 Bankrate report, American drivers who have full coverage insurance spend an average of over $1,700 annually.
It's unclear whether parking rates are on the rise, but for those without a garage, the cost can add up. Per the automotive fintech platform Way.com, monthly parking in New York City costs roughly $550, or over $6,000 per year. With regards to speeding tickets, the introduction of "robo camera systems" have contributed to more being issued, especially in cities like Chicago.
While advocates argue electric vehicles make owning a car more affordable — due to less spending on fuel and maintenance — EV adoption has been slow. As of February, less than 1% of vehicles on US roads were electric.
Despite the costs, having a car remains important to millions of Americans — one analysis reported nearly 92% of US households had access to a car in 2020, up from roughly 91% in 2015.
Per a Statista survey, 76% of Americans commute to work via car, compared to 11% that use public transportation and 10 percent that opt for a bike. This is higher than many European countries; in Germany and the Netherlands for instance, only 65% and 56% of commuters get to work with a car, respectively.
In addition to Americans generally having longer commutes than Europeans — at times making a bike for instance impractical — some experts attribute insufficient investments in public transit and biking infrastructure as key reasons for the divide in car usage. Per a recent study, the US accounted for only three of the top 50 "bicycle-friendly" cities in the world: San Francisco, 39th; Portland, 41st; Seattle, 50th.
If employers and workers continue to embrace remote work even as the pandemic subsides — one expert estimated 25% to 35% of workers were remote as of April — the need for cars may diminish as well, enabling more people to choose "car-free" lives.
Until then, however, or until supply chains improve to help ease prices, Americans are expected to continue shelling out a lot for their vehicles. Even the beloved "new-car smell" might not be enough to brighten their moods.