According to a study, the price of buying a new or used car is increasing at a faster rate than the average wage growth in the country.
On Thursday, Anderson Economic Group, an East Lansing-based economic advisory firm, released the results of a recent analysis comparing price increases for new and used vehicles to wage growth in the U.S. private sector. The study used data from the US Bureau of Labor Statistics linked to the Consumer Price Index to compare the cost of a new and used vehicle to average weekly earnings from jobs. private.
It found that the average price of new cars last year rose 11.8% in December from a year earlier. The average price of a used vehicle rose 37.3% over the same period, according to Consumer Price Index data cited in the study.
But average weekly earnings for all private jobs in the United States rose 4.9% to $1,085.42 in December 2021, from $1,034.75 the previous year.
“These are some of the most extraordinary changes in vehicle affordability in recent history,” said Patrick Anderson, CEO of Anderson Economic Group. “This is the first time that ‘sticker shock’ has been a clinical condition for auto buyers.”
By that, Anderson means that customers are actually shocked at the high price of the cars, he said.
Price increases for new and used cars are the result of continued tight inventory caused by production disruptions at all automakers. The industry had to suspend or halt production of new cars throughout the last year due to a global shortage of semiconductor chips used in a variety of auto parts.
Dealerships saw their new car lots become sterile and with fewer new cars for sale there were fewer used car repossessions, creating a shortage of inventory for both.
Still, consumer demand for new and used cars remains strong, allowing many auto dealers to charge above list price and not honor company discount plans. In December, the average transaction price in the industry was $709 above the manufacturers’ suggested retail price, according to data from Edmunds. Experts expect the same conditions to continue for much of this year, meaning consumers will have limited choice, long waits for cars from the factory and little or no bargaining power. .
“Employees need to work three weeks longer than in December 2020 to afford a typical new vehicle in December 2021,” said Cristina Benton, director of market and industry analysis at Anderson Economic Group.
Buying a used vehicle in 2021 is even more difficult, Benton said, noting that “for the typical used car, the number of additional weeks of average weekly earnings required increased by five from the previous year.” .
The study used new vehicle pricing data from Kelley Blue Book, Average Transaction Prices, and relied on used vehicle pricing data from Cox Automotive for the following analysis comparing purchase price and purchasing power:
• Average price of a new vehicle in December 2020: $41,335.
• Average weekly earnings in December 2020: $1,034.75.
• Weeks of average earnings to buy a typical new car: 40 weeks.
• Average price of a new vehicle in December 2021: $47,077.
• Average weekly earnings in December 2021: $1,085.42.
• Weeks of average earnings to buy a typical new car: 43 weeks.
For the purchase of a used car, the price and wage gap is even greater. The study used data from November, Benton said, because that was the most recent data Cox reported to Anderson Economic Group.
• Average price of a used vehicle in November 2020: $21,708.
• Average weekly earnings in November 2020: $1,044.23.
• Weeks of average earnings to buy a typical used car: 21 weeks.
• Average price of a used vehicle in November 2021: $27,569
• Average weekly earnings in November 2021: $1,077.09.
• Weeks of average earnings to buy a typical used car: 26 weeks.
Anderson said consumers were hit with a “double whammy” last year. Beyond the rising cost of buying a new or used car, gasoline prices have risen significantly in 2021. The data, Anderson said, should serve as a warning to automakers.
“It definitely signals tough conditions for the auto industry once it overcomes some supply chain issues that limit the capacity of what it can produce,” Anderson said. “Automakers may have difficulty selling vehicles at these prices given the incomes of typical U.S. consumers.”
The used car lot at the Golling Toyota dealership in Warren, Michigan on January 13, 2022.