New cars sales are way down – by millions of vehicles annually – but that hasn’t caused new car prices to go down accordingly. In fact, they have gone up – a lot. The average price paid for a new car last year was almost $50,000 – which is both a record high and about $15,000 more than it was just three years ago.
Two factors are driving this.
There are more expensive EVs on the market now than there were three years ago, when Tesla was pretty much the only one making them in significant numbers. Now almost every car company is making them, because they have to make them. Well, it’s true that they could decide not to make them – but that would take courage, in short supply in corporate boardrooms these days. Instead, the impetus is compliance. Go along to get along – and pretend it will all keep going, somehow.
Which it did – for awhile – for as long as interest rates remained low and inflation did, too.
A six year loan on a $50,000 car was feasible when the cost of money – interest – was essentially nothing. It was almost an investment to take out a loan. But the cost of money is now three times-plus what it was just a couple of years ago, which has made what was feasible and not financially irresponsible increasingly impossible.
A monthly payment that was $600 is now $800 – and the money available to make the payments has diminished in buying power by at least 10-15 percent, courtesy of what is often inaccurately called “inflation” – effectively increasing the actual monthly cost of the loan to nearer $1,000.
This will inevitably reduce new car sales even more as there are fewer and fewer people who can manage the payments on a $50,000 car.
But this hasn’t prevented the car companies from “committing” to building even more $50,000-plus electric cars, for the same reason that back in the early 2000s, home builders built as many 3,500 square-foot “estate” homes as they thought the market would bear, which it could – for awhile – because low interest rates made it temporarily feasible for lots of people to take out loans on homes beyond their means.
In both cases there is a built-in lag effect that is a function of the artificiality of the forces driving it. Easy money makes it easy for people to believe they are more prosperous than they actually are – and live as if they were able to afford what they really cannot.
In the case of EVs, there is the addition force of . . . force.
Back in the early 2000s, no one was forced to buy an “estate” home – or take out an irresponsible equity loan on their home.
But EVs are being forced onto the market by mandates all-but-requiring nothing other than EVs be manufactured. The latest slew of these are to be announced today and will probably take the form of new mandates requiring that all new cars average at least 50 miles per gallon (and maybe more) which is a really clever way of outlawing almost everything that isn’t an electric car without actually outlawing everything that isn’t.
This will give even more impetus (that is, force) to the artificial rip-tide of “electrification,” which fewer and fewer of us will be able to afford. The inertia is already baked in. It is now too late for the car industry to back out of its “commitment” to “electrify” itself. The assumption was made that interest rates would remain low and inflation, too – which would serve as a kind of compensatory mechanism for the dramatic uptick in the cost of a new car.
Both of those assumptions have proved faulty.
But, having made the “commitment” to “electrification,” the industry hopes it can recoup what it has “invested” by charging making more per-sale than by selling cars. This is how brands like Porsche stay in business. And it works, for small brands – like Porsche – which can make enough money selling a relative handful of very expensive cars to a small clientele of very affluent people who can afford to indulge in a Porsche, which is much more than merely a car.
And so is any car that costs $50,000 (or more).
A picture forms of the new-term future. It is one in which a new car will become a luxury item, as cars were at the dawn of the car age some 120 years ago. There will be a small handful of Bespoke brands selling a small number of EVs at prices only a few can afford to pay. These prices will go up rather than down, too – because it is not 120 years ago, when the market was free to come up with low-cost alternatives most people could afford.
Today, it isn’t.
The regulatory apparat has assured that only the Bespoke’d will be in a position to make – and to buy cars. This no doubt suits the Bespoke’d, who have long resented that the non-Bespoke’d could afford the same as the Bespoke’d crowd could. It is not as distinctive to own a car when anyone can.
Which is ultimately what it’s all about.
. . .
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