May 9, 2026 • 14 mins
Looking for a new car? Get ready to pay up. We're seeing record high prices for new vehicles around the country, including here in New England. It's rare to find one that comes in under $30,000, with more luxury vehicles, SUV's, and pickup trucks on the lots than affordable sedans. Why the change, especially when so many Americans are struggling to get by? Nichole spoke with John Marthinsen, Professor of Economics and International Business at Babson College in Wellesley, to get insight and answers.
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Speaker 1 (00:07):
From WBZ News Radio in Boston. This is New England Weekend.
Each week right here, we come together, we talk about
all the topics important to you and the place where
you live. Thanks again for tuning in this week. I'm
Nicole Davis. So maybe it's time for you to go
buy a new car, and you go to the website
of your local dealership, and then another and another, and
you find yourself doing more and more double takes at
(00:29):
just how much it's going to cost you to buy
that new car. These days, we're seeing record high prices
for automobiles all over the country. Just a few handfuls
of vehicles at this point are actually coming in with
a sticker price of under thirty thousand bucks gone. It
seems are the days of the affordable sedan. Instead, now
it's all SUVs and pickup trucks and other expensive models
on the lots. That's because automakers in general aren't putting
(00:52):
their energy into churning those out. But I was thinking
about this and the math. It does not make sense.
We have a cost of living crisis. Affordable is a
major issue, especially in Massachusetts. I feel like there's some
kind of disconnect here between the reality for would be
buyers and the auto industry. I am certainly no expert, though,
but I do know how to find them, so I
(01:13):
got one in here to talk with us about this.
John Martinsen is a professor of economics and International business
at Babson College in Wellesley, and Professor, I'm really happy
to have you here on the show to have this
discussion and help us break this down. So let's just
get right into it. Why are cars so expensive these days?
Speaker 2 (01:30):
The simple answer, Nicole, is that car prices are high
in the United States mainly because Americans are buying more
expensive vehicles. They're buying luxury cars, SUVs, and trucks, and
the average price is probably close to fifty thousand dollars,
and so automakers are simply building fewer cheap cars and
(01:52):
the cost of making and owning a car has jumped,
so automakers are basically following the money and they're building
fewer low cost models. And to a large extent, it's
the demand side. This is what Americans want, and so
you know, there are supply factors as well. Tariffs have
raised the prices of imported cars, so US manufacturers can
(02:17):
have an easier time raising their prices, and Americans who
want to buy foreign made cars pay more. And also
a major problem with tariffs is that the cost of
inputs like aluminum and steel, transistors, these tariffs have increased
the cost of making a car. So I don't know
(02:38):
if I don't know how many people realize that that
ninety five percent or more of a tariff is borne
by a US consumer or business. So those are a
few of the major reasons why the price of cars.
The prices of cars are so high. And I think
we have not recovered yet from COVID, so we're still
(03:02):
repairing supply chains, and so those are the reasons. Those
are the major reasons on the supply and demand side.
But I think to me, Nicole Americans are also suffering
because it's not just the cost of buying a car,
it's the cost of owning one. And a recent studies
(03:25):
showed that it costs over eleven five hundred dollars to
own a car every year, so that's equally important. And
you know, if you think of costs like maintenance and
insurance and depreciation and gas prices now are through the ceiling,
So it's not just the cost of buying a car.
(03:48):
And that's been going up and again. To a large extent,
it's our own fault, but it's also the cost of
owning one. People see higher prices for cars, but they
forget that everything else has gone up too. So it's
sort of a perceptions versus reality problem where I went
(04:09):
back to twenty twenty and compared the price of cars
in twenty twenty to where they are today, and actually
it's cheaper in terms of inflation adjusted prices. In other words,
if you kept the price, the same prices today are
actually about three percent cheaper than they were in twenty twenty.
(04:31):
So it's not The economists call this a money illusion,
but you can call what you like. But it's sort
of like you see the price of something you really need,
like a car. You need it in your daily life
to get to the store, to get to your work,
but the price of everything else has gone up as well. So,
for example, the consumer Price Index since twenty twenty has
(04:55):
gone up twenty eight percent, but new vehicles have gone
up about twenty one percent. Gasoline prices, of course have
recently spiked, so I'm not so sure that that's a
long run problem, but this gives you a few of
the ideas, you know, I was thinking about when when
you ask the question why are car prices so high?
(05:19):
And like I said, you start with the supply and
demand reasons, and then you go into the cost of
owning a car, which is also prohibitive for some people,
and then you realize that if you look at cars
in perspective in terms of relative to everything else, they
(05:39):
really haven't gone up as much as the price of
everything else.
Speaker 1 (05:42):
When you tell me that Americans want to buy more
luxury vehicles, I think of the fact that we are
dealing with a massive cost of living crisis right now.
So to me, and I don't know where I'm not
really seeing this, I would think that more Americans would
want to buy cheaper vehicles because we are struggling to
get by right now. What do you think about that?
Speaker 2 (06:03):
You are absolutely logically right, But the facts show that
about eighty percent of the cars that are that are
being bought are luxury vehicles, SUVs, larger SUVs, and trucks,
and so the average car, the average cost of a
vehicle is about fifty thousand dollars. Now that wasn't the
(06:23):
case a few years ago, let's say six years ago.
I'm sort of tracing it back to when COVID began
and times before then. So you'd like to think that
with the problems that Americans are having with the cost
of living, that the demand would be tilted toward toward
(06:46):
compact cars, but it's not. But you know that the
point you're making is a very good one. Just because
the average price of a car is fifty thousand dollars
doesn't mean everybody needs a fifty thousand dollars car. So
there are bargains out there, and if you're willing to
go to a hybrid, for example, or a compact, you
(07:08):
can get a really good deal. But the problem is
that manufacturers have been tilted toward the luxury end. And
why have they been tilted that way because that's what
people seem to want.
Speaker 1 (07:21):
Interesting, And you also mentioned tariffs, and that's a great
point as well, considering the whole argument for part of
those tariffs was to bring manufacturing to the United States
right and make it cheaper to get American made cars.
And I also think that a lot of people don't
realize that an American made car quote unquote is still
made up of the vast majority of parts from outside
(07:41):
the United States since the tariffs were first put into effect,
have we seen that play out or have things mostly
stayed the way they were?
Speaker 2 (07:50):
Well, that's a really good question and a logical question.
So I think one thing you have to do is
to separate the short run from the long run. Okay,
so for a US manufacturer to build a new factory
or to expand an existing factory, you don't do that overnight.
So to be fair to those who favor tariffs, I'm
(08:12):
not one who feels that tariffs are a good policy.
But for those who feel as though it does, maybe
we have to give them a bit more time. But
the problem is is that people, I think a lot
of people don't realize that foreigners don't pay the tax
about ninety five percent. The only way they could help
would be to lower their prices, and they're not doing that.
(08:34):
And to address your questions specifically, manufacturing jobs in the
United States have fallen under the Trump administration, and they've
fallen as well under other administrations. And the reason is simple.
The US is a service oriented country. So to bring
cars back to the United States, I mean, tariffs allow
(08:58):
US manufacturers to expand production. Your question is, are they
actually doing it, and I think the answer is no,
but maybe they need a little bit more time. So,
you know, part of this is fairness to those who
believe that tariffs are a good policy. There are those
who feel that tariffs will pay will replace US income
(09:20):
tax and that is just so unbelievable because the tariffs
that we've collected even this year are just such a
small fraction of personal income taxes. So tariffs are basically
another way to tax Americans. If ninety five percent of
the burden of a tax of tariff is borne by
(09:42):
consumers and US importers, then basically we're taking it on
the chin. It's just another way of collecting taxes from Americans.
Speaker 1 (09:53):
Where do we go from here? Is this just going
to be the trend? Do you think moving forward? No?
Speaker 2 (09:57):
I think that's also just a logical question. It goes
back to supply and demand. What people are doing is
people are buying used cars. So you can buy new
twenty twenty six car, but you could also buy a
very nice twenty twenty two car. And what's been happening
Nicole in the United States is that the price of
(10:18):
usice cars has also skyrocketed. So you know, so we're
in a position where people are trying to make the
best And also, I go back to my earlier point,
there are bargains out there. It's not as though manufacturers
have totally disregarded the low end market. They're still out there,
(10:40):
but you have to hunt for them. And also financing
financing costs. Back a few years ago, financing costs were
around four percent and now they're around seven percent. So
that adds about about twelve thousand dollars a year to
the cost of owning a car. That's why I say,
(11:01):
if you focus on just the price of a car,
then that is certainly important, but equally important is whether
you can afford to maintain it, to keep it running,
to register it, the gas insurance, the sales tax is
going to be higher. All of these things sort of
add through. And when you purchase a car, the you know,
(11:27):
if you're going to finance it, you probably finance around
eighty percent of it. If you can't afford, you put
twenty percent down. And then the question is how many
years do you finance it for? So if you finance
it for more years, you can bring the monthly costs down.
So Americans are doing that as well. I just read
recently that there are now car loans that go out
(11:49):
eighty four months, and so there are problems because people
try to sell these cars and they find out that
they owe more on the car than they're getting than
they're getting back from it, So it's just increasing their indebtedness.
I think that pay attention not just to the sticker price,
but well will it cost or run it? Electric vehicles
(12:10):
those prices are coming down. They're less expensive to run.
Hybrids also less expensive to run. So I think it's
just a little bit of doing a little bit of
homework to find out what's the best deal for you,
what can you afford, what fits into your lifestyle.
Speaker 1 (12:28):
Yeah, and I guess my last question for you, do
you think we're going to get to a breaking point?
Because in rural areas, of course, you need a car
to get around. There's really no MBTA in parts of
western mass right, But do you think that people are
finally going to get to the point where they say,
I can't do this anymore. I've got to find another
way to get around. I'm going to lean on the tee,
I'm going to lean on buses, bikes. Where is that breaking.
Speaker 2 (12:50):
Point you think well, I don't know if the proper
term is a breaking point, but you know, I see
for myself that I get around I need a car,
and I think everybody feels as though this is one
of these one of these assets, that it's not an option,
(13:10):
you need it. But there is hope in the sense
that there's uber I recently visited San Francisco and they
have cars, driverless cars. So it would be nice if
we got to the point where if you wanted to
go to the drug store, or you wanted to go
to the grocery store, you wanted to go to the
dry cleaners, you could simply call a number and a
(13:33):
driverless car that has three hundred and sixty degree vision
very safe, could pick you up and take you there.
So the problem with a car is that it's an
enormous fixed cost that depreciates as an asset on your
balance sheet, but it depreciates over time. So you would
turn this huge fixed cost into a variable cost, and
(13:56):
then the question is could you afford it? Is the
what is a convenience? What are your real needs? So
I do see hope there, but I don't see it overnight.
I mean, there are problems in California with these with
these automatic driverless cars getting stuck and occasionally I think
(14:18):
they hit people, but I don't think very frequently. So
it's just something worth exploring. And you asked a very
interesting question. I wish I had. I wish I had
the answer, but I have the same question you do.
Speaker 1 (14:30):
Okay, well, professor, I really appreciate you coming on the
show and shedding some light for us. This is important
in Photo No. As we move forward. Thank you so much.
Speaker 2 (14:38):
Thank you, Nicole.
Speaker 1 (14:40):
A happy Mother's Day weekend if you celebrate, hope you
have a safe and healthy one and join us again
next week for another edition of the show. I'm Nicole
Davis from WBZ News Radio on iHeartRadio.
From WBZ News Radio in Boston. This is New England Weekend.
Each week right here, we come together, we talk about
all the topics important to you and the place where
you live. Thanks again for tuning in this week. I'm
Nicole Davis. So maybe it's time for you to go
buy a new car, and you go to the website
of your local dealership, and then another and another, and
you find yourself doing more and more double takes at
(00:29):
just how much it's going to cost you to buy
that new car. These days, we're seeing record high prices
for automobiles all over the country. Just a few handfuls
of vehicles at this point are actually coming in with
a sticker price of under thirty thousand bucks gone. It
seems are the days of the affordable sedan. Instead, now
it's all SUVs and pickup trucks and other expensive models
on the lots. That's because automakers in general aren't putting
(00:52):
their energy into churning those out. But I was thinking
about this and the math. It does not make sense.
We have a cost of living crisis. Affordable is a
major issue, especially in Massachusetts. I feel like there's some
kind of disconnect here between the reality for would be
buyers and the auto industry. I am certainly no expert, though,
but I do know how to find them, so I
(01:13):
got one in here to talk with us about this.
John Martinsen is a professor of economics and International business
at Babson College in Wellesley, and Professor, I'm really happy
to have you here on the show to have this
discussion and help us break this down. So let's just
get right into it. Why are cars so expensive these days?
Speaker 2 (01:30):
The simple answer, Nicole, is that car prices are high
in the United States mainly because Americans are buying more
expensive vehicles. They're buying luxury cars, SUVs, and trucks, and
the average price is probably close to fifty thousand dollars,
and so automakers are simply building fewer cheap cars and
(01:52):
the cost of making and owning a car has jumped,
so automakers are basically following the money and they're building
fewer low cost models. And to a large extent, it's
the demand side. This is what Americans want, and so
you know, there are supply factors as well. Tariffs have
raised the prices of imported cars, so US manufacturers can
(02:17):
have an easier time raising their prices, and Americans who
want to buy foreign made cars pay more. And also
a major problem with tariffs is that the cost of
inputs like aluminum and steel, transistors, these tariffs have increased
the cost of making a car. So I don't know
(02:38):
if I don't know how many people realize that that
ninety five percent or more of a tariff is borne
by a US consumer or business. So those are a
few of the major reasons why the price of cars.
The prices of cars are so high. And I think
we have not recovered yet from COVID, so we're still
(03:02):
repairing supply chains, and so those are the reasons. Those
are the major reasons on the supply and demand side.
But I think to me, Nicole Americans are also suffering
because it's not just the cost of buying a car,
it's the cost of owning one. And a recent studies
(03:25):
showed that it costs over eleven five hundred dollars to
own a car every year, so that's equally important. And
you know, if you think of costs like maintenance and
insurance and depreciation and gas prices now are through the ceiling,
So it's not just the cost of buying a car.
(03:48):
And that's been going up and again. To a large extent,
it's our own fault, but it's also the cost of
owning one. People see higher prices for cars, but they
forget that everything else has gone up too. So it's
sort of a perceptions versus reality problem where I went
(04:09):
back to twenty twenty and compared the price of cars
in twenty twenty to where they are today, and actually
it's cheaper in terms of inflation adjusted prices. In other words,
if you kept the price, the same prices today are
actually about three percent cheaper than they were in twenty twenty.
(04:31):
So it's not The economists call this a money illusion,
but you can call what you like. But it's sort
of like you see the price of something you really need,
like a car. You need it in your daily life
to get to the store, to get to your work,
but the price of everything else has gone up as well. So,
for example, the consumer Price Index since twenty twenty has
(04:55):
gone up twenty eight percent, but new vehicles have gone
up about twenty one percent. Gasoline prices, of course have
recently spiked, so I'm not so sure that that's a
long run problem, but this gives you a few of
the ideas, you know, I was thinking about when when
you ask the question why are car prices so high?
(05:19):
And like I said, you start with the supply and
demand reasons, and then you go into the cost of
owning a car, which is also prohibitive for some people,
and then you realize that if you look at cars
in perspective in terms of relative to everything else, they
(05:39):
really haven't gone up as much as the price of
everything else.
Speaker 1 (05:42):
When you tell me that Americans want to buy more
luxury vehicles, I think of the fact that we are
dealing with a massive cost of living crisis right now.
So to me, and I don't know where I'm not
really seeing this, I would think that more Americans would
want to buy cheaper vehicles because we are struggling to
get by right now. What do you think about that?
Speaker 2 (06:03):
You are absolutely logically right, But the facts show that
about eighty percent of the cars that are that are
being bought are luxury vehicles, SUVs, larger SUVs, and trucks,
and so the average car, the average cost of a
vehicle is about fifty thousand dollars. Now that wasn't the
(06:23):
case a few years ago, let's say six years ago.
I'm sort of tracing it back to when COVID began
and times before then. So you'd like to think that
with the problems that Americans are having with the cost
of living, that the demand would be tilted toward toward
(06:46):
compact cars, but it's not. But you know that the
point you're making is a very good one. Just because
the average price of a car is fifty thousand dollars
doesn't mean everybody needs a fifty thousand dollars car. So
there are bargains out there, and if you're willing to
go to a hybrid, for example, or a compact, you
(07:08):
can get a really good deal. But the problem is
that manufacturers have been tilted toward the luxury end. And
why have they been tilted that way because that's what
people seem to want.
Speaker 1 (07:21):
Interesting, And you also mentioned tariffs, and that's a great
point as well, considering the whole argument for part of
those tariffs was to bring manufacturing to the United States
right and make it cheaper to get American made cars.
And I also think that a lot of people don't
realize that an American made car quote unquote is still
made up of the vast majority of parts from outside
(07:41):
the United States since the tariffs were first put into effect,
have we seen that play out or have things mostly
stayed the way they were?
Speaker 2 (07:50):
Well, that's a really good question and a logical question.
So I think one thing you have to do is
to separate the short run from the long run. Okay,
so for a US manufacturer to build a new factory
or to expand an existing factory, you don't do that overnight.
So to be fair to those who favor tariffs, I'm
(08:12):
not one who feels that tariffs are a good policy.
But for those who feel as though it does, maybe
we have to give them a bit more time. But
the problem is is that people, I think a lot
of people don't realize that foreigners don't pay the tax
about ninety five percent. The only way they could help
would be to lower their prices, and they're not doing that.
(08:34):
And to address your questions specifically, manufacturing jobs in the
United States have fallen under the Trump administration, and they've
fallen as well under other administrations. And the reason is simple.
The US is a service oriented country. So to bring
cars back to the United States, I mean, tariffs allow
(08:58):
US manufacturers to expand production. Your question is, are they
actually doing it, and I think the answer is no,
but maybe they need a little bit more time. So,
you know, part of this is fairness to those who
believe that tariffs are a good policy. There are those
who feel that tariffs will pay will replace US income
(09:20):
tax and that is just so unbelievable because the tariffs
that we've collected even this year are just such a
small fraction of personal income taxes. So tariffs are basically
another way to tax Americans. If ninety five percent of
the burden of a tax of tariff is borne by
(09:42):
consumers and US importers, then basically we're taking it on
the chin. It's just another way of collecting taxes from Americans.
Speaker 1 (09:53):
Where do we go from here? Is this just going
to be the trend? Do you think moving forward? No?
Speaker 2 (09:57):
I think that's also just a logical question. It goes
back to supply and demand. What people are doing is
people are buying used cars. So you can buy new
twenty twenty six car, but you could also buy a
very nice twenty twenty two car. And what's been happening
Nicole in the United States is that the price of
(10:18):
usice cars has also skyrocketed. So you know, so we're
in a position where people are trying to make the
best And also, I go back to my earlier point,
there are bargains out there. It's not as though manufacturers
have totally disregarded the low end market. They're still out there,
(10:40):
but you have to hunt for them. And also financing
financing costs. Back a few years ago, financing costs were
around four percent and now they're around seven percent. So
that adds about about twelve thousand dollars a year to
the cost of owning a car. That's why I say,
(11:01):
if you focus on just the price of a car,
then that is certainly important, but equally important is whether
you can afford to maintain it, to keep it running,
to register it, the gas insurance, the sales tax is
going to be higher. All of these things sort of
add through. And when you purchase a car, the you know,
(11:27):
if you're going to finance it, you probably finance around
eighty percent of it. If you can't afford, you put
twenty percent down. And then the question is how many
years do you finance it for? So if you finance
it for more years, you can bring the monthly costs down.
So Americans are doing that as well. I just read
recently that there are now car loans that go out
(11:49):
eighty four months, and so there are problems because people
try to sell these cars and they find out that
they owe more on the car than they're getting than
they're getting back from it, So it's just increasing their indebtedness.
I think that pay attention not just to the sticker price,
but well will it cost or run it? Electric vehicles
(12:10):
those prices are coming down. They're less expensive to run.
Hybrids also less expensive to run. So I think it's
just a little bit of doing a little bit of
homework to find out what's the best deal for you,
what can you afford, what fits into your lifestyle.
Speaker 1 (12:28):
Yeah, and I guess my last question for you, do
you think we're going to get to a breaking point?
Because in rural areas, of course, you need a car
to get around. There's really no MBTA in parts of
western mass right, But do you think that people are
finally going to get to the point where they say,
I can't do this anymore. I've got to find another
way to get around. I'm going to lean on the tee,
I'm going to lean on buses, bikes. Where is that breaking.
Speaker 2 (12:50):
Point you think well, I don't know if the proper
term is a breaking point, but you know, I see
for myself that I get around I need a car,
and I think everybody feels as though this is one
of these one of these assets, that it's not an option,
(13:10):
you need it. But there is hope in the sense
that there's uber I recently visited San Francisco and they
have cars, driverless cars. So it would be nice if
we got to the point where if you wanted to
go to the drug store, or you wanted to go
to the grocery store, you wanted to go to the
dry cleaners, you could simply call a number and a
(13:33):
driverless car that has three hundred and sixty degree vision
very safe, could pick you up and take you there.
So the problem with a car is that it's an
enormous fixed cost that depreciates as an asset on your
balance sheet, but it depreciates over time. So you would
turn this huge fixed cost into a variable cost, and
(13:56):
then the question is could you afford it? Is the
what is a convenience? What are your real needs? So
I do see hope there, but I don't see it overnight.
I mean, there are problems in California with these with
these automatic driverless cars getting stuck and occasionally I think
(14:18):
they hit people, but I don't think very frequently. So
it's just something worth exploring. And you asked a very
interesting question. I wish I had. I wish I had
the answer, but I have the same question you do.
Speaker 1 (14:30):
Okay, well, professor, I really appreciate you coming on the
show and shedding some light for us. This is important
in Photo No. As we move forward. Thank you so much.
Speaker 2 (14:38):
Thank you, Nicole.
Speaker 1 (14:40):
A happy Mother's Day weekend if you celebrate, hope you
have a safe and healthy one and join us again
next week for another edition of the show. I'm Nicole
Davis from WBZ News Radio on iHeartRadio.
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