Today, Explained - How car ownership got so expensive

Episode Date: April 17, 2024

Drivers are increasingly paying sticker price or more for a new car. Then there are sky-high insurance rates and mortgage-level car payments. Vox’s Marin Cogan explains how we got here. This episode was produced by Victoria Chamberlin, edited by Matt Collette, fact-checked by Laura Bullard, engineered by David Herman, and hosted by Noel King. Transcript at vox.com/todayexplained Support Today, Explained by making a financial contribution to Vox! bit.ly/givepodcasts Learn more about your ad choices. Visit podcastchoices.com/adchoices

A popular TikTok trend I don't pretend to understand is where someone armed with a video camera accosts their co-workers and asks... How much did your car pay me? $1,800. How much did your car pay me? Hey, like $1,200. How much did your car pay me? What's for lunch? That's the real question. If some of those numbers sound to you like rent, you're not wrong.

Owning a car has gotten more and more and more expensive. Insurance is up, repairs are up, interest rates are up, and it wouldn't be America if scams were not also up. Coming up on Today Explained, we're not going to ask if you should just ride a bike or walk. That makes everyone mad. But we are going to examine what has happened to make car ownership so unaffordable i might not have money for food or to hang out with my friends but i always have money for candles i always have money for candles i love candles bet mgm authorized gaming partner of the NBA, has your back all season long. From tip-off to the final buzzer, you're always taken care of with a sportsbook born in Vegas.

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Ontario only. Please play responsibly. If you have any questions or concerns about your gambling or someone close to you, Oh, come on. Come on, come on, come on. Yes! Now, a spot announcement. Thank you, spot. Here we go. Explained. It's Today Explained. I'm Noelle King with Vox senior correspondent Maren Kogan. Maren frequently covers auto-related nonsense, everything from why it's so treacherous to be a pedestrian to why dangerous drivers are facing fewer penalties.

Recently, Maren's been on the money beat. It is not your imagination. Car ownership has gotten insanely expensive. The average price of a new car is $48,000 right now. And there's a couple different reasons for that. It has somewhat to do with changing fuel economy standards. It's also just that manufacturers are favoring more expensive luxury cars and consumers are buying them more. Five years ago, shoppers looking for an inexpensive

car could choose from about a dozen models selling for less than $20,000. Now there's only one, the subcompact Mitsubishi Mirage, and there are reports that it will be phased out in 2025. But it's not just car prices. It's car prices, it's auto insurance, and it's the cost of gasoline. Basically, everything associated with owning a car has gotten more expensive. Let's break them out into individual little buckets there. Insurance, a thing that everybody must have, should have, is up how much, and how long has this been going on?

So insurance rates for cars have risen dramatically over the last few years. The Consumer Price Index report that came out last week shows that Americans are paying 22.2% more for car insurance than they were the same time last year. And that's the highest jump rate since 1976. And since February alone, prices jumped 2.7 percent, so almost seven times higher than the broader inflation reading. And previous CPI reports have shown that car insurance is up more than 38 percent since January 2020. My original insurance was $2,400 for six months, and it went up to $4,000. What's going on? Everybody turned into a bad driver all of a sudden? Actually, yeah, that is a part of it. The big insurance companies have been relatively quiet about what's going on.

Inflation is definitely a big part of this equation. Everything costs more, and those costs are being passed on to consumers. But the way we're driving plays a role, too. During the pandemic, risky driving behavior like speeding and reckless driving and people using their phones while driving increased dramatically. No seatbelts, speeding, and impaired drivers. These trends of risky driving skyrocketed during the pandemic, which has led to more crashes and deaths than pre-COVID years. And those numbers are reportedly staying high. You can see this when you're on the road, right? You can see it. You can see people on their phones all the time when they're driving. I'm cruising on a highway and I look to my right and I see

this lady just on her phone with no tense. Like, she just don't care. Like, she don't care about no police. She don't care about no state troopers. She's just on her phone having a nice conversation. She looked right at me, gave me a thumbs up and kept pushing. That's not just a vibes-based statement. There's actually data behind this too. So I spoke to an expert who has access to driver data for millions of drivers. There are people who download apps via their insurance companies that measure things like speeding and hard braking and other risky behaviors. And they said you could basically see the distracted driving behaviors go up basically as soon as everything started shutting down during the pandemic. And they haven't come down since.

This is what's left of an SUV that was split in two around 4.45 this morning. A driver ran a red light and the result was a horrific, deadly crash. Oh, my God. Oh, my God. Perhaps not coincidentally, the number of fatal accidents spiked during the first few years of the pandemic, and the severity of auto insurance claims went up too. So cars came in with more damage, and it was more expensive to fix them. Why is it more expensive to fix a car these days? So if you think about the car that you had in 2004 versus the car that you could buy in 2024, if the two crashed, the car from 2024 would probably be a lot more expensive to fix because it's more likely to have a lot more bells and whistles and advanced technology,

things like backup cameras and lane sensors. A new AAA study finds these high-tech features can double and sometimes even triple repair costs. The sensors are all around today's vehicles. For cars with front cameras, even a minor chimp in a windshield may lead to a costly replacement. So there's a report that I read that said the estimate for a front-end claim in 2022 was $3,700, and that was up 15% over the year before. Vehicles that are more than seven years old were about $1,000 less to repair. Insurers are paying out more on claims, though. Motor vehicle repair, look at this one, it jumped

3.1% over the previous month. Car and truck rentals up 5.7% in a month. If you get into an accident, then your insurance rates will go up. But you're saying, it sounds like what you're saying is insurance is getting more expensive for everybody. So even if you haven't been in an accident, you're paying more for insurance. That's exactly right. So I spoke to an industry insurance executive who said basically that we are all paying the cost for this increase in reckless driving and reckless behavior. So it's not just if you get into a crash, we're all now paying more. What's like the average? Do we know? So the average cost for insurance is now about $2,000 a year, but that varies by so many different factors. So it's what state you live in. Certain states have way higher rates. It's your driving

record. It's the type of car you have. So many different factors. So people are paying a really wide range, but it's often the people who can least afford it who are paying the most. Your insurance rates are often determined by the neighborhood you live in. So if you live in a high crime neighborhood, you're likely to pay more. It's also often determined by your credit score. So again, this is just one of the many ways that it's really expensive to be poor in this country. And so insurance is going up because people are driving differently, and in some cases, a lot worse. What does that have to do with the pandemic? I know that we've talked about, like, since the pandemic, things on the roads have kind of seemed

like they're falling apart. But why? So we had inflation, right? Supply chains were severely disrupted. That made cars more expensive. At the same time, you had drivers getting more dangerous. And then at the same time that happened, law enforcement in many parts of the country started really pulling back from traffic enforcement altogether. The I-team obtained data showing last year Milwaukee police issued its fewest number of citations since 2017. And there are a number of different reasons for that. One is that it was during the pandemic and there were concerns about having close contact with people in public. The other is that there were major staffing shortages that started

to present themselves during this time. And then also there was all of the unrest and conflict after the murder of George Floyd. A number of these fatal police encounters began with traffic stops. So there was a lot of criticism and scrutiny on the police about their actions, and a lot of them pulled back. But that was one of the key ways that insurers used to determine your rate. And when they lost that key metric, they raised rates for everyone. Are insurance rates going to stay this high? Yeah, so the experts I spoke with really didn't have any form of agreement on that. Some of them said, one guy I spoke to said, you know, really, this was about insurance companies were taking a

real hit when everyone started getting in crashes early in the pandemic, so they raised their rates. And now they've since caught up, and those rates should come down, especially as inflation eases. But I will say, I spoke to that expert maybe five, six weeks ago, and that was before this latest Consumer Price Index report came out. And it shows that they've actually gone up. So now we're looking at the steepest rise in insurance rates since 1976. So I'm not so sure that they're going to come down anytime soon. It's really, it's hard to say, but there's no consensus right now about whether they're going to come down. What are people doing to cope? There are a number of different things people can do.

I don't know how widespread this is, but for example, my mom lives in Florida. Her insurance rates were getting really high. She took a class that was offered for senior drivers that will help lower your rate if you take the class. You can also shop around. You can also download one of these telematic apps. They're offered by a lot of insurance companies that will measure your driving behaviors, speeding, hard braking, that sort of thing. And if they can measure that you're driving safely, they will give you a discount too. So there are different ways to cope. But, you know, we are all still going to be paying more. There's no, unfortunately, there's no magic bullet for this problem.

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ramp.com slash explained, ramp.com slashcom. Cards are issued by Sutton Bank, a member of the FDIC, and terms and conditions do apply. I'm a driver. I'm a winner. Things are going to change. I can feel it. It's Today Explained. We're back with Maren Kogan. So recently for VoxMaren, you wrote about an increasing number of car scams. And you started by talking about one specific TikTok video that you'd seen that sort of illustrates the problem. Tell me about that video. There's this woman on TikTok. Her name is Blaise Arnold. And she posted a video about her Chevy Tahoe that's been viewed more than 2.5 million times. So three years ago, if you're an OG on my TikTok, you know that I bought my Tahoe

for a lot of money. She has the Chevy Tahoe. She loves it, but it's time for her to give it up. Three years ago, I was in a mindset of where if I wanted something, I was going to get it, no matter what it was, no matter what I had to do, no matter how much I had to pay, I would work and get the money that I needed and I would buy it. So in the video, she reveals that she took out an $84,000 loan to pay for the vehicle. And it gets worse. Since then, she said she'd been paying about $1,400 a month for the last three years. And if you do the math, you will see that $1,400 a month payments in three years should be around $50,000 worth of payments. You know, she's basically making a mortgage payment on her car. Yes, she is indeed. Yeah. Well, I've only made off $10,000 of the balance.

So my $84,000 car that I bought three years ago is now still at a balance of about $74,000, almost $75,000. What she didn't realize is that because she has a really high annual percentage rate, that's her interest rate plus whatever fees were added on when she signed up to finance this car, only $10,000 of that $50,000 she paid actually went towards paying off the car. The rest went to the APR. All right, for people who don't quite understand the importance of the interest rate, how is it possible that this woman took $50,000 of her own money and put it toward an $84,000 loan, and at the end of the day, it was like she had only paid $10,000? When you take out an auto loan, you pay something

called an annual percentage rate. People will see this on their credit card loans too. Basically, the annual percentage rate is the interest rate and it's whatever fees and services are added on. So it's a total percentage that you're paying on the loan every year. We don't know exactly what Arnold's APR was, but it must have been extremely high because she was paying all that money in. She paid $50,000, but $10,000 of that went to the actual balance of the loan. The other $40,000 were being eaten up by interest and all of those other fees that were packed into her annual percentage rate. Okay, so she got two and a half million views, and you can absolutely understand why. And then nobody ever posted on TikTok about this again because this has only ever happened to

this woman, correct? Well, actually, a lot of women started posting about their incredibly high car payments. And it was, interestingly, I only saw videos of women posting about it, but they were talking about like, I'm paying $1,400, I'm paying $1,200, I'm paying $1,000 a month because I really wanted this luxury vehicle. The stakes for these folks are what exactly? If you stop paying, then... So if you have endless amounts of cash and you can always afford to pay for it, then you're probably fine, right? But if you don't, things can get really hairy. So in Arnold's case, she posted a follow-up video where she was talking about what she was going to do with her car. And she made some jokey comments like, oh, people told me to hire the mob or leave it in a bad part of town. I think I'm just gonna

not care if it gets repossessed because I'm not gonna pay for it anyway. So if they do the repossession, put it against me, oh well, I don't have a car payment anymore. It's fine. There are major consequences to that. That can wreak havoc on your credit score. You can have debt collectors coming after you. It is likely that your car will be repossessed. And that kind of thing can follow you around and make it harder for you to get loans in the future. Had Blasey Arnold with her high interest rate, had she really personally screwed up? That's a great question. So a lot of people on the internet were saying, well, this woman is clearly, she made a huge mistake. Just because a lot of people have high car

payments, it doesn't mean it's any less stupid. No hate to her. I don't care what people do with their money, but is that crazy? Because that is crazy. You don't need a $35,000 car. You want a $35,000 car. They said a lot of things about her, but I will say that they seem to think that, you know, she had made a really poor decision. And look, people can draw whatever conclusions they want. I personally, I'm not a financial advisor. I would not recommend making mortgage-sized payments on your car. I would say if you're paying that much, probably you need a cheaper car, unless you're a very rich person, in which case you can probably afford it. So yeah, there was a lot of sort of shock and criticism about her. But I think what was interesting about it to me is that there is this

much larger world of very scammy practices in the auto dealing and the auto lending industry. And that stuff really takes advantage of a lot of people. So I think like her example is very interesting, but there's a much broader sort of structural issue happening here that is making people pay, even aside from the extreme costs that we talked about before, making people pay way too much. And it's particularly preying on people who can least afford to pay for those cars. Okay, so you're using one of our favorite words, which is scam. Cars getting more expensive because of supply chain disruptions. Insurance getting more expensive because people are getting in more crashes. Those things are knock-on effects. They're not scams. Tell me why you're talking scammy, though. Yeah, because some auto lenders and dealers are just straight-up scamming people. Somewhere between us signing on the computer and us waiting

in the lobby and having the papers printed out, they added that $4,000. I asked the questions and I was lied to. Sometimes they will jack the prices up for users with poor credit. They'll add tons of hidden fees that aren't obvious when people sign up. And they're often giving people loans that they know they can't sustain because they know that they'll collect really high interest rates. And then when the people default on those loans, they can take the car back and profit that way. To give you one example from a book called Cars and Jails, the author spoke to a bunch of men who had recently been released from prison who found that their credit histories often prevented them from getting a reasonable loan at an affordable interest rate. So they interviewed people driving these incredibly fancy vehicles, and they were saying,

how are you able to get cars like this with low income and poor credit? And it turns out that they were going into the dealerships, and these men were being told that they couldn't get financing for the Honda they wanted, but they could get financing for a top-of-the-line Mercedes. And they were doing this because they were knowing, they were giving them loans that these men were likely to default on, and then they could repossess the car really quickly. And were the men being lied to? Could they have gotten financing for the little Honda? They probably could have if they had shopped around and known exactly what they were doing. But the way these loans are being presented to them, they're being basically told that this is the thing that makes the most sense, and the loans are being presented in a way that makes the most sense. And, you know, a lot of these contracts,

you think about how confusing it is for most of us to read through a lot of these terms and services agreements that we get, a lot of the contracts we get. These things are designed to be intentionally opaque and trick people. So they think they're making the most rational decision and they're not realizing that actually they're kind of getting screwed. In your report, you say that consumer reports also looked into this, car scams, and what did they find? Yeah, so they basically found that it's the Wild West out there in terms of car loans, and that made people especially susceptible to scams. So there's a couple different things going on. There's no federal interest rate limit on auto loans. There's a really complicated and sometimes contradictory patchwork of state laws.

And it leaves people really vulnerable to being scammed. And like I said, it's people with poor credit. It's people who can often least afford these loans are getting these really shady loans. The Consumer Report investigation begins with this really striking anecdote about a man who was on disability payments from the Social Security Administration. He was given a loan for a Jaguar. His annual percentage rate was 75%. Oh, jeez. So that means he was paying loans every month, and almost all of that money was going to the APR. It was just going to interest rates and fees. It wasn't going to paying off the vehicle. So that was just going to trap him in debt. And when they talked to this man, it was really clear. He was like, I don't know. I don't know anything about

these APRs. I just was trying to go and get a car. So those are the people who are getting really screwed over. Is there a certain type of person who is more likely to get scammed than others? People with poor credit history, people who are poor and people who are working class. For some immigrant families, they're targeted by this because they want to have a vehicle. They want to be able to get around in their community. Military members are particularly susceptible to these scams. When you add it all together, there are a lot of different people who are highly susceptible. It's also people who want cars that they can't really afford. There's always going to be a dealer or a lender who's out

there who can convince you that actually you can afford it. And if just look at the terms of this deal and you think that you're getting a good deal and, oh, wow, I can actually afford this. I can't believe it. But you actually can't afford it and you're not going to realize it until it's too late. So you said there's no federal interest rate limit, which makes me wonder, that hadn't even occurred to me. Could there be one? Like, could the government just say, nah, anything over, I don't know, 25 percent, we're not doing? Yeah, conceivably, there could be one. The government could definitely crack down on these dealers more. And in fact, there has been some action in the last year, which is, I think, a positive step. There is a new rule that the FTC put out at the end of last year called CARS. The acronym is Combating Auto Retail Scams,

and it's designed to address this exact problem that we've been talking about. To target the scams, the FTC has a new CARS rule requiring dealers to provide a vehicle's actual price and cost, spelling out optional add-ons, and prohibiting dealers from adding bogus add-ons like duplicate warranties, oil changes on EVs or unwanted subscriptions. So they're going to try to crack down on these sort of shady lenders who are jacking up the prices, who are adding hidden costs that buyers don't realize that they're getting. There's a whole section specifically on lenders who are targeting military members to make sure that they're not getting scammed. And it could have a major effect in cracking down on some of these shady behaviors.

This rule is really designed to create some honesty and fair rules of the road so that Americans can buy cars without worrying that they're going to be tricked or scammed. And particularly for military service members, it's going to require lenders to be tricked or scammed. And particularly for military service members, it's going to require lenders to be more upfront and honest about whether they have any affiliation with the military because oftentimes military members will show up in a base, need a car right away, and they have all these lenders going after them saying, and all these auto dealers going after them saying,

like, we're affiliated with the military, we have special discounts, and they end up saddling with service members with a lot of debt. So it's going to try to cut back on all of these different ways that they are sort of sneakily making cars way more expensive than they need to be. Vox senior correspondent Maren Koken. All right, listen, next week, we're doing an episode about reproduction. Birds do it, bees do it, even educated fleas do it. But nobody does it quite like human beings in a capitalist

economy. Egg and embryo freezing is big business. And we're interested in hearing what your experience of that business has been like. So maybe you and your partner made some embryos and froze them, and then you broke up and then maybe you tried to get them back. I've heard of stories like this. We're interested in hearing yours. Maybe your embryos were moved without you knowing about it. The thing is, it's not the norm for fertility clinics to warn couples that stuff can get hairy if you don't end up making a baby with the embryos that you've made. And we're going to be reporting on that. So if you've got a story, please give us a call. Our number is 844-453-4448. 844-453-4448. Please leave us your name if you'd like. You can also leave us a callback number. You can also

email a voice memo to todayexplained at vox.com. All right. Today's episode was produced by Victoria Chamberlain and edited by Matthew Collette. David Herman is our engineer and Laura Bullard is our fact checker. The rest of the team includes Halima Shah, Avishai Artsy, Miles Bryan, Hadi Muagdi, Amanda Llewellyn, Jesse Alejandro Cottrell, Patrick Boyd, Rob Byers, Sean Ramos-Firm, and Amina El-Sadi. Our executive producer is Miranda Thank you. slash give.