If you were to guess what the average new car price is nowadays, what would you guess? I guessed $23,000, since my Honda Fit is sweet and only costs $19,600 new. Given I’m frugal, leaving a 20% upside pricing buffer seemed logical. Too bad I was way off!
According to the valuation analysts at Kelley Blue Book reported the estimated average transaction price for a light vehicle in the United States was $37,876 in February 2020. New-vehicle prices increased $975 (up 2.6%) from February 2019, while falling $126 (down 0.3%) from last month.
Are you kidding me? The average new car price in 2020 is now almost $38,000? In 2021, I’m assuming the average new car price will be even higher, partially thanks to production shutdowns during the global pandemic.
I guess we must all be quite wealthy because I don’t know many people with a median household income of $67,000 who can afford such a price.
The Average New Car Price Is Crazy High
Take a look below at the most popular car brands and models on the market today and their prices. The data comes from Kelly Blue Book to get the average car price of $37,876 for 2020.
It really seems absurd that the average new car price is $37,876 according to Kelly Blue Book. However, who am I to deny their millions of data points? It’s what so many people who read my 401k by age chart do when they aren’t on track. They go in denial.
I’ve come to accept the reason why the average new car price is so high now is because demand is so strong and the average American is so rich! Forget the great recession and the pandemic. The economy is booming and people have money to spend. If people weren’t cashed up, prices would fall instead of rise to astronomical levels.
The Average New Car Buyer Is Rich
Given everything is rational, we can also assume the average new car buyer makes around $190,000 a year, or 5X $37,876 based on a 50% discount to my 1/10th rule for car buying.
If all new car buyers followed my 1/10th rule, they’d all be making ~$370,000 a year. But, I’ve still got a long ways to go to convince people not to throw too much of their money down the toilet, despite Financial Samurai being around since 2009.
With so many people from public train janitors to 26 year old programmers to food bloggers making $250,000+ a year today, $190,000 a year for the average new car buyer can’t be too far off.
There’s a bull market in the stock market and real estate prices have recovered to pre-crisis levels and then some in some cities like San Francisco, LA, and New York City.
To spend more than 20% of your gross salary on a car when you could be making mega bucks investing is completely irrational. Nobody I know would choose owning a new car over being able to retire years earlier.
Besides, those who don’t make $190,000 a year will simply buy a used car for less. That’s what I did for all but one of the previous cars I’ve owned. Everybody knows that a car is one of the worst financial independence inhibitors.
Therefore, it’s clear that all new car buyers are making around $190,000 a year. Used cars buyers make much less because cars depreciate very rapidly.
Take a look at the chart below. In five years, a $30,000 car is worth about $12,000 using an average depreciation rate. Therefore, one can rationally assume the average buyer of a $12,000 car is making ~$60,000 a year, very near the median household income today.
Average Auto Loan Size Is Absurd
Unfortunately, it turns out that most new car buyers are probably not making anywhere close to $190,000 a year. The reason why I know this is because the average auto loan is now $30,032!
Holy hell. Who on Earth goes out and buys a $38,000 car and then borrows $30,032 of it? Are consumers really that financially irresponsible? Borrowing lots of money to buy a depreciating asset is the best way to financial destruction. At least when you borrow money to buy a house, the house has a chance of appreciating long term.
The last salvation of hope for Americans is that maybe the $30,032 loan is paid back over a very short period of time, like 1-2 years. Nope. The average term for an auto loan is 68 months (5.7 years) – the longest average term ever! In case you’re wondering, the average auto loan payment per month is $503, for a total payment of $34,204 over the 5.7 years.
The $30,032 borrowed today for a car would be worth ~$50,293 in 10 years based on a 5.3% annual growth rate if invested in the S&P 500 instead. If we use a 7.2% growth rate for the S&P 500, the $30,032 invested would be worth $60,140 in 10 years. Opportunity cost is truly a car buyer’s worst enemy.
Even if the borrower decided to invest his average auto loan monthly payment of $503 in the S&P 500 for 68 months, he would probably have over $40,000 invested given 68 X $503 = $34,204.
Is there any wonder why those who are frugal or follow my 1/10th rule for car buying end up much farther head financially than those with zero financial discipline? In 10 years, the $34,000 car will be worth less than $10,000 due to a ~70% depreciation schedule. The investor of the $30,000, however, could have investments worth 5-6X more!
What’s Bringing Up The Average Car Price?
It still baffles my mind that the average net car price is about $38,000 in the new decade. As someone who drove a $8,000 used Land Rover Discovery for 10 years and more recently, a $20,000 Honda Fit, the $38,000 figure is hard to grasp.
Undeterred, I kept on looking for a reason for such a high average new car price when I came upon the SF Bentley dealer and their new Bentayga SUV for $235,000 MSRP, $250,000 nicely equipped.
The car sales people told me they can’t keep them in stock because demand is off the charts. It’s the same for their colleagues at the Ferrari, Lamborghini, Mercedes, BMW, and Maserati dealers. In other words, forget about the top 1% who can barely afford a $250,000 vehicle, it’s the super rich who have gotten super richer due to the raging bull market!
The top 0.1% are converting more of their funny money into real assets before it all goes poof like the last downturn. The super rich are also seeing folks like George Michael die at 53 with mega millions. As a result, they’re telling themselves to live it up while they still can.
Money Out The Tail Pipe
So there you have it. The super rich and the middle class who don’t read Financial Samurai are spending like there’s no tomorrow. The super rich don’t care about rising interest rates because they pay in cash or lease vehicles as a business expense.
The middle class don’t care if they’re spending a lot for a new car because they don’t know any better. Eventually, the middle class will get crushed again, but for now, let the good times roll!
Check for better auto insurance. Auto insurance is the second biggest expense to owning your car. Esurance is one of the leading online market place to help you find the most affordable and reliable auto insurance.
It is very important that everyone gets at least basic liability car insurance. You can total your car and be fine. But if you total someone else’s car and injure them, they can go after you for ALL your assets and wipe you out!
Goodness gracious, this guy is so snarky and egotistic. Pretty pointless article imo, because obviously more expensive cars are being made over the years, making the average price go up. Of course the average is going to rise, given the hyper cars that are out there cost dozens of times more than the typical commuter car. Median statistics would be actually helpful to analyze, if possible. This article doesn’t teach anyone anything, but instead just shames people for buying new cars. Sounds like the author is just jealous or something lol.
Where did you get the figures that an Accord and Camry are $26,000 fully loaded? An Accord starts at $23k. You’re literally 10’s of thousands of dollars off.
I don’t understand. Tens of thousands of dollars off? And are you saying there is only one price for a fully loaded Honda accord in all of America?
He’s right. in terms of “fully loaded” you’re about $10,000 off (maybe a little less). Just bought a tricked-out midsize (Hyundai Sonata). I looked at stacked versions of the Camry, Accord, and Mazda. I looked at several dealers for each. the average cost for a fully-loaded Accord and Camry were above $35,000. Your other points remain and are spot-on, but even a fairly “average” car like this can easily be in the high $30s.
Gotcha. I was looking at a Honda Accord Sport for $26,000 in 2019. It looks sweet. But I see it can go higher. But the difference is not 10s of thousands of dollars off. That means at least $20,000 off.
Agreed. And you’re right, that some nice deals *can* be had, if you’re careful, and willing to wait. I just bought a well-equipped 2019 Sonata for $18,500 (MSRP was $27,200) because they are getting rid of the remainders of the model year. An equivalent Accord I looked at was $34,500, and they weren’t willing to move much, so I guess it does kind of depend.
While literally you are not “10s” of thousands of dollars off, even being off by a single $10k is substantial – based on your stated Accord Sport price of $26k, $10k is nearly 40% of that. It is hard for the reader to consider you a financial expert when you have a questionable grasp of the basic facts here, especially given how easy it easy to go to an automaker’s website and build & price a vehicle to see what the MSRP is. I literally just did this for a new Accord and, by optioning it out, was able to get the MSRP above $40k. So while you are not “10s” of thousands off, it might be wise for you to spend more time researching facts versus arguing with posters who are disagree with your conclusions, especially when said posters are correct :)
For sure. I’m not a Honda Accord Sport pricing expert. I just look online and ask the dealer. Looks like you can get one for $27K – $32K in 2020.
Hope folks don’t miss the main point of this post.
Also, remember… I’m just an unemployed stay at home dad who likes cars. Folks have to think critically and with an open mind.
Three key drivers of this phenomenon:
1) Historically low interest rates. When you can borrow at 1-2% you are not paying much for the money, and if you can instead put your cash in the market and earn 5-7%, you almost end up getting a car for free (almost)
2) The previous ‘Great Recession’ stopped a lot of cars from being replaced when their owners would have liked to. The result is a pent up need that drives new car sales
3) These numbers are averages, when in reality we are thinking about medians. Those $500,000 supercars of the 0.1% really drive up the average sale price, but don’t tell us anything about what most people are paying for a car. To get a handle on that you need to look at the median price, which, oddly enough, is all but impossible to find.
You are forgetting that there is a tax from between 6%-10% on the vehicle, then fees that could range from $600 – $4000 depending on dealerships and states. Add a warranty into that and you’re looking at $34,000 financed on $28,000 car. Slap on 3.99 for 72 months and people jump on it.
so is it time to buy into car sellers and loan providers?
To be fair.. i just bout a Honda Clarity for $32K…but I’m getting $9K back in tax breaks state and federal cause it’s a Plug-In hybrid… that means I’m really only paying $23K. I don’t think these EV rebates are factored into the equation.
So you make enough money for a non refundable tax break?? Then you don’t need s tax break. I’m tired of finding tax subsidies for the wealthy. Enjoy your new toy!
What $34,000 is the average car price? Crazy! I bought a used Subaru Cross Trek for around $23k and that was SO MUCH to me. I finally paid it off and I’m riding that thing until it dies.
PS. Again, can’t believe $34k is the average….
I find it crazy how much things have changed in recent years in terms or car ownership (or leasing) over here in the UK. The most noticeable thing is the difference in the type of cars young people are driving these days compared to when I was in my early 20’s (about 10 years ago) – it’s now the rule rather than exception to see young people driving around in new or almost new premium cars. Range Rovers, Mercedes, BMW. Very expensive cars which, not wanting to be too judgemental but lets be honest, the majority of will be on lease deals. Kids still living at home with their parents and driving about in £30k cars it’s nuts. My first car was 10 years old when I bought it with about 60,000 on the clock and cost me £500 total in cash. That was commonplace then. Now it’s common place to drop £300 – £500 a month on a new car and the dealerships make it so easy to do. The worlds gone mad.
I wouldn’t spend much on a car myself. That said, getting an auto loan is not automatically stupid. Current rate at my credit union is 1.79% . Why put down cash when you could keep your liquidity at low cost? If nothing else you could invest the money in bonds and pocket the difference.
If a car cost 50k. And I have 50k in cash, I’d still lease it for 3-5 years. If my I retest is 4% and I take the rest of my money and invest it, I’ll get a return of 8% which will be used to pay off my car and interest with an extra 4% to spare.
So when it comes to buying or financing, financing is the way to go.
Return of 8% is far from guaranteed. And is taxable. You’re interest on a car loan is after-tax money being paid to the creditor. If financing was the obvious way to go, people would borrow money just to invest it. And that is rarely the smart move.
Why not get a reliable car for under 10k and suck up your pride?
People absolutely borrow money if they think they can get a higher return than the interest rate. It’s called buying on margin in the stock world and is in general I’ll-advised. It’s a method the economy has to mitigate over enthusiastic banks, or improperly low prime lending rates.
When I bought my last car I could have gotten $2k cash back (~5%), or (get this) 0% interest for 84 months (7 yrs). I used to think it was financially irresponsible to carry an auto loan till I had to figure out if I should pay off a car or pay down a home loan in 2010 at 7%. The financial institutions are providing strange instruments, and smart people can leverage them. In 7 years, an average of $20k invested at 4% (which is a crappy return) will yield $5.6k which is much better than the 2k for doing a quick payoff, and gives me the option of paying down my mortgage if it makes sense (a problem that is more complicated with the new tax structure). Leveraging your assets is absolutely the right thing to do – you should take your home loan to pad your investment principal if your investments will on-average do better than your mortgage rate, adjusted for inflation. (I.e. don’t pay off your house early if you are disciplined enough to invest your extra money.) If one of those assets is 40k in an auto loan that you can invest and pay off at 0%, you should. (On a side note, my analysis is probably not the type of thing financial samurai is usually using to make arguments, and probably the majority of people are buying on loan because they can’t afford it another way. But for people with more than 150k in a 401k, instantly paying the auto loan with other funds is an option but it’s still probably better to use timed payments, especially if the banks will give you 0%.)
Just found this, and I have a couple quick notes.
– Some of us lack a family support structure / mechanic skills / etc. For folks in that situation, it’s advisable to spend a little more over the length of a loan to get something in better condition / less miles / more dependable. It only takes a relatively minor incident to burn one’s savings on a repair-and-rental situation.
– All too often, a car is needed in order to even attempt to gain financial independence. Especially if you’re in an area in which public transit is garbage, like the vast majority of the mid-west. Alas, that usually means getting something that doesn’t make sense financially, because no one is going to write a loan for a 1995 Jeep Cherokee Sport.
– A great alternative right now, if you have a manageable commute (<50 miles round trip) is to grab a used mid-tier electric car. I bought a 2013 Nissan Leaf in 2016 for $8,500. It had 27K miles on it, but it really doesn't matter. In terms of fuel costs, it's the equivalent of paying $0.29 per gallon for gas, it doesn't need oil changes or basically any other maintenance outside of tires, wiper blades and a cabin air filter every 2 years… I don't even have a quick charger- I plug it in via a standard 3-prong outlet, and it's like plugging your phone in at night.
Yeah? Well, buy a new Nissan Versa for around $14,000.
I drive a couple of 80s Toyotas I paid next to nothing for. They’re such simple machines that I can do most of the repair work myself. Heck, I could put in an entire motor every single year for less than most people pay in car payments, but the savings go straight into the ol’ mutual fund.
I feel like crying as my 2009 Hyundai Sonata bought with 19000 miles for 16900 dollars drive off the lot price in 2009 had 130000 miles when it was totaled last week by a moron at a stop light who rammed into my back at over 60mph. I wanted to drive that thing to 300k miles, I serviced at the dealer with my own synthetic Mobil one oil for 25 dollars by the clock, bought my tires from Costco, had blue tooth from Amazon connected via the aux cable for 15 dollars, and this car ran like a spring chicken never gave me problems, now I need a new car, well I chose to upgrade, to the 2015 sonata limited with all the luxury gadgets with 20kmiles for 18830dollars, I am really scared, hope this one will stay true, but am scared of all those electronics breaking down, and oh did I mention the 39k bumper to bumper warranty left or the 80k powertrain warranty left? if I ever win the lottery, am buying a Mercedes AMG, brand new, until then, am stuck with my fairly used old cars. My 2009 Hyundai stickered for 23000, current car stickered for 31000
Hi Sam,
Perhaps I can answer the question as to why the average car price is so high. It’s all of the bells and whistles they add on, along with the absurd packages they anchor to desirable features. Want to be able to see what you’re backing into since they designed your rear window to be too small? You’ll have to pay for the premium tech package to get an overpriced back up camera that will fail in two years. Do you want to get a model better suited for long road trips? You’ll have to upgrade to the touring package and tack on another 5K. Want a moonroof/sunroof? Add the luxury package and all the junk you don’t want with it at another 4K.
Dealers also love to claim some of the technological features, such as emergency braking, will reduce insurance rates, but they don’t tell you that you have to confirm it with your car insurance agents first. Then you deal with lemon cars too. My small SUV had great crash test ratings, but at just ten years old they’ve stopped making replacement parts! Car manufacturers aren’t just ripping people off with inferior, overpriced products that are so defective they regularly kill people – they’re making disgusting profits off of it.
I’ll never buy American again because my Chevy Equinox wasn’t even made in the USA! If you think that’s bad, wait, it gets much worse. I had a letter in the mail warning that my SUV had the defective ignition switch and the dealer’s response was to buy a new “American” SUV – from him no less! Then I decided to look up and see if there were other recalls. Apparently the transmission is iffy! Oh, and due to electrical problems caused by yhte rodent plague my area has – I spent three hours troubleshooting my electrical system and reading diagnostic codes only to call my Dad in for reinforcements.
My crappy “American” SUV wasn’t even wired properly in the damn factory! Gee, and people wonder why I’m driving the same SUV after 12 years! Sure guys, I’m in a huge hurry to get ripped off again after doing all of that research. I have an older car that’s older than I am by a few decades and yet I can find parts no problem. It’s pointless to me to keep myself in debt for a junky, overpriced auto that the manufacturer couldn’t be bothered to design it to not kill people. Chevys fall apart, Jeeps are the new Pinto, GM is being called coffins on wheels, and trucks have fragile truck beds.
I used to claim we had to buy American and now I’m quitting the brands that kill people and will get a used German car. I’d rather have superior design from a a German automaker than die in an American junk heap that’s riddled with defective parts and recalls. All the Germans did was cheat the emissions tests and yet they were fined more heavily than the serial killer American auto manufacturers.
That’s my two cents Sam from my own personal experience and from what the news won’t cover.
Putting on my economist hat, I’d be a fool to not max out payment window when interest rates are at all time lows. You can without much effort get a 5-6 yr car loan for <3%, and average age of car on road now 11-12 yrs, new cars can likely break that record, pushing 15-20 yrs lifespan. A 35k Tesla 3 electric car would make hella lot of sense given record low maintenance and parts cost, 1/4 the cost to power, and OTA updates that make it a souped up iPhone on wheels always new and current. So from a value-add Pov, the analysis ain't so black and white.
I’ve paid off both our nice and comfy Korean SUVs had at 60k total, 6-yrs later and plan to drive those into the ground, We’re nowhere near the 100k mile bumper to bumper warranty that we bought – expect some repair event around 60k as has been case in past with Nissan and Mazdas we drove in our 20s but right now at 45k, it’s paid for, with record low interest to boot. Now we’re tempted to buy a Tesla 3 or X (I know, only advice, just don’t test-drive one like I did), and frankly the math works out for us if we do it soon when our used vehicles still have residual value to speak of before the market gets flooded with trade-ins as peeps trade up to electric cars in a few years. Think LCD and iPhone stampede a decade ago.
Anyway, interesting times we live in.
The average car buyer is a complete moron. Pure and simple. They look 2 feet and 2 hours in front of them. Instant gratification trumps all. It’s all about the car payment.
I make $110K per year. I splurged a little and bought my 2014 VW Jetta for $19K+tax brand new. I love cars and have been stupid in the past buying/selling too many too often.
I could have paid cash for the Jetta no problem but financed a small chunk of it at a low rate just so I’d keep it. When I pay in cash, I’m more tempted to sell it for something else. I owe less than $4k on it with a payment of $170/mo and the car only has 26K mi on it.
It feels good to have a car I can totally afford, that I love, and will paid off pretty soon. In fact I may just pay it off in full at the end of the year.
But I see people all the time making probaby half of what I do, all driving new BMWs. It doesn’t take a genius to realize these people have fat lease or car payments and probably very little savings.
Hi. I lived in Singapore for years but failed to really save. It was too easy to go out every night and get bottle service to impress hot Asian and Russian chicks. I had great fun but saved little. I really missed driving too. In 2015 I moved back to the US. With flights, rental cars to get around, hotels to sleep in, and the need for a huge deposit on apartment I blew most of my savings, which was close to $20,000, just to move back.
After a month, I bought a brand new car for $28,951 on a 72 month loan with no money down (I KNOW). The thought was that I couldn’t live in the US without a car, which in my case was really true (I am from Montana). I drove it all over the US in a serious of road trips. I put 35,000 miles on it in a single year. That was great but left me yearning for something. I decided that the US was actually not for me and moved back to Singapore last month. The car did not come with me.
My monthly payment is $506 with 7% interest. Insurance is $99 a month. My loan is now down to $24,655. The car, which is now worth just $17,500, is parked in a friend’s garage. No one is using it.
So here I am. What do you think I should do? If I just give it back it will crush my credit for years, right? But should I really pay thousands more to catch up while the car continues to lose value? With the car payment and insurance I will end up paying another 30,360 on the car over the remainder of the loan. At the end I will have something to sell, but you’re talking another 5 years and I’ll only have a car worth maybe $10,000.
If I had the lump sum to make up the difference I would just pay it to the bank then sell the car for value and get out of the deal. But I don’t. I’m only able to save about $1000 a month right now, and over 600 goes to the car that I don’t use.
Look forward to your advice!
Since you can’t afford to sell it since you’re upside down and can’t pay the negative equity, you’re best bet is to pay it down as fast as possible. Maybe paying a bit extra every month if you can.
There are a lot of parallels between the auto market and diamond market. Through brilliant marketing over long periods of time, society has been largely convinced that cars are status symbols, etc. There monetary value is much higher than their true worth.
On the flip side, people spend tons of money on travel, which is obviously not an asset at all. They do it because they derive pleasure from it. Same thing with a car – purely looking at it as an asset or a functional tool doesn’t paint a full picture.
I am both a car guy and frugal, and it’s been tough to reconcile those two things. I worked in the car business for 10 years (the Doug DeMuro reference above made me chuckle as I worked with Doug), and I take great pleasure in driving (…says the guy who just paid $6600 for a 2.5 year old Nissan Leaf with 20,000 miles on it). I don’t care about cars as status simple (which is why if I splurge on a performance vehicle in the near future, it would probably be a Subaru WRX), but I do love driving performance vehicles.
The real question is how do you value pleasure? I could have saved 100% of my discretionary income and been comfortably retired by 40 – with enough money to do things I enjoy, but not over the top. Would it have been worth it? Maybe if I absolutely hated what I do for a living. But if I hated what I do, I’d do something else. Point being, the notion that the goal of getting to retirement as quickly as possible trumps everything is a grossly oversimplified way of looking at it. And if driving isn’t something you derive pleasure from, more power to you, and a bit of me envies you as cheapness vs car loving is a tough inner battle to fight!
The key is getting a car you love to drive that is affordable. Today that is possible. I love cars too. But fast performance cars while fun, the novelty does wear off over time. And FAST doesn’t always mean more fun as you can only go so fast on the streets before you get paranoid of cops all the time and exercise restraint.
On the flipside, for low $20s, you can get a VW GTI which is plenty fun. My Dad had one which he traded in for a much more potent and expensive BMW M235i. The BMW is a real rocket but after getting accustomed to the power, he said it’s really no more “Fun to drive” than the GTI was. He misses the GTI and would have kept it if he could do things over.
My grandfather owns several apartment buildings in San Francisco drives a 1980 Chevette. He drives it to collect the rent and does not ever worry about the car when he parks it. He grew up poor in Chinatown and knows the value of the dollar. He is more concerned about savings and investments. Unfortunately for me that I grew up with a distaste for rental units after witnessing how much work goes into it. I was always painting, tiling, repairing electrical outlets, windows, drywall and clogged drains. Most people do not care about the units they are renting and upkeep is a pain. As a child growing up I always felt poor due to our frugal lifestyle. I did not even know that the buildings that I was working on belonged to us. I just did the repairs to earn an allowance. I received $5.00 each day on the weekends. Little did I know that I was learning invaluable skills while it also allowed me to spend time with my grandfather. To my grandfather a car is something that he uses to collect rent. He does not want the tenants thinking that he is charging them too much if he were to drive up in a Cadillac. I just so happen to really like vehicles, but I can appreciate his point of view.
I have honestly stopped looking to the baby boomer generation for logical financial/life guidance. Many of them (my parents included), but not all, just ignored their parent’s teachings and advice as a thing of the past while they took their good fortune for granted. I started looking to my Greatest Generation Grandparents for financial/life advice and lost 30lbs and had $25k in the bank within a year.
So he owns property and makes a ton of money but lives like he is poor anyway. What’s the point? He lives the same lifestyle as a guy working at McDonald’s who has less stress.
I purchase all of my cars from friends who are returning their leases. I am usually able to pick up the vehicles for half price and with low mileage. I also have the luxury of knowing the service history and if it was involved in any accidents. We purchased an Acura MDX with 23,000 miles on it for $10,000 below blue book this way. We also use this vehicle for our business and write off the mileage. I did splurge 10 years ago and purchased a BMW M3 the same way for half price with very low miles on it. I still drive the car on the weekends and it is considered my “fun” car. I happened to grow up liking sports and muscle cars. We tend to be frugal with our expenditures and will splurge on our yearly vacation. We own a house in San Francisco and send both of our children to private school. I do see a lot of people driving around in expensive vehicles. I have a coworker who rents a house, but has three new cars. He does not have any savings and he does not contribute to a 401K. He also does not have a pension as it was eliminated before he was hired. He takes lavish vacations each year and eats out daily. He is part of the YOLO mindset.
Being in the south, pickups are a priority. With a new cost avg 39k you will see many on the road. I always ask how does the avg person (not) afford one? In fact, Ive seen many truck go for north of 70k. This is why I drive a 17yr old truck that I paid cash for, used it for work and got paid to use it, therefore “paying for itself”… Is it pretty? No. Is it comfortable? No. Does it have all the bells n whistles? Nah… It runs, it tows and it gets one from point a to point b. Did I mention that I gave 3k for it? Maintenance runs about 500 a year (tires, brakes etc(Im able to do most repairs myself)). When I get ready to get another one, Ill sell it for about the same and put that towards a nicer one but still well below the 10k mark. Oh and uh, thats still below the 10% of 170k avg salary you mentioned… crazy
I always enjoy your vehicle posts… :)
Howdy Whiskey,
Sounds like you’ve got a great truck that keeps you going from point A to point B just fine!
Int he south, are a lot of people in construction or businesses that require a lot of hauling? Or is a truck more of a status symbol type vehicle based on the remnants of the good old agricultural days?
It’s hard to have a truck in the big city due to parking. And most folks just go to work in an office and stare at the computer screen all day.
Sam
The northeast has a significantly different economic “climate” than California – California is really its own economy. It’s difficult for anyone outside of California to really directly relate to the example salaries and cost of living.
Based on your chart, it is best to buy a 1.5 – 3 yr old vehicle based on the “drecreased” slope of the linear depreciation (i.e. new car purchasers take the brunt of the cost, but owners of 1.5-3yr old vehicles still get some warranty)
Regarding the 1/10th rule, is this assuming there is still substantial time (2-3yr) left on the loan and the individual is still paying $400+ a month for a car worth 10% of their income (heavy depreciation)? Doesn’t this contradict spending 1/10 of your income to “get out”? Isn’t that basically saying to lower your monthly expenditure by floating the risk of potential repairs instead of a monthly payment by trading down?
Can you elaborate on new vs lease vs used – when is it OK to “splurge” and get a used car you like (other than turning 40)? With current interest rates, it doesnt make sense to prepay the mortgage and the tax deduction is great. (Convince me otherwise please!). 401k maxed, comfortable debt-income ratio, no student loans, no kids, comfortable “emergency” and savings buckets. Is there a “checklist” of priorities for the “millennial”? I know it’s kind of spread out across your website, but i think it would be cool to make a thread that focuses on millenials. There is considerable disparity in this group, but for the ones “on track”, some samurai advice would be insightful.
I highly doubt your average new car buyer is making around $170K a year. Do you have data to support that assertion?
I’ve always argued that a used car is a better deal than a new car, mainly in that you are not paying the initial depreciation which is most significant. Some members of my family argue otherwise saying the warranty of the new car is is worth it especially if you drive it into the ground. They also like being the only one who has touched it and believe all used cars are ripoffs. However, the make and model of the car among other factors can significantly impact depreciation, expected depreciation and reliability ratings which impacts the “current” value of the car. This article is highly insightful, and I agree with the main theme of ideally paying the minimum for transportation. In reality, the middle class doesn’t think like. Earlier in my career, about 3 yrs ago, i bought a new hyundai that after taxes came out to maybe 40% of my current salary then. After depreciation it is now worth about 10% of my current salary and is serving its purpose of transportation. A few months ago I was set on upgrading to a used luxury – like a c300 or similar A3. Then I started reading this blog, and it swayed me not to. I’m just going to use this hyundai for a long time and develop financial strength rather than take a hit on my financial health. Thanks for this article!
Question:
I lease my car and as much as i’ve crunched the numbers, I cant see why it would make more sense for me to buy instead? (yet the consensus is that leasing is for suckers).
Yes, I will have a lease payment forever. But, I will always have a car under warranty so repairs will be limited to oil changes and maybe changing the front tires. Lease costs $275/month for an Accord EX with 15k miles/year vs. $450 to buy it new.
If I bought it would be 8 years until I broke even. Then i’d have a car with 120k miles on it that I could maybe trade/sell for $7-8k (vs having nothing if i leased). That said, i’d likely have spend a few grand on repairs over the years so perhaps i’d only be ahead $2-3k. In my eyes it’s worth the extra $2-3k over 8 years to always have as new/reliable/warrantied car.
Thoughts? What am i missing?
I would love to hear a response to this question. I am a believer in leasing the family car and buying a beat up old used car as my personal work commute car. That gives me the best of both worlds.
That’s why I’m happy driving my 2010 Mazda 3. It’s fully paid. Maintenance up to date. 105K on the clock. Hope to drive it another 100K payment free!
When looking at average cost of a car they are throwing in Trucks and SUV’s into that number and that is going to screw up the averages. A new SUV is going to cost you over $70,000! You probably don’t see as many Yukon, Tahoe, and Suburbans in San Fran as I do in Arkansas, but they are extremely popular. I am always baffled at people who spend $70k for a brand new Yukon, but aren’t saving enough for retirement. Last car I bought was a used Ford Taurus for less than $10k it had $60,000 miles and works great. I was also able to pay cash. This car also comes with low taxes and low insurance. I wouldn’t own a car if Uber was more reliable, but that day is coming.
Others have already mentioned it, but it can’t be stated often enough – one of the easiest “life hacks” in this area is to simply BUY USED. You can pick up a still-very-good-shape “luxury” car that may be 5-7 years old, but is still MUCH nicer than a brand-new car at the same MSRP sticker price.
I’m gladly rolling around in a 2009 Audi Q7, fully loaded trim package. I paid $16,000 for it. Cash, no payments. Low insurance cost. It’s perfect for a family guy needing to haul kids around, with enough of the bells and whistles that come with a “luxury SUV” – *without* paying the ~$85,000 it’d cost to drive a 2017 model. Every time I see a 2017 Q7 that looks VERY much like my 2009, I smile a little knowing how much less I paid for almost the exact same car.
Buy high end if you want, but buy used. You may forgo some of the latest and greatest tech, but you’re still driving a very capable vehicle – enjoying ~90% of whatever “prestige” you’d get from driving the current year model – without paying too much.
Agreed completely. Only problem is outside of enthusiasts or people who properly research these decisions, many people can easily get screwed over with the maintenance costs of a highly depreciated luxury vehicle. As the saying goes, the most expensive car to own is a cheap Porsche or something along those lines…
When buying a used luxury vehicle that is out of warranty it’s a good idea to research common issues thoroughly, know what you might be getting yourself in to, and have a healthy buffer in your budget for maintenance. Or you could offload the risk on to someone else by paying for it upfront like Doug DeMuro’s infamous CarMax Range Rover. Honestly for certain high end cars it’s a pretty great option to consider.
I agree that dropping the equivalent of the downpayment on a house for a car seems ridiculous. But I do see some merit in weighing features and safety/track record against the fiscally responsible approach of finding a reliable, older car. I bought an Altima in 2011 for about $17,000 after my trade-in (my first car, a Civic, probably had another 10 years in it, though), and there is something I can appreciate viscerally about the feeling of a brand new car. Echoing the sentiment of your post on the super wealthy’s decision to buy high end cars, what’s the point of having the money if you never do anything with it but save? I know that my next car will be used, but I will be looking for something with all wheel drive, good carrying capacity, and maybe a few other features that will drive the price up (but even then, I’d balk at anything that cracked $25k before trade-in/selling my car)
My Dad took the philosophy that once one car is paid off, it’s time to buy a new one. While he can still rattle off every car he’s ever owned, it hasn’t been good for the family finances. His latest desire was for a lease on a $45k SUV, and it took a fair bit of cajoling to get him to settle on a ‘modest’ lease on a Hyundai SUV for him and my mom to use. There’s no convincing some people what makes sense for their finances, and while I’d have preferred them to buy out their 3 year old lease, they get to make their own decisions. :-/
the auto industry is the reason the poor and middle class cannot level up
+1
My take is the average is skewed up because of SUV and full size pickup sales. It’s pretty easy (not for me however) to spend $50K on either of those two.
Then you have the car enthusiast crowd that will drop $55K on a BMW M2 or $75K on a M4. I’ll leave the Porsche folks out of this since that is a pretty small crowd.
Cheers.
This just makes me sad. Compare this to the recent research that shows 71% of Americans have less than $1,000 in savings. I had to stop reading when I got to the $30K+ average auto loan. The future value of that money is just absurd. It’s just sad that the strength of the American economy is so linked to the auto industry. Our government should be making saving mandatory (and not in the social security sense which prob wont be around when I’m 62+). They shouldn’t encourage people to go out and buy these cars. Thanks for sharing Sam. Even if 1 person reads this and doesn’t buy a car it’s well worth it. Have you ever checked out Metromile? It’s there in SF and I’ve been using it for 3 years now – my car insurance is $29/month full coverage. Just an FYI.
It’s outrageous but I’m married to the perfect example of why it happens.
We’re about to have our 3rd kid so we’re going to get a minivan. I’ve looked and researched (just like I did for my wife’s first car) and found a couple good certified pre-owned minivans of the model she wants. She’s not having any of it. She likes the “new car” feel. The neighbor just got a new car. My best friends wife got the brand new fully loaded version…etc etc. There’s no real reasoning and this is with an educated generally intelligent person. It’s visceral and that’s it and people hobble themselves to make it happen.
I myself drive an11 year old corolla. Thing runs great, good gas mileage. I can’t think of a reason to get rid of it so I don’t. Ive had it since med school and I’ll have it till it dies. I actually take some joy in squeezing between 2 100k cars in the doctors parking lot that are owned by anesthesiologist that I know make less than me. I like to tell them to be careful not to ding my doors, my cars paid for and I’d like to keep it nice thanks.
I don’t think everyone should be driving a beater but people need to get over the whole social status thing. It’s a car. If it’s able to safely make the speed limit, the AC works and it doesn’t break down then it’s perfectly fine.
Ha ha, that is awesome! I loved having my 10+-year-old car as well because I didn’t give a crap if someone bashed into it. The one thing that I’m thinking more about his safety. Newer cars have more accident prevention technology. Luxury cars Joey have more reinforced armor. This is the topic of my next auto post next month. I go to space them out!
I have thought about the safety aspect. It does make sense in that regard certainly to update. I’m a good driver (but then everyone thinks they are) so I feel pretty safe regardless, but you never know about the guy in the other car. When my kids are driving age I will bump my standards up a bit. Still pre-owned but they’ll be driving the closest version of a tank I can find with decent gas mileage.
Sam,
I always wonder why people spend so much in a car when they don’t make anything. There probably a few things at play here. Most of the reason why people want to own expensive cars is for the prestige and status they assume they’ll gain. In places like Miami and Ft. Lauderdale, a nice car is something that people care about and it conveys the drivers individual style to others. I’ve always been into nice cars and have been working on and driven cars my entire life so I can see why people break the bank on buying a new car. That being said, after getting older I find that people don’t see your car, they don’t really know what you drive or don’t care most of the time. You can say this about CA because in places like SF, status is determined by what company you founded. In other places, you won’t get laid if you’re driving around a beater.
There are probably other factors to consider like the 0% apr loans. They’re giving them away these days and distributors don’t make anything on a car due to the interest. Back in the day it was hard to tell what the cars are worth. With buying used cars you need to worry about repairs more often so most don’t go that route. I personally think that leasing or actually not owning a car is looking more attractive these days. You could lease a 3 series Beamer for $350 a month. When the lease is up you have a new car (you start leasing a newer one). So you’re basically paying for the depreciation on the vehicle which for these bmws is high.
Rob
It’s always dumfounded me to drive through lower income apartment complexes where 75% of the parking spots are filled with nicer cars than I drive. You did a great job at putting stats and numbers to what I’ve observed.
I think most people would balk at your 1/10th rule, thinking it’s unrealistic. I love it. It may have been answered and I just can’t find it, but would your 1/10th rule apply to a couple with 2 cars as well? (I.e. should a 200k/yr household each drive a 10k vehicle?)
My wife and I lease a 2016 Corolla at $142/mo and 2016 Camry at $179/mo. We analyzed it, and felt leasing was actually the best financial decision so we could utilize our capital to buy 4-plexes rather than paying cash for vehicles. Just the cash flow from those could pay for 10 leases, so it seemed like a no brainer.
Sam –
Good post. I am 29 and had my 2006 accord since initial purchase. I think a couple more years it may be considered a beater. My friends and people in my network have opted for new luxury cars or newer cars, but I am trying to grind out my car for at least 2-3 more years before a new purchase.
I can probably purchase an entry level luxury car so I do not have live in shame when the valet pulls up my car in front of friends or colleagues, but I will probably opt not to and purchase a Prius because I am weird/crazy and not normal :)
Hope I am making the right decision for this delayed gratification that I have adopted!
I have a 2002 HONDA ACCORD, LOVE THAT DARN CAR!!! I WAS LOOKING THE OTHER DAY, Sticker shock is all i can say!!! Cannot part with this car, going to have to find a way to keep it even with a new car….abnormal attachment, love that thing, & it has a tape player & CD player! Cant get those in a 2019 PASSPORT OR PILOT, BOTH COSTING IN THE $30,000 area!
This article is spot on. It is unbelievable how expensive new and even some used cars are now. And even crazier that so many people buy them! Such a waste of money on a depreciating asset. Exactly one year ago my wife was rear-ended in an accident. Her car was paid for so we had to go purchase another one. We ended up finding a great deal, in our minds, on a used SUV. We found a 5 year old Mitsubishi Endeavor with only 50K miles on it. We ended up getting it for only $14,500. Still up there but so much cheaper than every other SUV out there. We actually got a deal on it because Endeavors were discontinued in 2011 so they were drastically cheaper than every other SUV out there. So just trying to say there are deals out there, even on SUVs, and you don’t have to spend $20K or $30K+.
Early last year I had to convince my wife that it made more sense to buy a less expensive car ($49 a month less) by doing a graph chart showing the time spent in the car and the time spent parked. It turned out that (annually) 5.16% of the time she was going to be in or using the car the other 94.84% it was going to be sitting in a parking lot or in front of our house. After seeing the chart she immediately was convinced.
This is a great post, and one of my favorites…combining finances and cars. This is my first post to FS and mainly because I feel I have a different view and approach to this then most people. All my life I have been conservative, from savings rate to investment risk tolerance. However, one passion I have always loved that did not align with my conservative life style was cars. What’s more…I love unique cars (and that usually leads to higher prices). It was a hobby and passion that I couldn’t let go. What’s a man to do?
I got it…build a company from the ground up that would “force” me to buy a new car every several years, make them unique, and somehow still make money from it. After many long hours, weeks, months and years, what was created in 2005 was a company that designs and sells aftermarket parts and accessories for modern cars (we specialize in American muscle cars – sorry not much for your Honda Fit). So to showcase our products, every several years I buy a new car and design new products for it. The car has now become an asset, a marketing tool. I only buy the low end models and customize their looks. I respect performance, but am really passionate about design. Instead of spending money on the top of the line cars, we spend it on designing products for those cars.
As another contributor wrote, cars to some people are more than just a car. I understand that, and help make that connection even more unique. Similar to how you make the connection for people passionate on financial stability and independence. But I still believe in financial responsibility. I had a customer once call me for a greater discount on a hood because he could barely feed his kids. I kindly told him to go feed his kids and when he’s ready and able, we would be here to serve him.
And who knows, maybe adding a new custom part to your car would make you want to hold onto it little longer…helping postpone the purchase of a higher valued and faster depreciating car.
Hi Bruno,
Welcome to my site and GREAT idea combining your business with your love of cars! I would totally do the same. The first car I ever wanted was a 1989 or 1990 Mustang 5.0. It was modded up, and my friend in HS would have sold it to me “only” $13,000. But of course, I had no money then and was working for $4/hour at McDonald’s. He went on to sell his car and his parents bought him an Acura NSX that lucky kid.
I do the same w/ what you do by combining my love of travel and writing with my business. Feels like a win all the time, as I’m sure it feels with yours.
Sam
We’ve got easy access to credit in the U.S. If cars didn’t depreciate so quickly, getting a new car with a 0.9% lease would actually be a no brainer way to leverage using OPM. I walked off the lot with a 0% no money down purchase on a car financed by the dealer. Where else in the world can you do this?
That being said, I actually looked for reliable used cars that I was actually willing to own (meaning no used Chevy Impalas from the state auctions), and my area had none.
Can’t wait till you get your mid-life car!
The thing is to many of us a car is nore than just a mode of transport. Its an experience. Just as many of you will pay for a vacation, some of us will pay to experience a certain vehicle.
Hmm…
I bought a 2008 Accors EX-L V6 4 door sedan in 2008 for 28,000 out the door which was 2,500 below dealer invoice at the time. If Sam’s price is accurate, prices haven’t moved much at all in the last 9 years.
As us accountants like to say the devil is in the details. You mention that a new Honda Accord/Toyota Camry can be had fully loaded for 26k. In disbelief I immediately went to the Honda site to check this out. Turns out this statement is not accurate. Sure the absolute lowest base model LX-S can be had around that mark however upgrading to the V6 w/ some basic upgrages like navi/leather can easily eclipse the 35k mark. Notice Experian doesn’t specify trim levels, but my guess is most people aren’t buying the base model..
I’m actually at the Honda dealer right now and a fully loaded Honda Accord Sport V-6 is about $28,000. But I guess prices depend on where you go and how are you negotiate.
If people want to spend $35,000 on a Honda accord or Toyota Camry, they have every right to do so.
I can change the words “fully loaded and “to “well equipped” if you like?
I just ran a quick TrueCar …
17 accord 4dr v6 touring
MSRP $35.7k
TrueCar $32.0k
This is why I take public transportation. Why should pay all this money and go so far into debt to not just own a depreciating asset that doesn’t increase my happiness, but to drive MYSELF around? That sounds like something I should receive a discount for when compared to public transportation, not pay a premium for!
You can’t just focus on the car price and loan balances. The intangibles are also huge costs. Everything from the frustration of not being able to parking, to digging your car out of of snow, to the risk of running over someone and killing them accidentally!
Yup, I’ll just hop on the bus, throw on my headphones, and let the driving (anything from costs, risks, and the actual act of it) be somebody else’s problem.
Sincerely,
ARB–Angry Retail Banker
2 years ago I bought my first car- a 2000 Toyota Avalon for $3,500. My yearly insurance on the thing is $800. Because of this unbreakable japanese beauty, I am paying off my student loans and investing like no one else. Do I plan to buy a new car in the future? Yes, but it will all be paid in cash, the car will be 2-4 years old AND I will have to have a net worth of at least $500,000.
Having a car payment is the worst and the most annoying freaking thing to have. Funny thing is, I am 24 and as I get older, I care less and less about what I drive and even what I wear. Other priorities kick in such as- being healthy, wealthy, free and being able to travel and enjoy my hobbies. Life is a funny thing
I meant tax-write it off. Also forgot to mention thats its a lease.
Sam. To follow up on your A7 question, i am closer to 205k a year in income. Yes, in fact, we are a family of 4. Work in a nursing and see people becoming ill or dying all the time. I figured I might as well enjoy some fruits of my labor before i am unable to do so. Not everyone in a nursing home is old. Got a 30 yrs old with amputation of right leg and a 40 something who succumbed to cancer fee weeks back just as examples. So everything in perspective. Besides, i can tax right it all off as a 1099 P.C.
Working in nursing must definitely put things more in perspective. It’s the same way the rich are spending more of their money now after hearing about so many deaths at young ages.
Only one pass at life. Moderation is the key. You want enough funds to be comfortable.
Many of my friends did something a LOT of people here will disagree with, but I’m thinking about doing it too. They went through this dealer who buys and fully repairs salvaged cars (late 2014-2016 models with low 5-10k miles and usually luxury fully-loaded) and sells them for basically half…YES HALF the KBB dealer price! He issues a rebuilt title for DMV purposes. He shows the pics of where the damage was and if you like something and he’s not comfortable selling you that, he’ll straight up say no you can’t buy that because I can’t fix it to a satisfactory level.
Everyone who’s bought from him has had no problems with their cars (apart from regular maintenance of course). Yes there is a higher risk, but he’s built a reputation over 15 years cause I know people have bought from him. Just wondering what your thoughts would be for this type of a situation?
If you have someone that you trust and you can see before/after pictures I’d feel more comfortable going that route. Yet, I don’t (and probably) most people don’t so they try to stay away from those types of purchases.
This post is too much truth to handle. I’ve got many college friends who financed 20-30K brand new cars post graduation, effectively blowing away their head start at creating wealth early on in their lives.
I didn’t know that the rich were simply purchasing them up to get hard assets, I figured they would all prefer real estate over vehicles, but then again, I guess that’s diversification.
Well, my rich friends have been methodically purchasing real estate, art, gold, rare watches, etc with the funny money they’ve created since the 2009 downturn. They have crazy amounts of wealth and are all going through this “life is short, let’s live it up more” moment.
Seriously, everything right now feels like funny money. Wealth accumulation has been much quicker this time around than during the last bubble. But this time around, people are planning to NOT lose a bunch again.
I can completely relate to this article. Finally in the mid/late 20s and starting to have more disposable income really makes you want to splurge on housing and transportation!
I catch myself reading through new car sites and yearning for a sweet crossover Audi or Lexus, but I just can’t get over the fact that my now 4-yr old car is just fine, and even if I traded it in, I’d probably have to pay another $15-20k to get it!
I still think the lightly used (1-3 yr) range is a great time to buy cars. You miss the big hit in depreciation up front, get a new-ish car, and save a lot of dough! Additionally, if you feel the urge to trade in after 3-5 years, you won’t have to sell your first (or second) born to make up the difference since depreciation on the vehicle should have moderated.
I was shocked when I was looking around that the new Cadillac XT5 crossover was priced at $60k (fully loaded) for a new car, while the exact same model year, trim, and content with 5k miles was selling at $50k. A $10k discount just for someone else who broke a lease (or sold at a big loss)??? Even that’s a huge savings compared to buying new, and it probably still smells like a new car!
Sure, it requires a bit of research, and you also won’t always get to buy the EXACT car with the EXACT specs you want (color, trim, miles, etc.), but saving 20%+ off a new car price just by being flexible seems like a win to me. Better yet, wait ~3 years and get it for 2/3 of the new value.
Let the suckers pay!
I agree. Cars are so much more reliable nowadays. I like buying after 2-3 years of a newly introduced model with less than 8K miles a year. Save on depreciation, still years away from a new model design, and don’t have to worry about the car as much.
You are looking at MSRP vs negotiated price though … That $60k sticker can be had easily for $54k and likely $50k if negotiated well. 5k is low mikes, but if it had 10-20k mikes in it, I’d pay an extra $2-5k to have brand new with a full 4yr warranty, new tires, brakes, etc.
I bought my last new pickup truck in 2011 for $19,000. GMC 1/2 ton with zero options. At that time a used truck with 40,000 miles was going for $14,000. At that point I was glad to pony up the extra cash for a 3 yr complete warranty and a new truck!
Summary: More number of Pickups/SUVs are being sold – which sells for higher prices (and a whole lot more Profits – cha-ching!!) compared to cars! Cars which can achieve higher-mpg are sold at very low-profits or dare-to-say, at subsidy by some manufactures to achieve CAFE mpg numbers across their fleet (or incur recently tripled-up EPA penalty). High-number of Pickups/SUVs which sell for much-higher average selling price – are pushing the average selling price of the vehicle mix to ever increasing average transaction prices. Manufactures have luxury of offering low-rate financing to sell their vehicles (as their profits and profit-margins have increased due to ever-increasing higher-prices !). On the high-amount of loan-balances — its evident – as average vehicle prices increase, the loan-balances increase too !! Worse yet – due to ever increasing prices, and high-depreciation., god forbid if you ever trade your recent-model car/vehicle., you will most likely be upside-down on your new loan — leading to further-increase in loan-balance as reported by Experian!! Leasing has also increased to nearly 1/3rd of all new-auto transactions to combat ever increasing monthly payment battle for average consumer (loan payment of $503/month vs $406/month for avg lease – a saving of $100/month if you lease – but expect no equity in a lease though!).
Sam – would it be ‘more’ applicable and realistic to tweak your 1/10th formula to accommodate payment model ? Say: approximately no-more-than 1/20th of your monthly income (5% of monthly income) should go towards car-payment(s) ?
To meet/achieve/exceed CAFE fuel-economy fleet standards – auto manufactures have to have/sell sufficient number of “high” mpg autos in its fleet. Guess – truck/SUV mileage barely budged up from 18 to 22 mpg in the last 5 years? Current combined mpg is about about 25.
(pdf:
Trucks/SUVs are selling nearly 60% of market-share compared to only 40% ‘car’ share!!
(https://www.trucks.com/2017/01/04/trucks-record-2016-auto-sales/)
What gives ?
In reality – it costs less to build/manufacture a pickup truck, slightly more-so for an SUV (the extra metal/weight/hulk/volume doesn’t cost all that much more, if you are thinking along those lines). Auto manufacturers definitely love selling you ‘more’ trucks/SUVs to make more profit per ever-increasing SUV/Truck volume! No wonder auto manufacturers are making record amounts of revenues, and profits ! If you ever see ‘largest profit’ by vehicle type – Top-10 profit-making vehicles list is gobbled-up by high-volume Trucks/SUVs, followed by low-volume luxury-car models.
Cars achieve higher mpg – this can be attributed to car’s relatively lesser weight, streamlined shape, lesser coefficient of drag, relatively lesser engine size, less number of cylinders, and less hauling/towing capability compared to SUV/trucks; In-addition to these: Hybrid, turbo and CVT technologies are mostly incorporated in to cars, which doesn’t suit hulking Truck/SUV’s very much — also contributes to higher mpg.
Back to the topic of CAFE fleet economy standards to be achieved by auto manufacturers across its fleet: auto manufacturers have to sell certain number of ‘high’ mpg achieving cars to compensate for low-mpg of its more-profitable SUV/trucks ! In a way – some auto manufacturers are just fine to get rid of ‘cars’ at near-cost (or at loss at times!). This “low-profit or loss per car” becomes ‘more’ of a necessity if that particular manufacturer sells high-volume, ‘highly profitable’ (but low-mpg achieving) SUV/Pickup trucks – as each manufacturer is held liable to meet CAFE mpg numbers across its fleet – or incur EPA penalties ! BTW – the EPA penalties have nearly tripled for 2016 for not meeting the CAFE standards! Would you incur penalties – or instead dump/sell high-mpg achievable cars at low profit-margin (or even at minimal loss but lesser loss than EPA imposed penalty – which is better trade-off!) ? Average selling prices of cars, small-cars have barely budged or in-fact decreased year over year – where as pickup-truck prices have increased to over 5% in a single-year !! Take a look at Kelly’s article (Mar 2016 — but you get the gist):
https://mediaroom.kbb.com/new-car-transaction-prices-up-2-percent-march-2016
OK, as a collective, we’ve come to the conclusion that SUVs and pickups are on fire, and are bringing up the average price. It’s pretty cool Americans are doing more with their hands: farming, construction, moving. Or wait, is that another wrong conclusion?
I can’t tweak the 1/10th rule. It’s so effective for its beautiful simplicity. Change one’s financial habits instead of changing the rule to fit one’s behavior.
I’m confident that so long as a car’s purchase price is 1/10th your gross income, whatever happens to the car or to you, your car won’t become a financial anchor. Just remember to have insurance!
Not so much about the features and costs of cars these days, but in general:
Charlatanish, scaremongering, sophistry-filled, condescending-lir (at least), feigning certainty or super-high degree of statistical confidence w/o backing it up (soundly, if at all), economic myths, moralistic sanctimony and unrealistic demands on less-$-endowed, hardworking Americans, describes alot of your words racket, FS.
Happy Holidays, nonetheless!
Alan
Make that condescending-LIGHT, as minimum level of a good part of your comments.
No ill will, just needed to say the truth and did so. Tho a significant mINority of your advice, from my openminded significant % reading, is sound. Good for you on that count!
—Alan
Never underestimate how irresponsible people will be with their money, especially when it comes to a status symbol like a car. However, you can take solace that most new car buyers are older and better off than average. Younger, poorer people buy used, although the loans on those cars would probably terrify you even more.
One of the main factors contributing to higher transaction prices is the popularity of trucks and SUVs, which automakers are able to charge more for.