Jaspreet Singh: All the Ways New Cars Are Killing the Middle Class

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Cars have been a symbol of wealth for decades. Driving around in a brand-new car brings a feeling of safety, security and status that many like. The problem is that the car industry is slowly squeezing the middle class. 

Jaspreet Singh, a personal finance expert who runs the YouTube channel Minority Mindset, had some thoughts about how the car industry is killing the middle class and their ability to build wealth. In a series of recent videos, Singh revealed some data on how bad it has gotten.   

How the Car Industry Is Squeezing the Middle Class 

According to Singh, middle-class Americans can’t afford to buy new cars anymore. The ex-CEO of Ford agrees, recently stating that if you’re not making at least $100,000 annually, you can’t afford to buy a new car. However, being unable to afford something often doesn’t stop people from buying it. As the monthly costs of owning a car continue to rise, it’s becoming more apparent how the car industry is squeezing middle-class Americans.  

Car Payments

Society has taught everyone to invest in their appearance so others see them as successful. This includes clothing, a watch and a car. Purchasing these items is expensive, and although Singh wanted to have a nice suit and a nice car to look wealthy, he opted not to. One of the main reasons he didn’t buy a BMW was because of car payments.

Today, one out of five car payments exceed $1,000 a month. Singh explains that cars are liabilities. When you pay car payments, you’re paying interest on an item with a limited lifespan. Even the best car can only last for a specific number of years or drive for a certain number of miles. A new car also drops dramatically in value the moment you purchase it.

Due to the immediate drop in value, many may opt to look for used cars. While the prices are much lower, there is another catch. As of May 2024, the average used car loan has an interest rate of 11.5%, while the APR of a new car loan is much lower at 7.3%. This leaves buyers either paying for an expensive, brand-new car that will quickly drop in value or a reasonably priced used car with extremely high interest rates.  

Car Insurance

While car payments can take a big chunk out of your monthly take-home pay, there are other factors that many people overlook. Car insurance payments are also expensive monthly payments that eat into each paycheck. According to Singh, car insurance rates are growing at the fastest rate in nearly five decades.

Every state in the U.S. requires drivers to purchase auto insurance. The costs and minimum requirements vary by state, but the average monthly payment across the country amounts to $172. When paired with a car payment each month, it takes a lot of cash out of the average middle-class American’s pocket.

Other Factors

Not every car uses gas, but many of them do. The price of gas has continued to rise over time. In the past five years, gas has gone from $2.83 per gallon in April 2019 to $3.77 per gallon in April 2024. The highest price of all time was in June 2022, when a gallon averaged $5.05 across the country.

Buyers also need to consider how repairs and maintenance prices will affect the overall cost of their vehicles. While repair costs may not occur monthly, paying a car mechanic once or twice a year can result in big financial losses. Singh mentions that maintenance prices are becoming increasingly expensive as well.

What You Can Do About It

Americans are now holding onto their cars longer than ever in history. Singh points out that the average length of time people keep a car is now 12.6 years. While there has been a slight decrease in new and used car prices this year, they have overall increased much faster than the average income. 

But people need to buy new vehicles from time to time. Singh explains that the best way to purchase a new or used car is to pay in cash if you can afford it. By saving up and paying for the vehicle in full, you can avoid paying interest on a deteriorating asset each month, and you won’t need to make financial changes in your life because of your purchase. 

Singh goes on to say that there will be a lot of people who have to take out auto loans to purchase a car they need to have. In this case, he encourages future buyers to think about how the worst-case scenario could play out. If you decide to buy a car and it will be somewhat challenging to make the monthly car payments, think about when the economy slows down or you lose your job. You’ll still need to pay off your car loans on top of your other monthly expenses. 

Singh explains that auto loan delinquencies have been on the rise over the past six months. The borrowers who are getting hit the hardest are the subprime borrowers, who probably purchased cars they thought they could afford but couldn’t. In short, having some wiggle room is important in case something bad happens. 

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