Let me start with, I love cars. From the time I turned 16 my car was my ticket to freedom, and I developed a love for driving and maintaining my vehicles from there. Over the years, I have rarely had what most would consider a nice car. I grew up relatively poor and so my first 3 cars cost me less than $4,000 and a considerable amount of blood, sweat, tears, and money went into keeping me moving from point A to point B. In that, I learned how to get the most out of my vehicles and identify issues and fix many of them. I also learned how to spot a lost cause when it came to that point. As I grew older, I started to change my relationship with my car to that of utility. That love of cars can remain dormant for a while.
In the last few years I have bought modest vehicles, new and used and in the last year, had my attention pulled to the new auto market when I saw the new statistics around cars prices following the supply issues from the pandemic. Two statistics in general haunted me. First, being that the average price of a car in 2024 is $48,700. Secondly, the average American car payment is $734. That price is nearly 50% higher than a decade ago and that is before insurance and maintenance. Insurance will run you an average of $2,100 per year for full coverage and maintenance on a new car about $360 per year. With a median individual income $59,000 of household income of $80,000 (which implies possibly needing 2 cars) That $11,268 represents 20% or more of a person’s income each month.
As someone who has loved cars for decades, I do not find cars much more appealing in appearance or performance now than when I started driving. The average expected life of a car hasn’t increased much in the last 20 years or so. It is still around 200,000 miles or 12 years. Furthermore, the only thing that has risen faster than car prices is the cost to repair. Modern cars require specialized training, tools, and software leading to average cost of a repair to have climbed from around $110 in 2000 which had not really changed since the 70s to $265 today, that’s 140%. The only metric that actually seems to have improved is MPG, but that is offset greatly by hybrid and electric options.
So why the price increase and who is tolerating this? By my assessment, options and lack of education. Competition in the car market used to be quite different today. In the days when most personal vehicles were cars and trucks were more of tools, carrying negative status indicators, your vehicle said a great deal more about you than it does today. While a luxury still at times, your vehicle was your key to movement in a country where public transportation has always lacked. The concept of the luxury car has been around since the early 1900 and was used to describe vehicle with more chrome, more comfort, and more separation from the idea that you needed a car just for transportation. It was a fashion accessory and symbol of wealth, priming how we look at cars today. A majority of Americans spend significant amounts of money to signal that they have achieved more success than they may actually have and get the maximum amount of style and comfort they can afford. What better way to do that than with a fancy, new luxury trim car.
As to actual performance, cars are faster on average than ever because people drive faster than ever. According to an NHTSA 16–19% of people exceed the speed limit by 10mph or more on highways. By the numbers, there are around 285 million cars on the road in the US. There are normally more that 12 million cars involved in accidents each year. Furthermore, there were 42,500 fatalities in 2022 and 29% of them, speeding was a key factor and only 9% involved distracted driving. Speeding is a problem, and a senseless one at that, because the time saved is about as much as getting caught by a redlight (which we also don’t suggest running to save time). If your commute is 15 miles and the speed limit is 35mph, going 10mph over the limit will save you 5min, but with the speed 23% over the limit rate, you increase the risk of fines and accidents drastically. Traveling at highway speeds, going 70mph in a 60mph zone will save you a whopping 2 minutes for that 15 miles. Furthermore, you will generally see a drastic decline in fuel economy at speeds over 50. In our highway example, not only are you saving only 2 minutes, but you could expect a 35% drop in your fuel economy. In short, the performance of your car and the way you drive is a continuous, unconsidered cost in increased rates of accidents and decrease in economy for saving very little time overall.
Is there any escape from this? Well, yes. There are numerous options for new and used cars on the market that will easily save you money upfront and over the life of the vehicle. It requires a pinch of humility and economic thinking to make it work though. That $700 per month cost is representative of roughly a $40,000 loan over 72 months. A $30,000 loan is going to get you around $550 per month and $20,000 closer to $300. The real trick here is to find one of many cars in the $20–30k range that you fit in and like. This really is the value point for cars because what you are sacrificing in looks and status, you are saving in the initial purchase and ongoing savings. These economy cars generally are more fuel efficient, cheaper to repair, and easier to upgrade. Going with leather seats at the dealer is likely going to run you between $3,000 and $5,000 and don’t let anyone fool you into thinking leather is always better than cloth seats. You can upgrade those at a later date for under $2,000. Wheels and brakes are much the same. All the packages you get at a dealer can be had later for significantly cheaper if you find that you can’t live without them. One of the best cars I have ever owned was a 2016 Nisan Versa S. It had cloth seats and manual everything, even windows. It cost me $11,000 new and got nearly 40mpg. The car was not the coolest, but you can’t argue with those stats in your budget.
I will make one last unpopular statement for all the financial gurus out there that say that you should stick to used cars. I don’t feel new cars are a waste of money. A “good” used car that you will get will be 2–4 years old and have 25,000–60,000 miles on the odometer. When the average number of miles driven is around 13,000, you are years into a car’s finite life. While car maintenance is less intensive than it used to be, responsible ownership and regular maintenance is also becoming less common, so you cannot assume a car has been cared for. Maintenance expenses will always increase after 100,000 miles, too. If you plan on keeping a car less than 5 years on average want the trim package, then used is a great way to get that bargain since the add-ons depreciate faster than the car itself, but if you can convince yourself to drive it for 7–10years, new may be more economical overall. It should at least be considered depending on your situation without guilt.
The status attached to your car is much less than you think. Our society is quickly shedding the idea that your car is a direct reflection your success. Take a minute and look up how many celebrities and CEOs drive a prius, a $30,000, less than exciting car. Furthermore, any bully who would pick on your modest car can quickly be silenced by the argument that you still have money for a lunch out and a saving account. Cars are tools. They can be fun and fashionable and there is nothing wrong with having a car nicer than the bare minimum, but in the world of car payments, sound advice is to keep your payment between 10% and 15% of your income and less is always more.
The fact still stands that driving is the most dangerous thing you do every day. Don’t make it risky financially too. Be smart, drive safe, and enjoy the ride.