You’ve probably read that it is now common for people to sign up for seven years of payments – because this is the only way many people can afford to drive a new vehicle. More payments being more manageable than fewer – but higher – payments. This works – for awhile.
But it can’t work for too much longer, because depreciation catches up – and passes – you right around the seven year mark. By this time, you are likely to find that you owe more (the remaining loan balance) than the car is worth by then and that makes it not worth making those payments any longer. People walk away. The “under water” vehicle gets repossessed. Lenders know that car loans can’t be extended much beyond seven years and that will limit the number of loans written that are for longer than seven years. This, in turn, is going to limit new vehicle sales (or at least, limit the financing of them, which amounts to the same thing).
What then?
The vehicle manufacturers could try to reduce the cost of new vehicles so that people could afford to pay them off in five years or less, but that will be difficult because they have bought into the costs of compliance. It is no longer legally possible to manufacture for sale a vehicle not equipped with multiple airs bags, which entails the cost of designing the car’s structure and dashboard around the air bags – in addition to the cost of the air bags themselves. Many new vehicles have air bags built into the seats as well as the door panels and dash and steering wheel. This alone has added thousands in compliance costs to the window sticker of every new car.
Additional compliance costs include the mandatory back-up cameras and screens that display the images as well hidden/added drivetrain compliance costs such as direct injection and automatic transmissions with eight, nine and ten speeds when four or five are plenty (in terms of any meaningful benefit to the vehicle’s owner).
There are also the transferred compliance costs of EVs the manufacturers are effectively forced to make that can’t be sold for what they actually cost to make, plus a profit. The manufacturers “sell” EVs for less than it costs them to manufacture the things and make the money back by upping the cost of the vehicles that do sell because they’re not EVs.
All of these costs are invisible to the buyer because they are not line-item’d on the window sticker. That would have been the smart move for the manufacturers in that it would have made it clear why the cost of a new vehicle has gone up so much over just the past ten years, let alone the past 50 . It was about 50 years ago that the federal government got seriously into the business of imposing compliance costs on vehicle manufacturers, who passed them on to buyers who didn’t know what they were being made to pay for them and were encouraged to blame it all on “inflation.”
How many know – to cite just one example – that convertibles all-but-disappeared from the market (which was no longer that because of government interfering with it) by the mid-1970s because of a federal diktat that a car’s roof had to be capable of supporting the car’s entire weight if it rolled over? Instead of convertibles – available, mind you, for those who wanted to buy one – everyone got a government-mandated hard-top with thick “A,” “B” and especially “C” pillars that kept the roof from crushing if the vehicle rolled but also made a wreck more likely because of the blind spots created by those thick, visibility impairing (and government-mandated) structural pillars.
The manufacturers could have simply told car buyers why the cost of vehicles was going up so dramatically by line-iteming each compliance cost. Just a statement of fact, which can serve as a very powerful argument. For example:
5 MPH bumpers – as required by Federal Motor Vehicle Safety Standard ( FMVSS) 215, “Exterior Protection”: $500
Air bags – as required per FMVSS 208 (Supplemental Restraint System): $3,500.
Back-up camera system (per FMVSS 111): $500.
These are just a few of the readily identifiable specific compliance costs. There are also costs that aren’t specific in the each-new-vehicle-must have (insert here) but which they are effectively required to have, such as fragile plastic and very thin metal exterior panels, which help a manufacturer comply with federal fuel economy and “emissions” diktats via lowering the vehicle’s weight (which is perversely increased by other diktats pertaining to “safety”). Also in this category are the already-mentioned direct injection and automatic transmissions with eight, nine and ten speeds. The only reason for the proliferation of these things is compliance; they eke out slight gains in gas mileage and slight reductions in gaseous (C02) “emissions.”
They confer no meaningful benefit to the buyer who gets to pay for them. And nothing meaningful otherwise, either – except for the costs.
