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The Guardian - US
The Guardian - US
Business
Wilfred Chan in New York

‘Seismic shift’: driving unaffordable for many in US amid push toward SUVs

view of cars on freeway in seattle at sunset
The total cost of car ownership in the US has reached all-time highs. Photograph: Edmund Lowe/Shutterstock / cpaulfell

At the start of the pandemic, Ceola Luna, a 45-year-old Lyft driver in Los Angeles, bought a 2005 Saturn Vue crossover, after her new Dodge Caravan (a minivan) was wrecked in a crash. The Vue wasn’t nearly as nice, but it was affordable at $4,000 – including rust, engine issues and a dashboard full of warning lights.

With no other income to support herself and three children, driving was an economic lifeline for Luna. But much of what she made ended up going to car mechanics as the small SUV kept breaking down. Then last year, Lyft informed Luna that her Vue had gotten too old for the platform, leaving her jobless. So she scrambled to find a new gig as a care worker for autistic children, and then the car failed again. To save up for another mechanic appointment, Luna has been taking the bus to her clients – sapping her earnings with hours of unpaid commute time.

A replacement car is out of the question, because she barely has enough money for rent. But even if Luna had the funds to go shopping, it’s unlikely she would find anything remotely reasonable. The average new car today sells for nearly $49,000, and the average used car lists at more than $26,000 – representing a 31% increase for new cars and nearly 40% increase for used cars since 2020, according to data from the industry group Cox Automotive.

These increases have brought the total cost of car ownership to all-time highs in a country where cars aren’t really optional. And that’s despite the easing of inflation and the supply chain issues that snarled the auto industry during the pandemic. So why are consumers still getting squeezed?

Here’s a hint: the automakers are doing great. By essentially coordinating an industry-wide production cut, the pandemic gave manufacturers power to demand mind-boggling prices for fewer cars, leading to record profits. As consumers adjusted their expectations, executives saw an opportunity to establish a lucrative new normal. Low inventory is an “opportunity to drive strong margins”, GM’s CEO, Mary Barra, told shareholders in 2022. Ford’s CEO, Jim Farley, went even further, declaring: “I want to make it extremely clear to everyone: we are going to run our business with a lower day supply than we have had in the recent past because that’s good for our company.”

Brian Moody, a senior editor at Kelley Blue Book, a car industry publication, says automakers used the pandemic to shift product lines toward higher-margin products. Instead of small cars and base models, they pivoted to luxury cars and SUVs with fully loaded trims, which turn far greater profits per sale. That means “the less expensive the car, the fewer choices you have”, says Moody. Some commentators have called the trend “trimflation”. A 2023 Cox Automotive report declared that “the US new vehicle market is becoming a luxury market”, a “seismic shift” that, for many buyers, is “about as enjoyable as a sharp stick in the eye”.

But the hurt isn’t limited to car buyers; it’s spread to car owners as well. Like Ben Valdez, who supplements his $60,000 salary as a computer tech at a California community college by driving for Uber in an older-generation Toyota Prius with 280,000 miles. Because Uber deems drivers independent contractors, Valdez is on the hook for all maintenance costs, which have ballooned: “Three years ago, I was probably paying as little as $50 for an oil change. Now I’m looking at no less than $100, and I’ve seen it as high as $150 for just four quarts of synthetic oil.” The cost of car tires has gone up by more than half. Even the price of a car wash, something Valdez needs to do regularly to keep passengers happy, has gone from about $25 to nearly $45, he says.

blue SUV between two black ones
A 2024 Mustang Mach-E electric SUVs at a Ford dealership in Broomfield, Colorado. Photograph: David Zalubowski/AP

The cost of insurance has brought even more pain. Data from the US Bureau of Labor Statistics shows that the average cost of car insurance rose more than 14% between the end of 2021 and 2022, before soaring another 20% by the end of 2023, the largest one-year increase since the 1970s.

Divya Sangameshwar, an insurance expert at Value Penguin, says those rapid increases have several causes. One is that the rising cost of vehicles and maintenance means insurers have to pay out more when things go wrong. Another is that more vehicles are getting ravaged by the climate crisis. The vehicle data company Carfax estimates that Hurricane Ian destroyed as many as 358,000 cars as the storm tore through Florida and the Carolinas in 2022. The climate crisis, in turn, is only being exacerbated by the trend toward massive vehicles. Unless action is taken to reverse climate change, Sangameshwar says, “it is undeniable that it will continue to have an impact on auto insurance premiums for the next 100 years”.

Until 2022, state governments, which approve rate increases, had been keeping insurance premiums relatively flat for years, leading to “pent-up pressure” among some insurance companies, which “were threatening to walk out of markets where they weren’t profitable any more”, Sangameshwar says. But now that states have relented, insurers are doing splendidly. Companies like Progressive and Travelers reported record-breaking profits this year thanks to the big rate increases, and they say more rate increases are on the way.

Over the last two decades, American jobs have become increasingly dispersed throughout the suburbs, says David King, an associate professor of urban planning at the Arizona State University. Research shows that car-owning Americans have access to far more job options, and “having a reliable car means that you’re more likely to be able to keep that job”, King says.

The preferred solution of many planners – replace car trips with transit – faces difficult odds in this country. Across the United States, transit riderships remain much lower than pre-pandemic numbers, and with Covid-era federal grants due to expire this year, many transit authorities are planning service cuts, sparking fears of a “death spiral”.

That’s why King says it’s just as important in the short run to make cars more affordable for people who need them – a proposal he calls “universal auto access”. The planner envisions government subsidies for lower-income people to buy or maintain cars, paired with new incentives and regulations to steer manufacturers back toward smaller, more affordable electric vehicles. This car-positive proposal doesn’t make him popular among planning circles, King concedes. But “it’s a realist approach: this is the world that we have, and we can still work for a better world while not leaving some people out of it.”

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