Is it the right time to buy a new vehicle? That depends
As someone with a 2013 station wagon with 155,000 miles on it, I am starting to think more seriously about a new vehicle.
As regular readers know, I have never had a car loan or a car lease in my life, always saving monthly for the next one, earning interest instead of paying all of that interest on those car loans or imputed interest on those car leases. It is something I learned watching my Sicilian family always pay cash for their cars.
I do realize that with the price of automobiles these days, the financial sacrifices necessary to do that are greater, but I also don’t think that the lack of financial stress in life it provides has changed.
As I travel around New York state for my financial education presentations in the schools, it seems to me that inventories in the lots of car dealers have increased and advertisements are also increasing from those during the times of the pandemic. Like everyone, I also know that questions still exist about whether a gasoline-powered vehicle, a hybrid or an electric vehicle makes sense for any particular driver’s needs, and I also wonder if dealers will start offering some discounts anytime soon.
That said, The Gist by Finny had a great recent piece on this whole subject that I thought I should share with you.
“In a healthy economy, we know that the inflation of everything over time is borderline inevitable, and even necessary for growth. Ideally, those price increases happen in lockstep with increasing incomes too, meaning consumers can keep up.
“But when inflation gets out of control, supply chains are disrupted, and interest rates rise rapidly, that ideal gets thwarted. The past few years are a prime example of this, and there are a couple of areas that have been hit much harder than others — especially car prices.’
Ups and downs of vehicle prices
Let’s take a look at what’s happened to car prices in recent years.
“The cost of new vehicles has skyrocketed since the pandemic. According to KBB, the average new car would cost you about $38,948 back in 2019. As of December though, that number was $48,759 — a 25% increase over four years. Combine this with rising interest rates on auto loans, and you also see the average monthly car payment jump from $575 to $736 over the past few years. “As for used vehicles, they’ve actually been on the decline, but are still up significantly from pre-pandemic. In June 2020, the average used car price was $19,646, peaked at $28,050 in June, 2022, and now sits around $27,266 per the most recent data — still a 39% jump in three years.
“Overall affordability: Despite still being up significantly from 2020, vehicle affordability has actually increased in recent months. Measured in median weeks of income required to purchase the average new vehicle, this number has declined from a peak of over 41 weeks to now 38.6 weeks as of December.
“And, as for 2024’s car market outlook, the era of hyper growth in vehicle prices appears to be over. Cox Automotive estimates that, in 2024, car shoppers can expect somewhat of a return to normalcy. Most projections aren’t expecting massive price decreases, but rather a moderating of what’s been an unusual four years.
“Big driving forces will be inventories and discounts. After supply chain issues and chip shortages drove inventories down, most dealerships have now recovered to 2019 levels and beyond. As a result, deal-sweeteners often worth up to 10% pre-pandemic are making a comeback, with discounts again averaging about 6% of selling prices.
“Interest rates will also be a focal point to watch. APRs on auto loans are especially sensitive to a borrower’s credit profile, and rising rates have exaggerated this.
If the Fed’s dovish stance continues, prospective buyers can expect to see moderate rate declines in 2024.
“In short — vehicle affordability has gotten out of hand in recent years, but the trend over the last 12 months has been an aggregate decline in costs.
However, vehicles are still extremely expensive historically, and it might be worth holding out to buy a little longer.”
Still saving rather than borrowing
That said, I plan on keeping my car going for now and saving for the next one, but I also think it’s time to start shopping around to get a better idea of the market for the vehicles I am interested in.
Wish me luck!
Money as a concept; money as an object
On a different subject, “cash is king” in our ever-increasing digital payment economy, and it may just be me because I am sensitive to it, but it seems to me that more and more Americans are using digital payments for even the smallest purchases, like a snack and a drink at the gas station.
I understand that it may be a debit card or the equivalent, so that they are not going into debt, but I can’t help think of the related behavioral economics principle that I use all of the time in the schools. If you spend your whole life using nothing but digital payments, eventually money just becomes a concept.
But if you use cash, money is an object that represents your hard-earned money, and you will treat it and spend it differently, especially when you have to peel off your hard-earned money and hand it over to some clerk, cashier or waitress, or count it out and put it into that self-checkout machine.
That said, you have no doubt heard or read about the New York state law that now requires businesses to clearly state the higher credit card price of an item and limit any surcharge to the fee that the credit card company is actually charging that business. You can avoid the surcharge by using a debit card, know the businesses that charge a surcharge and bring cash, or just carry a significant amount of cash. Remember to get cash at the ATM at your own bank, to avoid those ever-increasing out-ofnetwork ATM fees.