Although interest rates on new-vehicle loans have risen to their highest level in a decade, and monthly payments continue to climb to record heights, the industry alarm bells that sounded during the Great Recession are much softer.
The economy remains strong, consumers are still buying vehicles and delinquency rates are manageable. But in a market in which vehicles -- and the costs that come with them -- are becoming prohibitively expensive, strain from another industry is adding pressure to U.S. auto sales.
Higher-education costs have skyrocketed in the U.S., fueled by complicated loan programs that segment the total cost of learning and spread the debt burden for decades after the diplomas are distributed. As a result, college grads are postponing major purchases, including vehicles.
Automotive programs intended to help first-time buyers and recent college grads should be re-examined in light of the cost challenges facing younger customers that extend long after they qualify for those programs.
More automakers should consider tethering such incentives to certified pre-owned programs and work toward educating buyers on overall debt. Even if car buyers can just afford a new-vehicle loan, dealerships should also bring up options that would help them manage their overall debt, such as a less expensive used vehicle.
Today, student loan debt is prompting more than a quarter of young buyers to delay vehicle ownership, according to Bankrate. Many young adults are forced to rely on their parents to help make auto loan and insurance payments.
The average published tuition and fees at public four-year colleges and universities increased 35 percent between the 2008-09 and the 2018-19 academic years, according to the College Board.
Vehicle transaction prices have similarly ballooned in that time span, according to Edmunds. New-vehicle prices on average rose 28 percent from 2008, while transaction prices on used vehicles rose 40 percent.
Wages, comparatively, grew just 2 percent or less in the years between 2009 until the end of 2014, and only began to accelerate about three years ago, MarketWatch reported, citing the U.S. Bureau of Labor Statistics.