Just when will this crazy train derail?
Benjamin Franklin wisely observed once there are only two things you can count on: death and taxes. Lately, we feel like another item could be added to the list: automakers upping prices on new cars. Sure, automakers want to blame everything on consumers, but if you’ve been car shopping lately you know just how out of control the market is theses days. Obviously, someone is paying the exorbitant prices but the problem goes a little deeper.
Learn why lower car prices in the future still might not mean buyer relief here.
First, it’s worth noting that according to Kelley Blue Book, the average new car solid in November for $48,681. That set a new record, surpassing the high in October by $422. More shocking, it was $2,250 higher than last November, which was still too high.
Kelley Blue Book calculates the average car shopper has paid over MSRP for new vehicles every month since July 2021. Chalk it up to desperation, stupidity, and throw in the extra cash people had spilling out of their pockets thanks to all those stimulus checks – that all helped throw fuel on the fire.
However, as we’ve pointed out before, part of the problem is also that banks are playing faster and looser than before. For example, 96-month loan terms have become fairly common. It wasn’t that long ago personal finance experts were warning against 60-month loans. And we’ve heard stories of lenders qualifying people with sketchy income and credit standards. We’ve seen this routine before and know where it often leads, nowhere good.
Consumers seem to think they need a luxury car now more than ever, with Kelley Blue Book saying 18.2% of new vehicle sales fitting in that segment to almost set a new record. We’ve seen the explanation that with all the death and so on with the pandemic people are just living for today, for tomorrow they might die or some sort of nonsense. We think the proverb about old men planting trees knowing they won’t benefit from the shade is a better way to live, but whatever.
It seems the push toward luxury brands is fueled in part by the industry as shortages encourage automakers to build more vehicles with fat profit margins. These complicated markets have plenty of inputs, so it’s usually not a single thing driving just about anything.
We’ve been hearing about dealerships accumulating more inventory of late as interest rates soar and some lenders start tightening their standards, finally. Plus, there are people walking away from their factory-ordered cars when it’s time to take delivery. So this runaway freight train of vehicle costs might end in a horrific crash sometime soon.
Source: Kelley Blue Book
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