Single In America: Owning a New Car Ain't What It Used To Be
Here's a couple sobering statistic if you're a carmaker in America. Half of us are single. Over a quarter of us live alone.
What's that have to do with carmakers? Consider that the average price of a new car in 2014 is $31,252USD. According to 2013 US Census statistics the average median family income was $53,046USD. This should mean that the purchase of a new car would represent 59% of their annual income. Now that's a significant fraction of their income to be sure, but compared to 1910, it's manageable.
In 1910, a new Ford Model T cost $850 f.o.b. Detroit. That same year, the average family income in the United States was $574 and the average worker's hourly wage was 52¢, equivalent to $23.40 a week. That means the Model T represented 148% of their annual income. Still, Ford sold nearly 20,000 units that year, nearly double the previous year when it went on sale for the first time.
The issue facing carmakers is that percentage of single person households: 27.5 percent, up from 17% in 1970. The US average per capita annual income is $28,155, again according to US Census Bureau numbers. This means a new car purchase now represents 110% of the single person's income.
Increasingly, in order to purchase a new car requires two incomes: typically in the form of a husband and wife dual income-family, which now represents less than half of all households in America (48.7%). According to analysis published last year by Interest.com , only one US metropolitan area has sufficient household income to afford a new car. That city? Washington, D.C.
Of course, per capita income numbers are only averages. A Wells Fargo Bank study last summer found that the median annual household income for Millennial men, for example, was $61,000 and for women it is was $45,000. This doesn't mean they have money to burn, however. Quite the contrary. Reports Wells Fargo:
"Millennials are struggling under the pressure of debt, with 42 percent saying 'it is their biggest financial concern currently.' Four in ten say their debt is 'overwhelming' versus 23 percent of baby boomers. Forty-five percent of millennial women feel 'overwhelmed' by debt, versus 33 percent of millennial men. Perhaps due to big debt obligations, over half of the millennials (56%) say they are “living paycheck to paycheck,” regardless of gender."
What kind of debt are they dealing with? They report the following categories:
"…credit card debt, 16 percent; mortgage debt, 15 percent; student loan debt, 12 percent; auto debt, 9 percent; and medical debt, 5 percent. Among all millennials, 47 percent are allocating 50 percent or more of their paychecks to these types of debt."
When looked at in the context of income earners in1910, which for me is where this whole exercise started, they had three choices available to them in terms of then 'modern' mobility, excluding a horse and walking, of course : an early automobile like the Model T, public transit, and a bicycle. For most Americans that year, the Model T, despite its relatively low price compared to its competitors, was still unattainable. Public transit was far more affordable with one-way fares around 5¢. Round trip to and from work six days a week - this was long before the 40-hour work week - would cost 10¢ or less if monthly tokens were purchased. That expensive represented from 2.5-5.4% of a worker's wages. An $11.95 bicycle (in 1910 dollars) was even less: from 0.9% to 2% of wages.
In contrast, consider today's commuting costs. AAA estimated in 2013 that it cost $9122 annually to own and operate a new car. If we take the $28,155USD per capita income for the same year, owning a car consumes 32.4% of the worker's annual income. In terms of using public transit, where it's available, the American Public Transportation Association estimated in 2011 when gas was $3.38/gallon that switching from driving to riding public transit saved an average $816USD per month. In terms of annual fare costs, pricing is all over the map. Valley Transit in California offers an annual fare of $495. Measured against the per capita annual income again, that means a rider would spend less than 1.7% of their wages on commuting costs.
Buy a good quality bicycle for $600 and the costs come out comparable to public transit and way, way below owning a car.
The key here is living in relative proximity to where one works or having nearby access good public transit.
It's numbers like this that help explain why millennials, as one demographic group, are less interested in car ownership than previous generations. Freedom for them isn't about owning a car anymore, not like it was for their parents and grandparents. For them it means freedom from the costly obligations of car ownership.
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