For decades, a shiny new car in the driveway has been a representation of middle-class prosperity and success. Americans rely on their cars to go to work, drive their kids to school, go grocery shopping, visit the doctor, travel, and execute everyday activities. As life gets busier and busier, the cost of a new car is completely out of the economic reality of the typical American family and now we are facing a car market crisis.
A new study shows that in the past, new cars were a symbol of middle-class strength. However, now only affluent Americans can afford to purchase a new vehicle at current prices, especially considering that interest rates are adding almost seven thousand dollars to the average car loan since 2017, while the price of a new car jumped by a whopping fourteen thousand dollars.

Financial experts, such as Sam Dojo, who has over a decade of experience in the industry and writes the finance website Financial Samurai, recommend buyers follow the one-tenth rule for purchasing a car. It is simple; you must spend no more than 10% or one-tenth of your gross annual income on the purchase price of a car. However, with the average price for a new vehicle in the US shooting up to fifty thousand dollars, only households earning five hundred thousand dollars can afford to buy a new car in 2023.
If you follow the one-tenth rule for car buying, you need to earn five hundred thousand dollars to buy the average new car. Unfortunately, even if a new car buyer violates the one-tenth rule and spends twenty percent of their annual gross income on a car, they must still earn two hundred and fifty thousand dollars or more a year.
In other words, middle-income earners who buy median-price cars today are essentially spending almost 80% of their gross salary. Worst of all, after they pay a 20% effective tax rate on their annual gross income, they’ll be spending almost 100% of their net income on their car.
The affordability crisis of cars for middle-class Americans is a societal crisis too. It is a clear demonstration that most hard-working Americans cannot afford to live in America anymore. In this blog post, we will explore the reasons behind this crisis and its implications for the middle class and their chances of getting debt consolidation products.
The Car Market Crisis and Its Impact on Personal Finances
The recent crisis in the car market has left many middle-class families struggling to afford car payments, which has significant implications for their personal finances and access to debt products like debt consolidation loans.
Difficulty Accessing Debt Products
One of the consequences of this crisis is that middle-class families may find it harder to access debt products such as debt consolidation loans. Debt consolidation loans are a type of loan that allows borrowers to consolidate multiple debts into a single loan with a lower interest rate.
Negative Impact on Credit Scores
Debt consolidation loans are typically only available to borrowers with good credit. With more families struggling to keep up with their car payments, their credit scores may be negatively impacted, making it harder for them to access debt consolidation loans or any other type of credit.
Monthly Payments may be Unaffordable

Furthermore, even if these families can access debt consolidation loans, they may not be able to afford the monthly payments. The cost of cars has been increasing so rapidly that the monthly payment for a new car is now almost a sixth of the after-tax income for middle-income households. As a result, even with lower interest rates, the monthly payment for a debt consolidation loan may be too high for many families to afford.
Hesitancy to Take on More Debt
In addition, many families may be hesitant to take on more debt, even if it is in the form of a debt consolidation loan. Families may prefer to focus on paying off their existing debt rather than taking on more debt, even if it is at a lower interest rate.
Solutions
So, what can families do in this situation? One option is to explore alternative forms of transportation, such as public transportation or biking. This can help reduce the need for a car and, therefore, lower monthly expenses.
Consider Buying Used Cars or Leasing
Families can also consider buying used cars or leasing cars rather than buying new cars, which can significantly lower monthly payments.
Seek Financial Counseling
Another option is to seek financial counseling to help manage debt and improve credit scores. Financial counselors can help families create a budget, negotiate with lenders, and explore debt consolidation options that are available to them.

Stagnant Wages and Inflation
One of the main reasons for the declining affordability of cars for middle-class Americans is the stagnation of wages. According to some big names in the auto industry, including executives at major companies such as Toyota and Nissan, the median wages grew by a mere one thousand dollars, while the price of a new car jumped by a whopping fourteen thousand dollars.
Car prices are rising almost 14 times faster than incomes. Therefore, it is no wonder why many people are borrowing more for longer periods of time to finance their car purchases.
Moreover, inflation has been an ongoing issue in America. Inflation affects the price of goods and services, including cars. It causes the price of goods to go up, making it difficult for middle-class Americans to afford a new car. As inflation continues to soar, the affordability crisis of cars for middle-class Americans will worsen.
High-Interest Rates
Interest rates are another significant factor affecting the affordability of cars for middle-class Americans. Since 2017, interest rates have added almost seven thousand dollars to the average car loan.
Experian Automotive reported that in the first quarter of this year, the proportion of new cars bought with the help of financing skyrocketed to more than 86%, and the average loan amount topped a staggering 41,000 dollars, which is the highest since the firm began tracking the data.
The average term for new car loans is now 72 months or six years, but longer-term loans carry more risks. The Consumer Financial Protection Bureau warns that borrowers who take out long-term loans end up paying more for the car overall and also run a greater risk of being upside down on the loans, meaning owing more than the car is worth. This is also a major indicator that millions of buyers who purchase their vehicles in 2021, 2022, and 2023 will see their debt pile on while the value of their cars collapses.
Artificially Suppressed Car Inventories
Another factor contributing to the affordability crisis of cars for middle-class Americans is artificially suppressed car inventories. Car manufacturers keep inventory lean to keep price tags fat, which leads to a shortage of cars and pushes prices to unprecedented levels.
The shortage of semiconductors has caused the U.S. car supply to collapse, which has further exacerbated the problem. Although the shortage of semiconductors is over, manufacturers aren’t interested in balancing supply with demand. Instead, they’re pledging to maintain production slow to continue notching big profits.
Luxury Cars Outweighing Affordable Cars

Most manufacturers, including Ford and General Motors, are reaping the benefits of selling fewer but more expensive cars. Last year, automakers sold about 13 million vehicles in the United States, down eight percent from 2021, which is the lowest in the decade. However, their combined profits amount to about 1 trillion dollars.
They are now giving preference to more luxurious cars that can generate a higher revenue than cheaper popular models, which have significantly lower profit margins. The death of cheaper models means more and more Americans will be priced out of the car market entirely. The idea of a new car in every American’s driveway is not the world we live in anymore.
The Implications for Middle-Class Americans
The declining affordability of cars for middle-class Americans has significant implications for their daily lives. As transportation becomes increasingly unaffordable, it limits their ability to go to work, take their children to school, and attend to their everyday activities. Without reliable transportation, middle-class Americans will face more challenges in finding and keeping jobs, leading to lower incomes and reduced job security.
Moreover, the affordability crisis of cars for middle-class Americans is a reflection of the widening wealth gap in America. The top one percent of Americans can easily afford to buy new cars, while the rest of the population struggles to make ends meet. This trend will only continue to worsen, making the middle class more vulnerable to economic shocks and crises.
Solutions to the Affordability Crisis
The affordability crisis of cars for middle-class Americans requires immediate attention and action from policymakers, manufacturers, and financial institutions. Some potential solutions include:
- Increase wages: One way to make cars more affordable is to increase wages for middle-class Americans. A higher income will enable them to afford a new car without having to stretch their budgets or rely on loans.
- Incentivize the production of affordable cars: Policymakers can incentivize car manufacturers to produce more affordable cars by offering tax breaks or other incentives.
- Regulate the car industry: Policymakers can regulate the car industry to ensure that manufacturers produce affordable cars that meet the needs of middle-class Americans.
- Reduce interest rates: Financial institutions can reduce interest rates for car loans, making it more affordable for middle-class Americans to purchase a new car.
- Expand public transportation: Investing in public transportation can provide an alternative for middle-class Americans who cannot afford a new car.
Conclusion
The affordability crisis of cars for middle-class Americans is a societal crisis that requires immediate attention and action from policymakers, manufacturers, and financial institutions. The declining affordability of cars limits the ability of middle-class Americans to go to work, take their children to school, and attend to their everyday activities.
To address this issue, policymakers can increase wages, incentivize the production of affordable cars, regulate the car industry, reduce interest rates, and expand public transportation. These solutions can help make cars more affordable for middle-class Americans and reduce the widening wealth gap in America.
At the end of the day, the affordability crisis of cars for middle-class Americans is a clear demonstration that most hard-working Americans cannot afford to live in America anymore. As the cost of everything explodes and our salaries remain the same, our living standards continue to decay. We need urgent action to address this issue, and we need it now.
Failure to do so will have severe consequences for the future of our society, and we cannot afford to let that happen. It is time to take action and ensure that all Americans have access to affordable transportation, regardless of their income level.