New Cars Have Become Luxury Items
The automobile industry was severely impacted during the pandemic. The reasons for this slowdown were many, but the main reason was the crippling shortage of semiconductors globally. These chips are responsible for almost all the controls in the car – right from wipers to airbags. But gradually, the sector has been gaining steam, and car and truck sales are back on track, thanks to the steadily rising demand for cars and trucks. The semiconductor crisis eased up, and the manufacturing of cars was back on track.
However, an interesting trend has been observed – the sales of luxury cars are rising, and those of economy cars are sinking. Vehicles priced under $25000 were considered ‘affordable’ from the point of view of the average American, but the sales for these cars account for less than 5% of the total sales. The previous transactions of $25000 and $30000 have now shot up to $50000-70000 – people are willing to shell out that much to purchase a car.
Vehicles rolling off trucks are luxury vehicles – and while most people don’t expect to pay sticker price, people are readily paying it and taking these luxury cars home these days. As interesting as this trend is, let’s find out what is resulting in this sudden rise in the sales of luxury cars.
According to the stats for the period between December 2017 (slightly before the pandemic hit us) to December 2022, the sale of luxury cars (priced $60000 and above) shot up from 8% to a whopping 25%. This research conducted by Cox Automotive also listed the numbers for the sales of cars priced below $25000 and stated that the sales for these cars plummeted from 13% to just 4% in five years.
Demand meets supply is the rule of economics, and manufacturers are now moving towards more expensive products loaded with fancy, luxurious features. As customers didn’t prefer budget-friendly, economically priced cars, manufacturers either stopped manufacturing them altogether or scaled down their production. The number of luxurious car models in the market is now more than 90, and these cars fetch $60000 or more per model. On the other hand, the number of affordable cars has reduced from 36 to just 10.
Apart from having a luxurious appearance, expensive cars are also loaded with several life-saving features, such as sunroofs, leather seats, cruise control, navigational screens, and a lot more. Needless to say, these expensive technologies come at a high price – a price that most customers out there are willing to pay.
Does this mean that the average income of Americans has increased enough for them to afford expensive cars? Well, not really. The $60000 and above cars are way higher than the average income an American earns annually. The trend of people purchasing luxury cars clearly reflects that people are not pragmatic but emotional while purchasing cars. Another interesting aspect is that these cars are financed not by outright payments but by loans.
Buyers are compelled to opt for longer-termed loans spanning 6 to 8 years. People opt for this option, despite being aware of the fact that even though long-term loans come at a smaller monthly installment, these loans come at progressively high-interest rates.
Automakers should ideally be happy – even though they sell fewer cars, their revenues are still much higher. But in the tryst to maintain the equilibrium between the demand and supply, they cannot maintain a steady and stable inventory count. From the perspective of buyers, too, it is not sensible to shell out almost $700-1000 per month just for the sake of one car. The state of the market isn’t really right, and its best buyers stick to cars that are well within their financial reach.
For any automobile-related disputes, accidents, or any other issues requiring legal advice, you can always look for the assistance of an Orange County car accident lawyer. These lawyers can guide you with whatever information or assistance you require.