Monthly car payments topped a record $700. What it means: NPR

Cars have long had their special place in America.

Wide open roads, the wind in your hair, the feeling of freedom when you drive. Cars have been celebrated in movies and immortalized in songs for evoking it all.

And right now, that sense of freedom comes with a pretty high price. The average monthly car payment topped $700 a month earlier this year, the highest in history, according to Cox Automotive/Moody’s Analytics.

“I joke with people that every new car purchase is a luxury car purchase, I don’t care what you buy,” says Ivan Drury, senior insight manager at car-buying expert Edmunds.

However, cars are not only a symbol of freedom.

In fact, they play an essential role in the economy. People rely on cars to get to work — 3 out of 4 Americans commute by car. Then there are school drop-offs, doctor appointments, grocery shopping, and more.

And yet, for more and more Americans, owning a car is becoming unaffordable.

“Unfortunately, it’s increasingly out of reach for the segment of the population that probably needs it the most,” notes Drury.

Indeed, that high dollar figure doesn’t even count insurance or parking for those who have to pay for it. Not to mention gas prices recently topped $5 a gallon and are still hovering near these record highs.

There is also no end in sight to an era when interest rates are rising and borrowing costs are likely to rise even higher.

What causes the price spike?

The main reason why cars have become so expensive can be traced back to the shortage of computer chips that started during the pandemic.

When car sales fell dramatically during the early parts of the blockade, automakers cut orders for the chips.

Around the same time, as schools and work went online, people bought additional laptops, iPads, televisions, video games and other electronic goods for their home. So chipmakers shifted their production to serve those companies.

Car manufacturers make more expensive cars

Other major changes in the economy soon followed. People began to move from crowded cities to suburban locations, and the demand for cars suddenly increased.

Automakers were caught off guard and couldn’t build enough cars because they didn’t have enough microchips, which play a big role in today’s cars, controlling everything from windows to navigation screens and even sensors in the passenger seat.

With a limited supply of chips, automakers cut back and made fewer cars. They decided to put their chips into building bigger, more expensive vehicles - feature-packed SUVs - to get more bang for their buck.

It also means that automakers are making fewer compact cars and sedans, which are cheaper vehicles.

The average price of a new car exceeded $47,000

The result is that prices have risen to astronomical levels. The average price of a new car is hovering at an all-time high, exceeding $47,000 apiece.

Drury says to get used to these prices: “We’re not going to see a sharp drop in prices anytime soon, because there doesn’t seem to be a solution to the chip crisis.”

And used cars? Forget. They are also unaffordable

Those who sought respite by buying used cars also faced sticker shock.

Used car prices rose even more dramatically than new car prices, up 16.1% from a year ago compared to a 12.6% jump in new car prices.

Johnny Navarro experienced that sticker shock first hand after a recent car accident. No one was hurt, but his car was completely destroyed. When he went to the dealership, he found that the monthly payments had doubled for the cars he had looked at just a few years earlier.

“To see it jump from $300 to $600 for a Corolla or a Civic was like, I should be driving a Mustang for that much money, you know?” Navarro said incredulously.

But people still love their cars

After much shopping, Navarro found a used Lexus online. His car payment was $580 per month, over $200 more per month than he was paying before. That’s before adding to his insurance bill and parking fees in downtown Los Angeles, where he lives.

“I’m definitely going to have to pick up another shift or two a week,” Navarro says, referring to his job as a server at a restaurant in Santa Monica, California. the only reason he got the car.

“I just like to ride in my car with my friends and listen to music. I actually have a karaoke microphone in my car,” he says. “It’s always really fun.”

Navarro is like many Americans — he loves his car. As long as he can afford it, he will own it.