Back to posts

Sticker Shock

February 19, 2023 | Posted in: Insights

Many of the components of our current bout of inflation are well-documented and widely discussed. For example, used car prices increased 55% between June of 2020 and June of 2022 although they have moderated somewhat recently. And, the price of eggs rose 70% in the past twelve months. One painful surge that has received less coverage is the price of new cars. As depicted below, prices increased almost 30% between 2019 and today after remaining very flat for a number of years.

Given this increase in prices as well as higher interest rates, Cox Automotive reports that the average monthly new car payment is now $777 after bumping along at roughly $400 per month for many years. As a basis for comparison, the average apartment rent in the U.S. is $1,942. Given the average American’s annual income, a new car buyer must therefore devote roughly 18% of after-tax income to car payments. And, that is on top of as much as 45% of income that is devoted to housing costs. Finally, to place the importance of new car sales in perspective, they represent the largest component of overall retail sales at 23.7%.