Are you buying ‘too much car’? Americans’ obsession with pricey options like touch screens is causing an affordability crisis

Personal Finance

If you haven’t shopped for a car lately, brace for sticker shock.

Not only are vehicle prices at an all-time high, but the interest rate to finance a purchase has also jumped dramatically. A record 15% of new car buyers who financed a new car last quarter committed to a monthly payment of more than $1,000, according to Edmunds

Such a tall tab can lead to affordability problems down the road, cautioned Ivan Drury, Edmunds’ director of insights. Shelling out more to buy a car today puts consumers at greater risk of going underwater on those loans later on as used car values decline, he said.

More from Personal Finance:
Interest rate hikes have made financing a car pricier
10 cars with the greatest potential lifespan
Car deals are hard to come by

With that in mind, Drury cautions car shoppers to ask themselves if they’re “buying too much car.”

‘Every new car is a luxury purchase’

Part of the problem is that more Americans want expensive SUVs and pickups with all the options, he added, which can cost as much as 40% more than the base price.

Over the last decade, luxury shoppers have proved again and again their willingness to spend more on high-end cars and the financing to go along with them.

Even the smallest upgrades have been met with soaring demand, Drury said, citing the extreme enthusiasm over the Honda Odyssey’s built-in vacuum option when it was first introduced in 2014.

Various packages, or trim levels, offer a range of features meant to appeal to different buyers, such as improved safety features, bigger engines or high-end finishes like leather seats and a better stereo.

Now everyone wants high-tech touch screens, ambient lighting, 360-degree cameras and heated and cooled seats, Drury said, which cost even more. “Less and less people want something basic.”

With the lucrative luxury segment in high demand, carmakers are upgrading their lineups and scaling back on less expensive cars.

“Base models, while enticing in theory, rarely hit the street,” Drury said. “Every new car is a luxury purchase at this point.”

“Who do you blame: The consumer that’s buying up these options, the dealers that are ordering these cars or automakers manufacturing fewer base models?” he said.

As more people are priced out of the new car market, automakers may start testing out cheaper alternatives, he said, although if there is a lot of consumer interest, it could drive up the price for those models, as well.

For now, the best way to get a base model vehicle is to order it directly through a dealer, Drury advised.

“There could be a perfectly good substitute at about half the cost,” he said.

Subscribe to CNBC on YouTube.

Products You May Like

Articles You May Like

Stocks making the biggest moves after hours: Intel, Visa, Hasbro and more
Abortion pill maker GenBioPro sues West Virginia, argues FDA rules preempt state ban
Oscar-nominated ‘Everything Everywhere All At Once’ features an IRS ordeal, but here’s what really happens in an audit, according to tax pros
Beyoncé, a $100k-a-night suite and a red carpet of influencers: Dubai basks in its booming economy
These are the key tax forms you need to file your return — and when to expect them

Leave a Reply

Your email address will not be published. Required fields are marked *