Car prices

[LivingAlmostLarge]

Is it because car prices are high? Or gas prices are high? I have so many people telling me that they are buying tesla for $80k because the price came down. Or the Y for for $55k. People who make less than the car is worth per year. And have credit card debt. And have student loan debt. Mortgage debt. Just lots of debt.

Has it always been this way? I feel like all cars are super expensive now. Even used cars. I'm just shocked at home buy an entry level new car is. Now it's like "Of course you spend $30k" instead of $10-15k for a new ford focus, chevy malibu, toyota corolla, honda civic.

Is it like this now? Or are people spending more on cars?

[kork13]

Honestly, I think it's just "like this now." 17 years ago, I bought my first non-junker car for $20k, a brand new sport civic, with gratuitous bells & whistles. Foolish, looking back, but so be it. Anyway, the comparable new model today is ~$30k. But then I checked CPI inflation from 2006 to 2023 -- $20k then is just over $30k now. So I guess it's just the way it is now. Inflation sucks. (contradictory pun intended )

I'll admit, when my family moves back to CONUS in a few years, I fully expect we'll end up with a Tesla 3, or some other EV/plug-in hybrid/whatever. Really though, for a baseline Tesla 3, $40k less $7500 tax credit makes it almost comparable in cost to that Civic, let alone making a more accurate comparison with a higher-end sedan, whether EV or not. Those numbers are a bit surprising to me, but certainly not upset by that fact. Of course, those credits may dwindle off in a few years, but who knows.

[disneysteve]

I think people have made stupid decisions when buying cars for a very long time. Today is no exception. People are bad at math. "I'm going to buy a $60,000 EV to save money on gas" is just the latest version of this. Obviously buying a $20,000 gas vehicle makes far more sense financially.

The 10 cheapest new cars in America are all under $22,000 (well #10 is a hair over that). But that's not what people buy. They buy monster SUVs to haul around their one or two children. And they lease rather than buy in at least 20% of cases. The higher the price of the car, the more likely it is to be leased. For the people that do buy, they are taking longer and longer car loans. 20% of buyers take out 7-year loans today. The high lease rate and high long-term loan rate makes it quite clear that people are buying cars that are well beyond their means.

When my daughter was car shopping in late 2022, she asked me how to decide how much to spend. I gave her the standard rule of thumb that I've given for years. The monthly payment should be no more than 10% of her monthly income for no more than 36 months. That resulted in her getting a 2018 Hyundai from Carvana for about $18,000 plus the sale of her previous car (which she bought for $5,000) and a cash down payment of a couple thousand. Well within her means and well within that rule of thumb. That was in November 2022 and she paid it off in full last month after getting a bonus at work, so she only carried the loan for about 11 months. I'd say going that route puts her in a small minority of car buyers. My wife and I bought "new" cars from CarMax in 2020 and 2022 respectively and paid cash for both. Mine was about 26K and I think my wife's was around 30K.

So no, I don't think things are different now. People are just lousy with money.

[MonkeyMama]

It's always been this way.

I don't know anyone interested in expensive EVs. But I live in the land of SUVs & trucks. I mean heck, the horror that we mostly drove around our kids in a small sedan.

Most people I know couldn't survive without a brand new $50K+ SUV every 5 years. This was true 10 years ago. But it's certainly more magnified now. That $50K SUV is now $60K? (I don't know, just going off the "but I couldn't SURVIVE with anything less" chatter around me.)

This means that people have always spent 10 times more than we do, when it comes to car purchases. (Between that and keeping our cars for a long time).

[disneysteve]

It's always been this way.

I don't know anyone interested in expensive EVs. But I live in the land of SUVs & trucks. I mean heck, the horror that we mostly drove around our kids in a small sedan.

Most people I know couldn't survive without a brand new $50K+ SUV every 5 years. This was true 10 years ago. But it's certainly more magnified now. That $50K SUV is now $60K? (I don't know, just going off the "but I couldn't SURVIVE with anything less" chatter around me.)

This means that people have always spent 10 times more than we do, when it comes to car purchases. (Between that and keeping our cars for a long time).

Ah yes, replacing every 3 or 4 or 5 years is another piece of the stupidity. While I'm buying used and keeping for 12-14 years, everyone around me is getting a shiny new car every few years. I was at my last job for 17 years. I had 2 cars during that entire time and I was the 2nd highest paid person there. My partner who owned the practice leases a new BMW every 2 years (and is functionally broke and will probably never retire). My staff, who all earned far less than me, each changed cars 3 or 4 times during those 17 years.

[LivingAlmostLarge]

I haven't bought enough cars to know, but i guess inflation is causing the cheapest "new cars to be $20-22k which is probably comparable to my $10k in 1999. But it just seems like people are buying newer more expensive cars because the higher end numbers are so much higher.

Kork the baseline model 3 which is rear wheel drive is $40k plus taxes so $45k where I live. That's not cheap. Even with the possible $7500 that seems a lot. The long range with AWD is just a better buy because you don't get 212 miles from the rear wheel. Everyone I know tells me it's less than the stated amount with tesla they over estimate for perfect conditions. So not getting 200 miles would be terrible. Model 3 with AWD LR closer to $54k. That seems like a lot.

[ua_guy]

Prices are up, but new entry level cars are still 16-20k.
I put a link to a list of the cheapest new vehicles for 2023-2024.

https://cars.usnews.com/cars-trucks/advice/cheapest-cars-on-the-market?slide=20

I see a lot of car purchases as lifestyle and image choices versus necessity/function. That's great, if you can honestly afford to do that. But I don't think most people who do, can.

[Drake3287]

Living here in the Bay Area which is the Tesla capital of the world, every other car on the road is almost a Tesla model Y and of course this explosion happened within the last year or two. I guess my question is what happens in a few years when everyone will be trying to sell or turn in their old Tesla? Talk about a glut in the market. You won't be able to give these things away at that point. Especially if they need new batteries costing 10k. Should be interesting.

[myrdale]

I still have a fundamental issue with the government subsidizing the purchase of electric vehicles.

https://www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-in-2023-or-after

[ua_guy]

Living here in the Bay Area which is the Tesla capital of the world, every other car on the road is almost a Tesla model Y and of course this explosion happened within the last year or two. I guess my question is what happens in a few years when everyone will be trying to sell or turn in their old Tesla? Talk about a glut in the market. You won't be able to give these things away at that point. Especially if they need new batteries costing 10k. Should be interesting.

I'd only consider leasing an electric vehicle at this point in the game. Wouldn't want to hold the bag on one. Charging and battery technology is changing rapidly.

The counter argument is Tesla, however. The Model S, which came out in 2012, those are still good cars and they still have value. I'd also argue that replacing a battery pack could be an economical choice to get the car down the road another 150-200k miles versus buying a new one. It's a different ballgame with EV's.

[Fishindude77]

Owning new or late model cars have always been expensive.
The difference is they extend credit to just about anyone today.

[bjl584]

New cars have always been expensive. The last 3 years or so saw an unusual spike in used car prices due to supply chain shortages, but that is starting to stabilize.

What has changed is financing. 20 years ago, I doubt anyone would let you do an 8 year loan on a car.
People "may" have been a bit more budget conscious when they had to work within the parameters of "how much can I afford via a standard 5 year loan?"

[disneysteve]

People "may" have been a bit more budget conscious when they had to work within the parameters of "how much can I afford via a standard 5 year loan?"

Exactly. Most people don't care about the price. They only care about the monthly payment. If you can "afford" $500/month, it doesn't matter if that's for 3 years (an $18,000 loan) or 8 years (a $48,000 loan). What happens more and more is people taking that 7 or 8 year loan but trading in the car after 6 years because they want something new or maybe their needs have changed (had another kid or two) and then the roll the balance of that loan into the new loan so that they're way underwater.

[MonkeyMama]

Kork the baseline model 3 which is rear wheel drive is $40k plus taxes so $45k where I live. That's not cheap. Even with the possible $7500 that seems a lot.

To spend less than $40K on a vehicle and stop paying gas for gas guzzlers ($6/gallon here), would honestly save a lot of money for the people I know. Is probably why they are not interested. No, it's all just very emotional. It's the same mental gymnastics as people have always done to justify buying too expensive cars.

The lending has always been crazy here. 20 years ago was the housing bubble. It might ebb and flow. The longer loans these days are obviously because of rolling over negative equity from past crazy car purchases. It's been absurd for my entire adulthood, but it just gets more absurd over time.

[kork13]

When my daughter was car shopping in late 2022, she asked me how to decide how much to spend. I gave her the standard rule of thumb that I've given for years. The monthly payment should be no more than 10% of her monthly income for no more than 36 months.

I've always liked this ROT, and it also works even if you're not using a loan (buying with cash) to guide a simple & reasonable max to spend on a car. For example: you make $4k/mo, 10% = $400 x 36 = $14,400. Or earning $10k/mo, $36,000. Simple, mostly reasonable, and if you're able to save up the money ahead of time, decently affordable. Individual circumstances vary of course, but I like it as a general guideline.

I also follow a similar idea in saving up for new cars -- I set aside ~5% of income, then by the time we're ready to buy a different car in 6-8+ years, plenty is sitting there waiting -- at this point, I've actually stopped because I've already got plenty set aside, with my last car purchase in 2017. The hard part is always getting to that first paid-off car. But once you're there, you can save your car payment instead, and the money is ready for you when needed.