Why Car Ownership Is Getting So Expensive | CNBC Marathon

Introduction (0s)

• A car is one of the biggest purchases a person will make in their lifetime.
• Unlike a house, a car starts losing value immediately.
• Over 100 million Americans have an auto loan.
• Auto loan debt in the U.S. is currently at a record high of $1.5 trillion.
• For cars to be affordable, they must be affordable to maintain and repair.
• The average price of a new car has increased by over $10,000 in the past year.
• The average monthly car payment has increased by over $100 in the past year.
• The cost of car insurance has increased by over $200 in the past year.
• The cost of gas has increased by over $1 per gallon in the past year.
• The cost of car repairs has increased by over 10% in the past year.
• The global semiconductor shortage has caused a decrease in the production of new cars.
• The increased demand for used cars has driven up their prices.
• The rising cost of raw materials has increased the cost of producing cars.
• The increased cost of labor has increased the cost of producing cars.
• The increased cost of shipping has increased the cost of getting cars to dealerships.

Why Cars Lose Their Value So Fast (Published December 2023) (32s)

• Cars depreciate rapidly, losing about 10% of their value as soon as they are driven off the lot and dropping further in subsequent years.
• Luxury cars, sedans, and vehicles from brands with strong reputations for quality and reliability depreciate more slowly than other types of cars.
• Information asymmetry in the car market leads to the problem of "lemons," where sellers know more about car defects than buyers.
• After three years, vehicles typically retain around 50% of their original value, making it a benchmark for the used car market.
• During the COVID-19 pandemic, used car values skyrocketed due to increased demand and limited supply, with some cars appreciating by 30%.
• Car prices remain elevated, with used cars holding 60% of their value after three years, a 10% increase from pre-pandemic times.
• High production costs and interest rates contribute to expensive car ownership.
• New car production and sales are below pre-pandemic levels, with automakers intentionally limiting production to maintain high profits.
• The high cost of new cars, close to $50,000 in October 2023, makes car ownership challenging for many buyers.

Why Americans Are Falling Behind On Car Loans (Published August 2023) (13m18s)

• The average monthly auto loan amount for a new vehicle in 2023 is $725, up from $650 in 2022, while the average monthly payment for a used vehicle is $516, a 2% increase from the previous year.
• Auto loan debt in the U.S. has reached a record high of $1.5 trillion, with younger Americans and lower-income consumers with credit scores below 620 struggling to repay their loans.
• Consumers often have negative experiences with the car-buying process, including complaints and lawsuits against lenders for alleged discriminatory and illegal practices, such as Black, Hispanic, and Asian borrowers facing higher interest rates and less favorable loan terms compared to white borrowers.
• The auto industry is recovering from the pandemic, but rising interest rates, supply chain shortages, and inflation are driving up car prices and making auto loans more expensive.
• Lack of transparency in auto loan interest rates and terms, with dealers often marking up rates without the consumer's knowledge, has led to concerns about the rushed and commission-driven nature of the car-buying experience.
• The FTC proposed new rules in 2022 to address unfair and deceptive financing practices by auto dealers, but their implementation was blocked by the U.S. House Appropriations Committee in July 2023.
• Consumer advocates emphasize the need for more programs to protect car buyers and increase transparency in the auto loan industry, recommending shopping around, checking credit scores, getting pre-approved online, and comparing rates from different lenders before signing an auto loan agreement.

Why Car Repairs Are Getting So Expensive (Published February 2024) (30m30s)

• The cost of vehicle repair is increasing due to heavier and more complex vehicles, new materials and manufacturing methods, a shortage of skilled technicians, and pandemic-induced supply shortages.
• Electric vehicles (EVs) are more expensive to repair than gas-powered cars, with some new EV owners reporting high repair bills.
• Repair costs have been rising faster than the overall inflation rate, with a 4.1% annual increase in motor vehicle maintenance and repair compared to a 2.8% increase in all items in the Consumer Price Index.
• Factors contributing to higher repair costs include heavier and more powerful vehicles, more severe crashes, and an increase in speeding and traffic crashes.
• Cars are becoming more expensive to own due to increased complexity and technology, such as turbochargers, all-wheel drive systems, lightweight materials, advanced safety systems, and computer networks.
• The shortage of skilled technicians and increased labor rates further contribute to the rising cost of car ownership.
• EVs have the potential to be less expensive to maintain and repair than gas-powered cars, but current EVs are often luxury vehicles or made by startups with limited supply chains and service networks, leading to higher repair costs.
• When comparing EVs and gas-powered cars with similar models, the repair costs are generally comparable, with EVs being only slightly more expensive.
• The main additional cost associated with EVs is managing the high-voltage battery, which requires specialized labor and safety precautions.
• As the EV industry matures, repair costs are expected to decrease due to increased learning and optimization in dealerships, manufacturing plants, and design.