If you have been wandering the lots of your local car dealerships and thought that prices were rising, you would be correct. Kelley Blue Book reported on Monday that the average price paid for a new car surpassed $50,000 for the first time ever in the U.S., reaching $50,080. The record highlights how lower-income buyers are being pushed out of the new car market. In a broader view, economists are concerned about the increasing delinquency rate for subprime auto loans.
Data shows that the new car market is being propped up by luxury vehicles and high-end EV sales. According to Kelley Blue Book, over 60 models with a selling price over $75,000 and 94,000 units sold accounted for 7.4% of total sales across the industry. It’s a significant increase from 6% reported in September last year. Erin Keating, a Cox Automotive executive analyst, said:
“It is important to remember that the new-vehicle market is inflationary. Prices go up over time, and today’s market is certainly reminding us of that. While there are many affordable options out there, many price-conscious buyers are choosing to stay on the sidelines or cruising in the used-vehicle market.”
The path from K-shaped to pear-shaped is paved with subprime auto loans
The current state of car sales resembles what economists are seeing in the broader economy: the letter K. According to NPR, the K shape represents the diverging fortunes of the top 20% and the bottom 80% of all Americans. The improving stock market and rising home values are shielding the wealthy from inflation and tariffs that are causing widespread struggles for everyone else. It creates an environment where both sides of the economic divide are living in two different worlds.
Can this K-shaped economy last forever? Probably not. The rising average price of a new car is coinciding with the delinquency rates for subprime auto loans sticking close to record highs, according to CNBC. The interest rates for subprime buyers are reaching up to 20%. With Americans collectively owing over $1.66 trillion in auto debt and the recent bankruptcy of subprime auto lender Tricolor, there are concerns that the entire financial sector could be exposed to a potential collapse.
