$1,000 Car Payments?

 

Some 35 years ago, I put together a presentation entitled “The Real American Consumer.” I used it internally at my various jobs to make sure that staffers understood that there is a world beyond their own nose and that of their family and friends.

 

For decades, I updated it every six months and once took a copyright out on it (long since expired). It basically covered income, net worth, education figures and stressed how a median was a far more meaningful statistic to a marketer than an average was. If you were to be a successful marketer, you needed to know the pulse of the people to whom you were selling. Sadly, many at ad agencies thought that they were “Everyman” and all of America were as comfortable financially as they were.

 

One statistic that I always used often generated a big surprise  reaction and sometimes disbelief from my audience. It stated that most of the time in the U.S. some 30 of the 210 Nielsen Designated Market Areas (DMA’s) had many households where their car payment was higher than their mortgage payment!

 

People on the east and west coasts often blurted out “impossible” or some other negative comment. In smaller markets in the Midwest or South, the seasoned players tended to nod and smile.

 

Well, recent events in the automotive market and a growing softness in real estate in some DMA’s has led to an actual increase in this little-known phenomenon.

 

Last week Phil Lebeau, the excellent automotive analyst on CNBC, provided a brief segment on the average car loan in the U.S. had a payment of $730 per month and some 16% were over $1,000 per month. Watch it here --https://www.youtube.com/watch?v=7x1PCA2qAbk&t=8s (if you cannot open it on your laptop, go to You Tube and ask for "$1,000 car payments, CNBC).

 

Also, the three year car loan is becoming something of a relic as struggling middle class buyers have in recent years stretched payments out to seven years and a few are incredibly doing 10 year vehicle loans.

 

With supply chain problems regarding computer chips and a shortage of used cars exacerbated by Hurricane Ian’s flooding, this situation could last for some time.

 

Many of us forget that there are many markets in the back-roads of America. The cost of living, particularly housing is lower there, but jobs are scarce, and pay is far below what we earn in major markets. Yet, car prices are relatively the same everywhere. So, if you have been in a home for several years in Waterloo, Iowa or Cumberland, Maryland or any number of smaller markets, your mortgage is often less and now substantially less than your current car payment.

 

Is $1,000 as a car payment just a psychological barrier in an inflationary era? Yes, to a certain extent, but a 10-year car loan gives me pause.

 

Also, if we move into a recession as many are forecasting for 2023, will there be a flood of repossessions as increased unemployment will make it impossible for many to continue to pay the hefty auto payments? Yet, if you do not have a car, you cannot get to work easily in most of America. So, a Catch-22 could emerge for a few million Americans next year.

 

I applaud CNBC for devoting time to this issue. It could implode in the next 6-12 months.

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.