Buckle Up America
I'm usually quick to defend a current president on economic policy due to the fact much of what's impacting our daily lives may be out of their hands. This is especially true with first term presidents. It's hard to steer a ship as large as the American economy, especially in only four years. There are often times when a president inherits a mess, whether that's an ongoing war or any number of laws passed that won't expire for years down the road. No matter if you're a Republican or Democrat, this is almost always true to some extent. It's not to say policy can't be put in place to move the needle in a different direction, it just may take more time than originally expected.
I’ve heard and read from many on the left that our “economy is strong” and that we’re “doing much better than we were” prior to Biden taking office. Let’s remove identity politics from the equation and focus on the economy. Is this true? Are we better off? I was not only skeptical but wondered how that’s even possible to say given the cost of everything, but I was more than willing to have my mind changed.
Given this is such a broad based topic that could literally fill multiple textbooks, I figured the best approach was to provide perspective through a series of articles. The first article will focus on transportation with subsequent articles focused on the other two topics. In all, the series will cover the following:
Transportation (gas & cars)
Housing (rental & ownership)
Food (specifically groceries)
I'm not an economist and I'm not claiming to be. I am, however, a consumer of the goods and services being provided to me in America. Those goods and services appear to be way more expensive than they used to be. In the case of transportation, my assumption was reality.
Transportation
Per Kelley Blue Book (KBB), the new car average transaction price was $48,334 ($44,700 for non luxury cars) as of July 2023. The good news is, transaction prices have dropped 2.7% or $1,335 since the beginning of the year. The not so good news is that transaction prices are 26% higher than in July 2020, where a new car would've cost you $38,378.
As I’m sure many of you are already aware, the reason for the price increases of both new and used cars were directly correlated with a worldwide chip shortage due to Covid. Inventories fell, new cars were scarce and prices rose to record highs. Inventory was much lower than what's considered normal (60 days). As of July 2023, we're close to normalized once again as the auto industry stocked 56 days worth of vehicles per KBB.
Per a recent search on Market Watch, the average car loan across all credit scores is 6.58% for new cars and 11.17 for used cars. Even if you had a Superprime credit score (781-850) your rate would exceed 5% (5.07% to be exact). Depending on where you look and how the data is sliced, these rates could be quite a bit higher. So, what does this mean if you’re looking to buy a car?
July 2023
*6% sales tax included, financed for 60 months
overall amount financed $51,234 @ 5%
July 2020
As you can see, with zero down and the interest rates where they are, we’re looking at paying close to $1,000 a month for a new car. When compared to July 2020, that same car cost $10,000 less while your monthly payment was $200 lower each month. That represents a 20% increase.
We haven’t discussed gas prices. Many would argue that the cost of a gallon of gas has been pinned above $3 for the entirety of Biden’s presidency. This isn’t exactly true although the reality isn’t a whole lot better. Gas prices rose above $3 per gallon in June 2021 and they’ve remained at or above this amount (on average) ever since. In mid January 2020 when Biden was inaugurated, gas was $2.48 per gallon. One year later (January 20, 2022), gas had increased to $3.33 per gallon, reaching a peak at $4.99 per gallon on June 16, 2022.
Let’s look at this from the eyes of the consumer. SUVs are all the rage, as we know. Most everyone (including my family) has one if not two of them in your garage or driveway. Although great for families and when used as grocery getters, they’re not exactly known for their gas efficiency. For the purpose of this article, we’ll use my Honda Pilot as an example. How did gas prices impact my family?
*cost per gallon as of 1/23/20 per finder.com/gasprices
**cost per gallon as of 9/7/23 per finder.com/gasprices
The same gas, in the same car, now costs $16.58 more than it did 3 years ago whenever I fill up my car. Although this doesn't sound like much, if I were to fill up both of my cars twice a month this would be an increase of at least $50 against my bottom line budget.
Once you add in the price of your car payment increasing by $200 to the price of gas having gone up, you’re looking at at least $225 to $250 more you have to spend to drive your new car around. As I’ve written before, not everyone should purchase a new car as they’re unable to afford it. Based on these sobering numbers, I’m hard pressed to think more than 10-15% of the entire US population would have the funds to stomach a new car payment on top of the gas needed to drive it down the street.
The introduction of expensive electric cars (average price of $53,469) hardly appears to be the answer in the short term. I could certainly make an argument for electric cars from an environmental standpoint, but most Americans are treading water as it is. Finding a way to bring down the cost of gas to place into the vehicles most of us own seems to be a more prudent path to success.
Perhaps Bidenomics is simply too far reaching and widespread for us to see the benefits immediately. This is entirely possible if not reasonable to assume. The problem is, by the time Americans see relief in their wallets and pocketbooks, there won’t be anything left but a wad of tissues to wipe away their tears on the way to bankruptcy court.
Buckle up and keep your hands inside the vehicle. This ride ain’t over yet.
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