It\u2019s little wonder, then, that the rate of serious auto-loan delinquencies is now higher than at any time during the 2020 COVID-19 or 2001 recessions, even though the unemployment rate sits just slightly above the lowest level since the 1960s.<\/p>\n\n\n\n
As part of our mission to reinvent car ownership, Jerry dug into the numbers to find out just how many Americans are affected by the car-ownership affordability crisis. For our affordability threshold, we chose 17.5% of after-tax income, halfway between the 15% and 20% commonly suggested by financial advisers.<\/p>\n\n\n\n
Here\u2019s what we found:<\/p>\n\n\n\n
Key Insights<\/h2>\n\n\n\n\n- The average American household, making $64,000 a year after taxes, must pay nearly one-fifth (19%) of their income to make loan payments on an average used car and drive it 15,000 miles a year.<\/li>\n\n\n\n
- Even with an average car loan, the cost of paying for and driving a single used car has become unaffordable for all but the highest-earning 40% of American households, who make at least $84,000 a year.<\/li>\n\n\n\n
- A household earning $100,000 a year after taxes would need to spend nearly a quarter (24%) of that income to make payments on two used cars and drive them each 15,000 miles a year.<\/li>\n\n\n\n
- To make the average monthly loan payment on just one new car and drive it 15,000 miles a year, middle-income households (who earn $64,000 a year after taxes) must pay 23% of their net income.<\/li>\n\n\n\n
- To make payments on two new vehicles and drive them 15,000 miles each, middle-income households would have to pay nearly half of their after-tax income\u201446%, more than two and a half times the recommended allocation of their income.<\/li>\n\n\n\n
- The typical lower-middle-income household would have to pay 62% of their post-tax income to make average loan payments on two used cars and drive them each 15,000 miles a year each.<\/li>\n\n\n\n
- In the fourth quarter of 2023, the percentage of outstanding auto loans that had become at least 90 days delinquent in the previous four quarters hit the highest level since 2010, in the immediate aftermath of the Great Recession. Those recently delinquent loans alone are worth $43 billion.<\/li>\n\n\n\n
- Despite low unemployment and a robust economy, serious delinquencies (90+ days) have exceeded the peaks reached during the 2001 dotcom recession and the 2020 COVID-19 recession.<\/li>\n<\/ul>\n\n\n\n
<\/th> Bottom 20% of household incomes<\/th> Lower middle 20%<\/th> Middle 20%<\/th> Upper middle 20%<\/th> Highest 20%<\/th><\/tr><\/thead> Avg. post-tax household income<\/td> $16,337<\/td> $39,300<\/td> $63,676<\/td> $99,891<\/td> $196,794<\/td><\/tr> Avg. annual costs for one new car<\/td> $14,493<\/td> $14,493<\/td> $14,493<\/td> $14,493<\/td> $14,493<\/td><\/tr> % income for one new car<\/td> 89%<\/td> 37%<\/td> 23%<\/td> 15%<\/td> 7%<\/td><\/tr> Avg. annual costs for one used car<\/td> $12,177<\/td> $12,177<\/td> $12,177<\/td> $12,177<\/td> $12,177<\/td><\/tr> % income for one used car<\/td> 75%<\/td> 31%<\/td> 19%<\/td> 12%<\/td> 6%<\/td><\/tr> % income for one used, one new car<\/td> 163%<\/td> 68%<\/td> 42%<\/td> 27%<\/td> 14%<\/td><\/tr> % income for two used cars<\/td> 149%<\/td> 62%<\/td> 38%<\/td> 24%<\/td> 12%<\/td><\/tr> % income for two new cars<\/td> 177%<\/td> 74%<\/td> 46%<\/td> 29%<\/td> 15%<\/td><\/tr> Avg. number cars<\/td> 1<\/td> 1.5<\/td> 1.9<\/td> 2.3<\/td> 2.6<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nStaggering Burden<\/h2>\n\n\n\n
It\u2019s not just low- and middle-income families struggling with the costs of car ownership these days. Even a household earning $100,000 a year after taxes would have to spend 24% of their take-home pay to make loan payments on and drive two average used vehicles 15,000 miles a year. That\u2019s more than the 15%-20% of income financial advisers recommend as a limit.<\/p>\n\n\n\n
A middle-income household earning $64,000 a year after taxes? They would need to spend 38% of their take-home pay to drive two average used cars.<\/p>\n\n\n\n
Of course it\u2019s worse for lower-middle-income households, those falling in the second 20% on the income distribution scale. They\u2019d have to pay nearly two-thirds (62%) of their post-tax income to take on two average used-car car loan payments and drive the cars 15,000 miles a year each.<\/p>\n\n\n\n
Only the highest-earning 20% of households can afford two new cars\u2014once a marker of the American dream. And even they\u2019d have to pay 15% of their after-tax income to do so\u2014the upper limit of some financial advisers\u2019 affordability threshold.<\/p>\n\n\n\n
Different Generations<\/h2>\n\n\n\n
As is typical with younger generations, Gen Z struggles the most financially, and their delinquency rates have been at the highest levels since the Great Recession for a year.<\/p>\n\n\n\n![\"Serious](\"https:\/\/getjerry.com\/wp-content\/uploads\/2024\/12\/annote_delinq_rates@2x-1024x765.png\")
<\/figure>\n\n\n\nThe average Gen Z household would need to spend 25% of their income on a single used car, higher than any generation except the now long-retired Silent Generation.<\/p>\n\n\n\n
The average Millennial family would have to spend 26% of their take-home pay to own and drive two used vehicles. Members of Gen X, the highest-earning generation at $109,000 a year per household after taxes, would need to pay 25% of their after-tax income for one used and one new car.<\/p>\n\n\n\n<\/th> Gen Z<\/th> Millennials<\/th> Gen X<\/th> Boomers<\/th> Silent<\/th><\/tr><\/thead> Avg. post-tax household income<\/td> $49,618<\/td> $89,641<\/td> $108,615<\/td> $73,086<\/td> $45,519<\/td><\/tr> Avg. annual costs for new car<\/td> $14,493<\/td> $14,493<\/td> $14,493<\/td> $14,493<\/td> $14,493<\/td><\/tr> % income for one new car<\/td> 29<\/td> 16<\/td> 13<\/td> 20<\/td> 32<\/td><\/tr> Avg. annual costs for used car<\/td> $12,177<\/td> $12,177<\/td> $12,177<\/td> $12,177<\/td> $12,177<\/td><\/tr> % income for used car<\/td> 25<\/td> 14<\/td> 11<\/td> 17<\/td> 27<\/td><\/tr> % income for one new, one used<\/td> 54<\/td> 30<\/td> 25<\/td> 36<\/td> 59<\/td><\/tr> % income for two used cars<\/td> 49<\/td> 27<\/td> 22<\/td> 33<\/td> 54<\/td><\/tr> % income for two new cars<\/td> 58<\/td> 32<\/td> 27<\/td> 40<\/td> 64<\/td><\/tr> Avg. number cars<\/td> 1.2<\/td> 1.8<\/td> 2.1<\/td> 2<\/td> 1.4<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nConclusion<\/h2>\n\n\n\n
The car-ownership affordability crisis has been brewing for years. Vehicle prices flatlined in the wake of the Global Financial Crisis, while sustained rock-bottom interest rates and ever-lengthening loan-repayment periods helped consumers cope with stagnant incomes as prices for other goods and services rose.<\/p>\n\n\n\n
| <\/th> | Bottom 20% of household incomes<\/th> | Lower middle 20%<\/th> | Middle 20%<\/th> | Upper middle 20%<\/th> | Highest 20%<\/th><\/tr><\/thead> | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Avg. post-tax household income<\/td> | $16,337<\/td> | $39,300<\/td> | $63,676<\/td> | $99,891<\/td> | $196,794<\/td><\/tr> | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Avg. annual costs for one new car<\/td> | $14,493<\/td> | $14,493<\/td> | $14,493<\/td> | $14,493<\/td> | $14,493<\/td><\/tr> | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| % income for one new car<\/td> | 89%<\/td> | 37%<\/td> | 23%<\/td> | 15%<\/td> | 7%<\/td><\/tr> | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Avg. annual costs for one used car<\/td> | $12,177<\/td> | $12,177<\/td> | $12,177<\/td> | $12,177<\/td> | $12,177<\/td><\/tr> | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| % income for one used car<\/td> | 75%<\/td> | 31%<\/td> | 19%<\/td> | 12%<\/td> | 6%<\/td><\/tr> | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| % income for one used, one new car<\/td> | 163%<\/td> | 68%<\/td> | 42%<\/td> | 27%<\/td> | 14%<\/td><\/tr> | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| % income for two used cars<\/td> | 149%<\/td> | 62%<\/td> | 38%<\/td> | 24%<\/td> | 12%<\/td><\/tr> | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| % income for two new cars<\/td> | 177%<\/td> | 74%<\/td> | 46%<\/td> | 29%<\/td> | 15%<\/td><\/tr> | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Avg. number cars<\/td> | 1<\/td> | 1.5<\/td> | 1.9<\/td> | 2.3<\/td> | 2.6<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nStaggering Burden<\/h2>\n\n\n\nIt\u2019s not just low- and middle-income families struggling with the costs of car ownership these days. Even a household earning $100,000 a year after taxes would have to spend 24% of their take-home pay to make loan payments on and drive two average used vehicles 15,000 miles a year. That\u2019s more than the 15%-20% of income financial advisers recommend as a limit.<\/p>\n\n\n\n A middle-income household earning $64,000 a year after taxes? They would need to spend 38% of their take-home pay to drive two average used cars.<\/p>\n\n\n\n Of course it\u2019s worse for lower-middle-income households, those falling in the second 20% on the income distribution scale. They\u2019d have to pay nearly two-thirds (62%) of their post-tax income to take on two average used-car car loan payments and drive the cars 15,000 miles a year each.<\/p>\n\n\n\n Only the highest-earning 20% of households can afford two new cars\u2014once a marker of the American dream. And even they\u2019d have to pay 15% of their after-tax income to do so\u2014the upper limit of some financial advisers\u2019 affordability threshold.<\/p>\n\n\n\n Different Generations<\/h2>\n\n\n\nAs is typical with younger generations, Gen Z struggles the most financially, and their delinquency rates have been at the highest levels since the Great Recession for a year.<\/p>\n\n\n\n The average Gen Z household would need to spend 25% of their income on a single used car, higher than any generation except the now long-retired Silent Generation.<\/p>\n\n\n\n The average Millennial family would have to spend 26% of their take-home pay to own and drive two used vehicles. Members of Gen X, the highest-earning generation at $109,000 a year per household after taxes, would need to pay 25% of their after-tax income for one used and one new car.<\/p>\n\n\n\n The car-ownership affordability crisis has been brewing for years. Vehicle prices flatlined in the wake of the Global Financial Crisis, while sustained rock-bottom interest rates and ever-lengthening loan-repayment periods helped consumers cope with stagnant incomes as prices for other goods and services rose.<\/p>\n\n\n\n |