Transcription
According to Kelly Blue Book, the average new car price has officially surpassed $50,000, bringing the typical car payment just shy of $800 a month. And while delinquencies are at their highest rate since 2008, it raises a question: how close are we to a complete car market collapse?
While essentially every aspect of the American economy is in a tight race for the first bailout, with the car market nearing the finish line as repossessions are at their highest rate since 2008, the reality is that this collapse is simply the compounded result of a single decision made just over a century ago.
In 1914, Henry Ford recognized that a workforce unable to afford the very products it built or the time to enjoy them was a threat to both business and economic growth. He introduced a standardized 8-hour workday paired with a wage of $5 a day, more than double the industry standard and roughly $163 when adjusted for inflation. In fact, nearly 30% of the entire American workforce still makes less than a Ford factory worker did in 1914. Within 24 hours, nearly 10,000 workers lined up outside Ford's factories, forcing other companies to adopt similar policies and demonstrating what a capitalistic economy could produce when workers were treated as participants in prosperity rather than disposable inputs.
To accelerate his vision, Ford announced in 1916 that he would stop issuing special dividends to shareholders and instead reinvest profits into building the largest automobile plant in the world, stating, "My ambition is to employ more men to spread the benefits of this industrial system to the greatest possible number to help them build up their lives and their homes." But of course, this quickly put him at odds with his own investors, whom Ford often viewed as parasitic entities demanding returns while contributing nothing to production, culminating in the 1919 Dodge versus Ford Motor Company case, where the Michigan Supreme Court ultimately ruled that Ford's plans to expand operations, raise wages, and lower prices was legally secondary to maximizing investor returns, establishing the legal and ideological blueprint that would come to define modern priorities in the United States. The priorities that, as we can see, have gutted the nation.
As Ford's dominance over the automobile industry began to slip, the shift towards shareholder-driven priorities quickly coincided with the rise of General Motors under Alfred P. Sloan, who famously stated that GM existed not to make motor cars, but to make money. Unlike Ford, who viewed debt, especially consumer debt, as morally wrong and a form of postponing responsibility, Sloan believed that the auto loan could unlock far broader consumption by allowing Americans to purchase more expensive or stylish GM vehicles immediately. To accomplish this, Sloan engineered what would later be described as planned obsolescence, deliberately designing products so they would either break down or appear inferior within a predictable period of time. Instead of being made for the masses, Sloan tiered each GM brand according to income level while introducing small technological improvements each year, creating a ladder of consumption where Americans were encouraged to constantly upgrade their vehicles as a visible sign of success.
Today, roughly 66% of Americans trade in their vehicle every 5 years or less. And as a result, Americans now owe a record $1.6 trillion in auto loan debt, making it the second largest category of consumer debt after mortgages. Nearly 20% of borrowers now carry monthly car payments of at least $1,000, roughly quadruple the number in 2019. And more than one in five new car buyers in the United States are now taking out loans lasting 84 months or longer.
And while the car market is certainly fueled by rampant consumerism, it's important to understand that the American economy itself has ultimately been built around the automobile. Infrastructure like the interstate highway system expanded cities far beyond their urban cores, gradually shifting owning a car from a convenience into a prerequisite for participating in the modern economy. At the same time, public transportation across many US cities is now facing major service reductions due to budget cuts, further limiting alternatives to driving. According to research from the University of Michigan, nearly 20% of Americans already lack consistent access to transportation, making mobility one of the most common material hardships alongside reliable access to food, healthcare, and housing. And when the average American now spends nearly an hour commuting every day, 5 days a week, while the total cost of vehicle ownership, including loan payments, gasoline, insurance, and repairs, has already risen 48% since 2019, the American workforce has become fundamentally dependent on one thing above all else: the monthly car payment.
Today, roughly 85% of all new vehicles and 55% of used vehicles are financed, tying the success of the car market directly to the expansion of credit rather than affordability. And because dealer franchise laws prevent manufacturers from selling vehicles directly to customers, vehicle prices, financing structures, and dealership fees have expanded far beyond what would typically occur in a fully competitive market, with the average new car being roughly 56% more expensive than in 1963, when adjusted for inflation. The same decade, dealership franchise protections became rapidly entrenched across the country, proving that dealerships have effectively turned the modern car market into the loan market.
Because the dealership model increasingly depends on financing rather than the vehicle itself, the incentives across the industry have gradually shifted towards maximizing loan volume rather than ensuring the long-term sustainability of those loans. Lenders have aggressively expanded subprime auto lending, extending credit to borrowers with weaker credit profiles in order to sustain vehicle sales, with many of those loans once again packaged into asset-backed securities and sold to investors across financial markets. At the same time, more than 25% of all trade-ins now carry negative equity of $10,000 or more, with roughly 31% of all drivers currently underwater on their vehicle. Instead of settling that debt, dealerships frequently roll the remaining balance into the next loan, stacking the unpaid portion of the previous vehicle onto another rapidly depreciating asset and trapping borrowers in loans that will far outlast the financial life of the car itself. As 7-year loans have now become more common than traditional 5-year loans.
And as vehicle prices and interest rates have risen, delinquency rates have now reached their highest level since tracking began in 1990. With delinquency rates among prime borrowers having doubled, indicating that even higher-income households are beginning to struggle with the rising costs of vehicle ownership, the Consumer Financial Protection Bureau has warned that these practices within the auto lending industry have become one of the most concerning credit dynamics in the broader consumer economy.
Alongside this explosion in auto loan debt, manufacturers have also begun squeezing every last cent out of drivers' pockets through monthly vehicle subscriptions. Charging $5 just to unlock your own car from an app, $10 for heated seats, $100 for extra acceleration, or $4.99 simply to access all of your speakers. Ford has now even made the frunk a paid option for the 2026 model after including it for free for 5 years. Now, if you want the privilege of storing things under the hood, you'll have to pay an additional $495 to access the space. Ford claims his planning team noticed customers weren't using the frunk very often, so they figured charging for it wouldn't impact the end user all that much.
But the industry's attempt at you owning nothing and being forced to be happy about it doesn't stop there. The Federal Trade Commission recently took action against General Motors and its OnStar subsidiary after allegations that GM collected precise geolocation data and detailed driving behavior, things like speeding, hard braking, or late-night driving from millions of connected vehicles through the OnStar Smart Driver feature. That data was then allegedly sold or shared with third parties who packaged it for insurers to adjust premiums or deny coverage entirely. And while you may be getting frustrated, just remember someone still has to think about the poor shareholders.
Now, despite all of this, you've probably seen the videos circulating online of dealership managers claiming they can't understand why people have suddenly stopped buying cars. So, to get a better understanding of what's actually happening inside the industry, I spoke with Mora Deiko, a former digital team coordinator at a dealership in Iowa and the editor for Everything I Do on Patreon, who many of you may recognize from the interview series I did with subscribers about their experiences in the job market.
"People who were seeing the numbers, seeing everything, they would come in and be like, 'I don't understand why nobody bought a car today. I I don't understand why we haven't sold a car in 3 weeks, guys. The price of eggs is like $5 right now. The amount of people in our communities using the food kitchens is going up. Of course, people are not buying cars right now unless they absolutely have to.' And then they would complain that the people coming in who absolutely had to buy a car were the ones coming in to buy the cars because they were not getting people who could. Like, even the worst banks would deny these people. I just really think it's like a disconnect when you go into work and you're like trying to make money. They're concerned about making money and their livelihood, and it doesn't connect for them that what they're seeing in the grocery stores and what they're seeing in their communities and the people who are coming in and have this really low credit score and can't afford to buy a car but have to buy a car, they have empathy for that until it's not like adding up in their bank account. So, I think it's just a really big disconnect, um, and like a a larger level of like apathy that you've discussed a lot."
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Alongside dealership greed, essentially bringing the car market on the verge of bankruptcy, the next logical aspect of this discussion would be to discuss the impact of tariffs and the garbage on wheels that is modern vehicle quality. However, due to recent events, there is an even larger catalyst in this emerging collapse.
Beyond the tragic cost of rapidly escalating war, this conflict is also triggering a chain reaction across global energy markets. Due to the soft closure of the Strait of Hormuz, where roughly 20% of the world's oil supply passes, Robert McNal, an energy analyst at Rapidan Energy Group, has warned that a prolonged closure would almost guarantee a global recession. Historically, when crude oil rises towards $100 to $120 per barrel, US gasoline prices often climb into the $4 to $5 per gallon range. So far, prices have already increased about 47% in just the past week, now averaging roughly $3.45 per gallon nationally. For the average American driver traveling around 13,500 miles per year, every $1 increase in gasoline prices adds roughly $500 to $600 in additional annual fuel costs, in an economy where 63% of the American workforce is already unable to afford an unexpected $500 expense.
At the same time, higher fuel prices raise transportation costs across global supply chains, increasing the cost of moving vehicles, parts, and raw materials. And when tariffs are layered on top of those rising production costs, particularly on imported steel, aluminum, and foreign vehicles, the price of building and selling cars increases even further, creating a perfect storm where already struggling manufacturers face rising production costs, dealerships face weakening demand, and customers already burdened with record levels of auto debt face even higher costs at both the dealership and the gas pump. All on top of a system already built on historic levels of rotating debt.
And while it's basically impossible to accurately predict not only what will happen with this war, but other geopolitical conflicts on the horizon, what I hope that we're beginning to recognize is that the car market, just like basically every other aspect of the American economy, has far more things that can blow over the house of cards rather than reinforce it. Remove the oil concerns entirely. We're still facing a very real and very serious credit crisis. Not to mention that cars are only going to get more expensive because there is no incentive for it not to.
This is why I keep trying to bring attention to these things that almost feel so big, like what is it that we can do about the car market, or the job market, or the American economy, or geopolitical events? You know, all of these different things. The reality is is that as individuals, there's nothing that we can really do. But I do think that, one, it's very important to understand how we actually got here. I'm trying to do everything that I can to not only remove, you know, our hands from each other's throats, but also for us to get a sense of, maybe this isn't like my fault. Maybe if I am a a single mother of three kids and I can't afford a car, or I'm in some insane car loan, even though I've done everything by the books, I've done everything the way that I was supposed to, I'm a single mom because my husband died or something like that, that it's not like you're bad. I think that there's hundreds of thousands of people out there, maybe millions of people out there that are taking that are taking so much blame for something that has nothing to do with them.
And I think unfortunately, while there is certainly an aspect out there of people that just need a car, they just desperately need a vehicle to be able to go to work and things like that, there is still a massive chunk of the American customer base that is buying cars that are trading in their vehicles because of what Alfred P. Sloan set up, the planned obsolescence. When I was, and basically since I started driving at 17, I have been made fun of for the car I've had the entire time. My first car was a 1999 Crown Victoria with a police interceptor package. It was the very same vehicle that my parents actually brought me home from the hospital when I was born. And, uh, the paint chips from the hood would literally fly off. The windshield wipers didn't work. So my stepdad and I would keep goggles inside of the car. Again, we lived in the country, so don't recommend this or whatever, but when we were driving through the back roads, if it started to rain, we would put the goggles on and we would stick our head out the window. So, that kind of gives you a sense of the car, right? But, you know, it's what my parents called jalopies. It's like it's your first car. You know, if it if it got towed or if I hit something, it didn't matter. That was kind of the point of it. It was still safe, minus the the windshield wipers. But anyway, so I I I got made fun of so much that I just, it really imprinted something in my mind, especially being young. It was like, even though I was raised differently, I kept saying, you know, I need to get a new car. I'm I'm I'm worthless or I'm all these things. You you attach yourself to material items so quickly. That's that's American culture for you.
So I remember whenever I graduated, I I got a job working as a teller at the local bank at 18. I thought I was so naive. Like, looking back at it, it's it's like sad, actually. I truly thought that banks were like, it's a wonderful life. Again, the way I was raised, just kind of more traditional. It was, you know, these these are the people that try to help out, you know, your local surroundings. So, I go in there thinking, man, this is where I'm going to lose like the I'm going to learn the financial secrets. I'm going to be able to help out the community. I'm going to have a career. I'm going to have all these different things. The other thing that I thought was, I'll finally have like-minded people that think similarly financially. I I'm a frugal person. I save money. I I don't care about material items. Holy, it was I got made fun of 10 times worse at the bank than I did in high school by adults. I was 20 years younger than the next youngest person. The person that was above me had a kid that was 11 days older than I was. They made fun of me so much. And so I think that's when I really started to think, okay, there must be something wrong with me.
Now, I'm very grateful that I learned very quickly through watching and just looking at statements of customers or people walking in and doing their auto loans and all these things. And I realized, wow, everything is flipped. The people that we think are rich don't have money. Kind of typically, like society rich, oftentimes they don't have as much money as you think. The people that are driving the beat-up cars and don't have the flashy things typically have more money. And I remember that I just felt like I I fit in and I could understand the people that didn't have the flashy things. So I would go and talk to them. And I remember my manager or these other people would always say like, "Why are you wasting time with them?" The most disgusting thing. And and other people that work at at financial places or even dealerships or things like that all understand whenever there would be a nice car that would pull in, everybody would get up and like run to the door to greet them. It's it's sick. Like it's disgusting. We don't judge based off of characters or morals or anything like that.
So in 2020, I bought a 2007 Ford Focus with like 120,000 miles on it for $2,500 in cash. I had to put another $2,500 or so to kind of get it to where it needed to be. It's the same car that I have now. I thought, finally, I have just an average car. Like, it just no paint chips are flying, windshield wipers work, it's fuel-efficient, everything's fine. I got made fun of more. I'm 6'3", 220. If I sit in my car sitting up, I kind of have to like tilt my head. So, I just kind of leaned back or whatever. It was basically an everyday occurrence for from 2020 to 2022 of, you know, "Hey, are your feet sore?" And what they were referring to was, I was Fred Flintstone having to run my car, right? Like, it's funny in some way, but it gets to a point to where you hear it so much and you hear, "When are you going to get a new car? Why are you so frugal?" I would literally get made fun of for bringing my lunch every day. You know, you start to get you hear these things so much. I can totally see why people lean to feeling like they need a material item to show their worth or something like that. Every person that I worked with either had a car payment that was worth that was more than my rent or was very close to it.
I'd saved up about a year and a half of expenses, two years of expenses because I had worked at least two jobs that entire time, sometimes three jobs. And I decided, you know what? The only chance I have to be able to not only try to provide value to people, try to make a difference, um, and also maybe have a career for myself is if I go pursue this YouTube channel with 500 subscribers. So, I quit my job, the only place I'd really been since I was 18, went pursued YouTube full-time, and I had to spend my it basically all the savings was almost gone. It took me an entire year. I didn't make a single dollar. Literally, not a single dollar. Not a single dollar. And, um, you know, at the end of the day, you know, look at like the change that I've been able to help make and the value that I've provided and I lived by my morals and my character and, you know, all these other things. But the money that I had saved up, I thought was going to go to a car. And so I'm now, you know, still driving the same car, right? I don't get made fun of because I just don't see anybody. But, um, I turned it into a business that has now been able to reach over 22 million people and It's actively been about helping people. That's what I care about is providing value.
Now, again, I understand that not everybody can buy a $2,500, you know, clunker. I still love the car, but, um, you know, not everybody can do that, and I understand that there's a tremendous amount of people that have to have cars. That's why I really wanted to show that in this video. But, man, it yes, we can't fix the car market. And I think the car market will be like one of the dominoes that falls for probably the the economic fallout that we're going to have to face. It isn't just going to get better. This K-shaped economy is only going to get worse. There's no incentives. And so we have to address that. But in the meantime, do what it is that you can. Like make sure that you're raising your kids with better values, or, you know, if you if you see somebody, don't judge them by the car that they drive, or feel proud of the self the fact that you have a car that's paid for, that it's almost paid for, that you're actively paying for it. You know, it's it's it's these little things of how can we change our perspective in in an environment that is promoting like decay and deceit and greed. I think the more that we can do that, I I think that as as things goes on, it gives us more power and and it allows us to be able to connect better.
Anyway, I'm actively trying to do what it is that I can to provide awareness and and plant trees and and things for other generations to be able to enjoy it. Um, and I'm going to do everything that I can to make that happen. I would really appreciate it if you would like this video, subscribe if you haven't already done so, if you want to be a part of this journey. And beyond that, thank you all so much for your time. I hope it provided value. Until next time. Bye-bye.