Why New Car Prices Keep Climbing (and What To Do)

New cars are averaging around $50,000—and that affordability gap is getting harder to manage. Automobile enthusiast Ray McGrath breaks down why prices keep climbing, what “value” really means beyond the monthly payment, and how to think through the big decision: buy vs. lease.

Jeffrey Snyder, Broadcast Retirement Network

This morning we're talking vehicle affordability and helping me break it all down. He is an automobile enthusiast, Ray McGrath.

Ray, always great to see you. Thanks for joining us on the program this morning.

Ray McGrath, Automobile Enthusiast

Oh, thank you for having me as always, Jeff.

Jeffrey Snyder, Broadcast Retirement Network

So, you know, we have continued to talk about this for the last several years with you and others. Cox Automotive just put out a new survey. The average new car, Ray, is $50,000.

That's a trend heading in the wrong direction.

Ray McGrath, Automobile Enthusiast

Well, I mean, as we're all well aware, inflation is something that I think for many years we didn't experience to the levels that we're seeing today. I mean, and it's not just today, it's been over the last seven years, pretty much since the pandemic, everything is up 25% or more, just, you know, pre to 2020.

Jeffrey Snyder, Broadcast Retirement Network

So let's talk about the why. Is it because consumers are buying cars with more features so people are living, so is it that people are living above their means? Is that the reason why the average car prices continue to tick up?

Ray McGrath, Automobile Enthusiast

I don't think it's that, although it appears to be, you could say like that. I think really cars are a major purchase, you know, aside from maybe buying a house. And if you're going to spend all this money, I mean, do you want a car with roll-up windows and no air conditioning?

So you kind of want all the latest features if possible. You know, some cars, certain colors are optional. So, I mean, I think it's an aspirational purchase for sure.

And obviously you're going to be paying for it over a longer period of time. But, you know, I think folks want what they want. And yeah, I guess you could say they're living beyond their means, but, you know, it's not like buying, you know, a gallon of milk or something like that.

Jeffrey Snyder, Broadcast Retirement Network

So it's not commoditized, but how do you find value in the new car market? I mean, certainly you can find value in a used vehicle. You can look at mileage.

You can look at the price of the car. You can look at the brand. You can go to organizations like CarMax.

So you can find value in a litany, in a plethora of vehicles. But how do you find value in a new car when the price is $50,000?

Ray McGrath, Automobile Enthusiast

Yeah, I think, you know, there's a lot of rating agencies that will help with terms, features such as safety or mileage or resale value or depreciation. So, I mean, those are all factors. Insurability costs, those are all factors that go into making the purchase.

I mean, basically it's a personal decision. You know, some folks might be leaning towards one brand of car over another, but there's a variety of factors for sure.

Jeffrey Snyder, Broadcast Retirement Network

Does it matter what age you are? So, you know, I had aspirations as a, as you know, when I was younger that I wanted an Aston Martin. And obviously that's a little bit outside my pay grade or a lot outside my pay grade, but does it matter your perspective from your point of view in terms of your age?

So is an older person, a mature person, a little bit more savvy and says, you know, I don't need all the bells and whistles. I can go with a, maybe a less expensive brand, but I'm getting a lot more value for my dollar.

Ray McGrath, Automobile Enthusiast

And, you know, with that point, Jeff, I would definitely agree with you because I see younger folks that maybe, you know, don't have as much income buying something that's definitely out of their budget, but they want to portray that image versus an older person who like myself is maybe not as image conscious, but is looking more on the value and they realize vehicles depreciate. So I think I do see folks stretch more so that are younger folks. And then you're basically saddled with that loan or, you know, debt for a longer period of time when you really could be focused on other things.

Jeffrey Snyder, Broadcast Retirement Network

Yeah. Well, certainly if you're let's talk about that, the way to pay for these vehicles, $50,000, I think for someone with a reasonable income, that's a lot of money. You mentioned the price of food has seen inflation, the price of apartments, or if you own a house, all the things that go into that gets baked into that.

But how do you, how do you justify the leasing payments? I was looking, I was doing some research on a new vehicle for myself and my wife. The leasing payments are astronomical, even on newer cars, which tend to have a little bit better residual or they guesstimate the residual value.

So how do you figure out whether to buy or whether to sell? I guess is my question.

Ray McGrath, Automobile Enthusiast

Yeah. Ideally, I mean, you would do some type of cost benefit analysis and look at your budget and how much you can afford and then how much in reality, you know, obviously some cars have maintenance concerns and maybe higher insurability costs so, or higher fuel costs. So I don't think folks always look at the big picture.

They, you know, the dealer says, oh, we can get you this car for 500 a month. And that sounds affordable, but then, you know, realize maybe you're paying student loans, maybe your health insurance has gone up. So there, it's always good to make it a smaller percentage of your income than a larger percentage.

Jeffrey Snyder, Broadcast Retirement Network

What about on the topic of leases, does it make sense? Because, you know, the $500 seems like a lot of money, but you can put more money up front in the form of, you know, a down payment, whether you lease or whether you buy. Does that make sense if you're leasing?

And does it make sense if you're buying? For buying, I think it makes sense, but if you're just, it seems like you're just kind of moving the deck chairs, if you will.

Ray McGrath, Automobile Enthusiast

Yeah. And for some folks, they have negative equity when moving out of their older car, which maybe they haven't taken care of or it's depreciated more than expected. So I'm not sure, you know, if a lot of these lease costs that you pay up front are, it's lost money.

You're not going to recover that. It's not an investment in any type of vehicle. I know there's always this one-off car that's now worth more than it was 10 years ago, but by and large, it's a depreciating asset.

So I think folks should look at it that way, but it's easier said than done.

Jeffrey Snyder, Broadcast Retirement Network

You know, Ray, you know, when you're looking to get into a car or looking at the car brands, when you rank, let me ask you, when you rank the car brands, I don't want to put you too much on the spot, but where are the best value, whether you're a new driver, whether you're an existing driver, what are the brands that really return the value that you're, I don't want to say invest because you're right, it's depreciating, but where can you see, what brands show the best value for your buck?

Ray McGrath, Automobile Enthusiast

You know, the standard answer has always been Toyota and Honda, but really it should be whatever cars they make a lot of that are very popular, because in a lot of cases, those vehicles, because they're made in such large quantities, a lot of the small bugs have been ironed out. There's a good amount of parts available for them. There's also mechanics who are skilled in repairing them.

Maybe the insurance costs are less, so I think if you go to a niche product, you know, say like an Alfa Romeo, not to pick on them, but you know, that could get expensive.

Jeffrey Snyder, Broadcast Retirement Network

And how do you factor in the, you talked about service, how do you factor in the warranty? Because I've seen brands like Hyundai have five-year warranties, and I think their drivetrain is 10,000 miles. I think that they, not insure it, but they will replace things up to 10,000 miles.

So how do you factor in the maintenance and what, how long that warranty is?

Ray McGrath, Automobile Enthusiast

Yeah, I think, you know, if you're buying new, it's always good to know what's covered and what's not covered. Obviously, tires aren't covered, but maybe, you know, the transmission, maybe other items that, you know, the electronics in the car is very expensive. So it's always good, you know, at least with a newer car, a lot of that is covered by the manufacturer, but you want to know the terms.

Is it years, or is it miles, or is it a combination of both? And then on used cars, obviously the dealer, used car dealers are always selling third-party warranties that kind of gives them a commission, but those are, from talking to independent mechanics, those are a hassle for independent mechanics to try and deal with getting paid. So, you know, there's no clean answer here, unfortunately.

Jeffrey Snyder, Broadcast Retirement Network

So let's talk real quick, I want to ask you about the used car market. That's something that, you know, you have a, you're an automobile enthusiast, you have a lot of passion for fixing cars, you know, you go out and buy, I would say classics, but you're not spending blobs of money, you're refurbishing them. How do you find the best used car?

Is it a car that's one year old, three years old, five years old, ten years old? What's, is there a sweet spot for the age of a used vehicle?

Ray McGrath, Automobile Enthusiast

I don't know if there is, I mean, because all vehicles are different, but I will say that if you can get service history, you know, if it was always serviced at the dealer, you can look at the tires, are all the tires the same brand? You would be amazed at how many cars I see with four different brands of tires from, you know, names you've never heard of. So you can tell, it kind of gives you an insight as to how the vehicle was maintained.

So, I mean, it's difficult to tell, especially when it's nice and shiny, you know, but you don't know, you know, the condition of the transmission. So it, it's always a bit of a risk for sure.

Jeffrey Snyder, Broadcast Retirement Network

Does the Carfax, I assume you can get a Carfax on any used vehicle, does that help with the transparency that you're talking about?

Ray McGrath, Automobile Enthusiast

It can, I know it will hurt if, you know, if you have any kind of minor accidents, it can hurt when you trade the vehicle in, but you know, not everything is reported to Carfax, but it does give you an insight. Yeah, I'll leave it at that. You can, folks can work around it, but usually a Carfax is a good, good point.

Jeffrey Snyder, Broadcast Retirement Network

You still walk around a car with a magnet, that used to be the thing, right? To see if there was bondo?

Ray McGrath, Automobile Enthusiast

No, you know, you can look at the weatherstrip and the door jams to see if you see any overspray where typically paint would not be, but you know, the repair process has gotten better. I mean, I've seen cars that are, you can see pictures of them smashed one day and then looking pristine the next, and you know, it takes a trained professional to identify all the repairs that have been done to some vehicles.

Jeffrey Snyder, Broadcast Retirement Network

So is it, is it, you know, I think with Carfax, not Carfax, CarMax, they kind of guarantee, right? I mean, they're doing, they have a process to review cars that come in before they put them back on the market. But for those cars that are not affiliated with a CarMax or just out there, you're buying from another owner, do you bring a mechanic with you?

If you're not mechanically sound?

Ray McGrath, Automobile Enthusiast

I know it's always suggested, but how many people in reality can drag their mechanic out or even bring it to their shop to have them look at it? I mean, that's a great opportunity. I mean, if they say, hey, can I, can I take it to my, my person and have them look at it?

I think that's great. I mean, you know, it's probably, it's, it's like you're buying a home. You wouldn't have to buy a home without a home inspection.

So why not have a professional look at your, your car, especially, you know, even on a used car, you could spend $30,000. So it's not pocket change.

Jeffrey Snyder, Broadcast Retirement Network

Yeah. I mean, there are certain brands and certain vehicles within those brands that just are being sold at premium rate. We're going to have to live there.

I don't know if we saw the affordability challenge for people. 50,000 seems like a lot for new car in my, in my mind.

Ray McGrath, Automobile Enthusiast

Vehicles have more features and things have just gotten more expensive, you know, due to tariffs or what have you, but there's more in a vehicle now than there was 50 years ago, for sure.

Jeffrey Snyder, Broadcast Retirement Network

Yeah. I still remember my grandmother with the power steering or gin and power steering, and she had to like really like turn the wheel. Anyway, Ray, we're going to leave it there.

Thanks for joining us, my friend. And we'll look forward to having you back again very soon.

Ray McGrath, Automobile Enthusiast

All right. Thank you, Jeff. Enjoy your day.