New Cars Are Increasingly a Wealthy Buyer's Game

Buying a new car in America is getting harder for anyone without a big financial cushion. High prices and expensive loans are squeezing everyday shoppers.

Meanwhile, well-off households are keeping showroom traffic alive. Cox Automotive's latest analysis looks at what supports that spending, and what happens when the industry leans on it.

The Wealthy Hold Most of the Cash

Cox chief economist Jeremy Robb says the top 10% of households own 82% of financial assets outside retirement accounts, up from 75% before the pandemic.

Those assets include:

• Deposits and money market funds
• Bonds
• Stocks and mutual funds

Robb's figures come from the Federal Reserve's Distributional Financial Accounts, which track assets by wealth group. Together, these assets have grown at an 11.3% compound annual rate over the past seven years.

Cash Buyers Skip the Loan Problem

Loans are still the norm. More than 80% of new vehicles are financed, and about 7 in 10 used vehicles carry a loan.

But cash plays a real role, especially for used cars. Cash makes up about 16% of new-vehicle transactions and 31% of used ones.

Borrowing Is Getting Pricey

For everyone else, financing hurts. Cox's October 19 report puts the average prime used-car loan rate at 12.9%, up 37 basis points from September.

The lifetime cost of a loan has grown too:

• Total interest on a typical used-car loan was about $5,600 in 2019.
• That figure is now close to $11,000.

Owning a Car Isn't Cheap Either

Per the Yahoo Finance report, maintenance and repair costs rose 5.8% year over year in September and are up roughly 65% since January 2018. Insurance is the exception, falling about 5% over the past year.

Older cars aren't a clean escape. Used-vehicle prices rose 7% year over year, and eight- to 10-year-old models rose just under 10%.

What If the Stock Market Drops?

This is the risk. Corporate equities and mutual funds make up 72% of the assets Cox examined, so a big market correction could hit household wealth and spending.

Car sales could slow, even among buyers who can afford to wait.

The Bottom Line

Strong sales don't mean cars are affordable for most people. Shoppers who are priced out simply don't show up in the numbers.

Get the latest on auto loan relief and other tips by subscribing to our weekly newsletter here!