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New Car Market Shifts Gears: Affluent Buyers Drive Up Sales, Lower Incomes Left in the Dust
DETROIT – The American auto industry is navigating a widening gap, with new vehicle purchases increasingly dominated by affluent buyers, while those with lower incomes find themselves priced out of the market. This trend is sparking concerns among auto executives and analysts about a “K-shaped” economic recovery, where the wealthy prosper and others struggle.
According to Cox Automotive, the landscape of new car buyers has significantly shifted. In 2020, nearly half (50%) of new car purchasers had incomes under $100,000.
By last year, that figure plummeted to 37%, representing millions of lost sales. Conversely, the share of buyers with incomes exceeding $200,000 surged from 18% to 29% over the same period.
“We have a different vehicle buyer today than we had just a few years ago,” noted Charlie Chesbrough, senior economist at Cox Automotive, during a recent analyst event. “The key takeaway here is that we’re seeing the average buyer here is much more affluent.”
The average Manufacturer’s Suggested Retail Price (MSRP) for new vehicles hit $51,000 in 2023, according to Cox, a significant increase that, coupled with rising insurance costs and inflation, is making new cars unattainable for many. Consumer sentiment, meanwhile, remains at levels typically associated with recessions.
While new car sales reached record highs of over 17 million before 2020, they’ve since seen mixed results, ending 2023 with 16.3 million sales. Automakers have contributed to this affordability crisis by cutting entry-level vehicle lines, such as smaller cars, effectively pricing millions of Americans out of the market.
“We’re now relying on the extremely wealthy to generate the sales,” stated Mark Barrott, a partner at consulting firm Plante Moran. He described this as a “structural problem from an affordability perspective,” warning that if market conditions shrink further due to buyers being priced out, it could severely impact automakers in the coming years.
A modeling study by Plante Moran revealed that a third of the U.S. population cannot afford new vehicles, with very limited options for those on the cusp. The study found roughly 110 “affordable” models for households earning $65,000 or less, compared to over 250 “affordable” models for those with incomes up to $105,000.
The median U.S. household income in 2023 was $83,730, a 24% increase since 2020. However, this rise has been outpaced by the average transaction price for new vehicles, which hovered around $50,000 by the end of last year, a 30% jump from early 2020.
Adding to the financial strain, Edmunds reported a record 20% of new car buyers committed to average monthly payments exceeding $1,000 during the fourth quarter of last year.
“Anyone in the auto industry…we should all be very careful about consumer demand,” cautioned Ford CEO Jim Farley last month, emphasizing the critical importance of monitoring this evolving market trend.