I’ve been employed for the past 30 years as a “professional” in the auto industry. I’ve worked for testing facilities, OEMs, small manufacturers, and large multinational suppliers. My background is in mechanical engineering.
I’m currently a PM (Program Mis-manager)
New cars have become financially out of reach for the typical American household. This chart shows the bloat of the average new car’s price over the past 22 years.
This is not one of those charts trying to make you angry or afraid. It’s not trying to deceive you, I fully understand that median incomes have also increased over the past 22 years. That chart looks like this:
Have median household incomes increased enough to compensate for the bloat of new car prices? Not. Even. Close.
Keep in mind: This is median household income. Not individual income. Also keep in mind the median household owns more than one car. That’s not quite right. To put it more honestly, the median household is financing more than one car.
All these luxurious, “connected,” expensive, and financed vehicles require another expense: Full coverage auto insurance. Let’s just cut right to the chase and look at full coverage insurance as a percentage of median household income:
Full coverage insurance has been growing “concave up” the past 3 years. Interesting.
Now let’s put it all together:
If you think I’m overstating this – hold my beer.
80% of new vehicles are financed. Here’s a snapshot of the average interest rate of a 60 month new car loan since 2014:
As someone whose very bread is buttered by the new car industry, I’m a bit concerned. Here’s what’s coming down the pipeline in the next 4-6 years. This is just scratching the surface. We don’t get a say in any of this. Our betters have decided it’s for our own good. Submit. Obey. Conform. Comply. Repeat.
- “Automatic Emergency Braking” mandates by our friends over at NHSTA. I’m sure that will make new cars even more affordable. NHTSA is mainly responsible for the obesity epidemic plaguing the auto industry. See here for my thoughts on this group of unelected, unimpressive, petty bureaucrats. New car curb weights have ballooned by double digit percentages since that was written.
- PHEV and BEV mandates by our other groups of unelected, unimpressive dimwits at the EPA, DOE, and CARB. Yes – an entire redundant electric powertrain or an all BEV powertrain whose battery weighs more than an entire subcompact vehicle from the 1980s. That sounds free. And “sustainable.” If you haven’t researched the curb weights of typical BEVs compared to same size ICE cars – you’re in for a treat. BEVs are, how to put this mildly, porkers.
As you may well have guessed, none of this is free. I’d argue it’s not desirable if it were free. The “greedy auto companies” will not pay this cost. The people buying the new cars will.
The auto industry has lost its way. I’m old enough to recall when the industry pushed back on mandates coming from these jokers.
The MBAs are now fully running the show. The gearheads are either retired or beaten into submission. To the MBAs, each mandate is seen as additional marginal profit. Always a good thing. What could possibly go wrong?
Hey Wharton Grads: Take a look at the 5th and 6th charts down. That’s what can go wrong. Do your sales volume forecasts take into account that only wealthy people will be able to afford new cars in the near future?
Or this (for all you “soft landing” believers):
Or this (for all you “the consumer is resilient” believers)
Or this:
This is the one to watch. I expect this to surpass the the 2010 peak, and even the 1991 peak, by the time this storm passes through. It’s barely a blip today.
When commercial real estate loans stop getting paid (office space and retail – I’m looking at you kid), the regional banks will be left holding the bag.
I predict “Cash for Clunkers II” coming to a dealership near you very soon.
Social media is killing you 