On June 28, 2017, Sarah O’Brien writes on CNBC:
As wages stagnate and the cost of living continues to rise, paying for a new car is a challenge for consumers, according to a new study.
The report by Bankrate.com shows that in all but one of the 25 largest U.S. metro areas, households with median incomes cannot afford the average price of a new car. In six of the surveyed areas, they can afford less than half the amount.
“The [average] household can’t comfortably afford to buy a new vehicle,” said Claes Bell, a Bankrate.com analyst. “That means a lot of households are overextending themselves on car costs, and that can potentially crowd out other priorities such as saving for retirement.”
As a way to measure affordability, the study applied the so-called 20/4/10 rule: a 20 percent down payment, a four-year loan, and payments and insurance comprising 10 percent of a household’s gross (pre-tax) income.
With the average new-car price at more than $33,000 in May, according to the latest data from Kelley Blue Book, only the Washington, D.C., metro area’s nearly $100,000 median income could qualify.
In the worst market for affordability — Miami/Fort Lauderdale/West Palm Beach — a median-income household (around $51,000) could afford a $13,577 car, while the average new car there would cost more than double that ($35,368 including local sales tax), according to Bankrate data.
“This issue of affordability isn’t just about the price of cars. It’s about the stagnation of wages,” Bell said. “Car costs are not rising all that quickly over time, but things like health care and college costs are going up and wages aren’t [keeping up]. Budgets are being stretched.”
Auto loan delinquencies — when payments are 30 or more days overdue — rose more than other types of household debt in last year’s fourth quarter, according to the American Bankers Association. Separately, data from the Federal Reserve Bank of New York shows that 90-day delinquencies stood at 3.8 percent of all loans as of March 31.
“People fall in love with cars they can’t afford, and that’s how they get in trouble,” said John Gajkowski, a certified financial planner and co-founder of Money Managers Financial Group.
Lured by low interest rates and dealer incentives, consumers now carry close to $1.2 trillion in auto debt including both loans and leases. While high, it’s only about 10 percent of the $12.73 trillion that households carry in total debt, according to the Federal Reserve.
Part of what causes people to overextend themselves when it comes to car buying, Bell said, is lack of planning.
“People should prepare for a car purchase by saving for a down payment,” Bell said. “Sometimes people impulsively go to a car lot and get sold on buying a new car. But if they don’t have a sufficient down payment saved, it will be hard to fit the payment into their budget.”
Gary Reber Comments:
Automobile purchases are part of the massive consumer debt problem in the United States. As the study notes, “lured by low interest rates and dealer incentives, consumers now carry close to $1.2 trillion in auto debt including both loans and leases.”
As the factory picture shows, the role of physical productive capital is to do ever more of the work, which produces wealth and thus income to those who own productive capital assets. Companies strive to achieve cost efficiencies to maximize profits for the owners, thus keeping labor input and other costs at a minimum. They strive to minimize marginal costs, the cost of producing an additional unit of a good, product or service once a business has its fixed costs in place, in order to stay competitive with other companies racing to stay competitive through technological innovation. Reducing marginal costs enables businesses to increase profits, offer goods, products and services at a lower price (which people as consumers seek), or both. Increasingly, new technologies are enabling companies to achieve near-zero cost growth without having to hire people. Thus, private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role.
The result is that the price of products and services are extremely competitive as consumers will always seek the lowest cost/quality/performance alternative, and thus for-profit companies are constantly competing with each other (on a local, national and global scale) for attracting “customers with money” to purchase their products or services in order to generate profits and thus return on investment (ROI).
Furthermore, productive capital is increasingly the source of the world’s economic growth and, therefore, should become the source of added property ownership incomes for all. If both labor and capital are independent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then equality of opportunity and economic justice demands that the right to property (and access to the means of acquiring and possessing property) must in justice be extended to all. Yet, sadly, the American people and its leaders still pretend to believe that labor is becoming more productive, and ignore the necessity to broaden personal ownership of wealth-creating, income-producing capital assets simultaneously with the growth of the economy.
This is why tectonic shifts in the technologies of production and competitive globalization destroys jobs and devalues the worth of labor, leaving the vast majority of Americans struggling week to week and month to month.
But instead of broadening capital ownership and sharing the opportunity among all Americans to be productive and earn income through capital ownership, institutionalizes greed (creating concentrated capital ownership, monopolies, and special privileges) empowers greedy rich people to manipulate the lives of people who struggle with declining labor worker earnings and job opportunities, and then accumulate the bulk of the money through monopolized productive capital ownership. Our scientists, engineers, and executive managers who are not owners themselves, except for those in the highest employed positions, are encouraged to work to destroy employment by making the capital “worker” owner more productive. How much employment can be destroyed by substituting machines for people is a measure of their success – always focused on producing at the lowest cost. Only the people who already own productive capital are the beneficiaries of their work, as they systematically concentrate more and more capital ownership in their stationary 1 percent ranks. Yet the 1 percent are not the people who do the overwhelming consuming. The result is the consumer populous is not able to get the money to buy the products and services produced as a result of substituting machines for people. And yet you can’t have mass production without mass human consumption made possible by “customers with money.”
It is the exponential disassociation of production and consumption that is the problem in the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic well-being.
Without a policy shift to broaden productive capital ownership simultaneously with economic growth, further development of technology and globalization will undermine the American middle class and make it impossible for more than a minority of citizens to achieve middle-class status.
Without this necessary balance hopeless poverty, social alienation, and economic breakdown will persist, even though the American economy is ripe with the physical, technical, managerial, and engineering prerequisites for improving the lives of the 99 percent majority. Why? Because there is a crippling organizational malfunction that prevents making full use of the technological prowess that we have developed. The system does not fully facilitate connecting the majority of citizens, who have unsatisfied needs and wants, to the productive capital assets enabling productive efficiency and economic growth.
For putting us on the path to inclusive prosperity, inclusive opportunity and inclusive economic justice, see my article “Economic Democracy And Binary Economics: Solutions For A Troubled Nation and Economy” at http://www.foreconomicjustice.org/?p=11.
For how to make EVERY citizen PRODUCTIVE see my article “What Is Needed To Resolve The Destruction Of American Jobs Problem?” published by The Huffington Post at http://www.huffingtonpost.com/entry/593adb89e4b0b65670e569e9.
Support the Agenda of The JUST Third Way Movement at http://foreconomicjustice.org/?p=5797, http://www.cesj.org/resources/articles-index/the-just-third-way-basic-principles-of-economic-and-social-justice-by-norman-g-kurland/, http://www.cesj.org/wp-content/uploads/2014/02/jtw-graphicoverview-2013.pdf and http://www.cesj.org/resources/articles-index/the-just-third-way-a-new-vision-for-providing-hope-justice-and-economic-empowerment/.
Support Monetary Justice at http://capitalhomestead.org/page/monetary-justice.
Support the Capital Homestead Act (aka Economic Democracy Act) at http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/ and http://www.cesj.org/learn/capital-homesteading/ch-vehicles/.