Why Nearly Every Cost Related to Your Car Is Rising
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Why are overall car ownership costs rising even as gas prices fall?
Here's your Money Briefing for Friday, February 16th. I'm J.R. Whelan for The Wall Street Journal. Gas prices are on the decline. That's the good news. The bad news is the overall cost of owning a car is rising. And the main culprit is auto insurance.
It's reflective of just how much the price of cars has risen. Cars that cost more are simply more expensive to insure. The average transaction price on a new vehicle was about $39,800 in January 2021. As of last month, it's all the way up to $47,350.
We'll talk to Wall Street Journal personal finance reporter Joe Pinsker after the break.
Inflation has been trending lower for the past year, but car insurance is still taking a chunk, a big chunk, out of household finances.
How much have car insurance premiums increased recently and what does the data show?
Wall Street Journal personal finance reporter Joe Pinsker joins me. Joe, how much have car insurance premiums risen recently?
If you look at government data, car insurance premiums have risen 20.6% over the past year. That's from this past January to the January a year before that. And car insurance is one of the many things related to car ownership that has outpaced the consumer price index more generally, which rose 3.1% year over year through last month.
But 20% increase for car insurance? That sounds like a lot.
It is quite a lot. And it's reflective also of just how much the price of cars has risen, especially in the past couple years.
What factors are driving the steep rise in auto insurance costs?
Cars that cost more are simply more expensive to insure. If you look at the latest data from the online car shopping website Edmunds, The average transaction price on a new vehicle was about $39,800 in January 2021. As of last month, it's all the way up to $47,350. So it's quite a jump.
Yeah, that and the cost of car insurance. And what has pushed car insurance premiums higher by so much?
One important factor here is just the rising price of cars. Pricier cars are more expensive to insure. Another aspect is that new cars have a lot of new technology and the more complicated technology you have, the fancier technology you have in a car. the more expensive it is to replace. Cars have just become more sophisticated. Another factor behind this, insurance, when people have it, is something that will cover the costs of repairs and bodywork. And those are two other areas where we've seen prices increase. So that's been another thing that is behind rising insurance premiums.
Yeah. What are some other expenses that drivers are paying more for?
Trips to the mechanic have gotten pricier in the past year. If you look at this latest data, the cost of repairs has increased 7.9% year over year.
Which other car-related expenses — repairs, maintenance, parking and tolls — are increasing and by how much?
The cost of body work on a car has gone up 4.3%. It's also just more expensive to park and go on highways and cross bridges because the parking fees and tolls that people pay have risen 4.8% on average over the past year.
Wow, you just turn the car on and all of a sudden you're paying more money.
That's how it feels sometimes.
What other expenses are hitting people's wallets that they might not be aware of?
Related to taking your car into the shop, just basic maintenance and servicing has gotten more expensive. That's where you see a 5.7% year-over-year increase. And something that I found really interesting as I was doing my reporting on this is that the highest cost of car ownership is actually something that you aren't paying out of pocket, so to speak. It's depreciation, and it's something that people don't think about that much. The idea is that your car just loses value as you drive it. And when you actually do the math on it, it's pretty disconcerting. AAA analyzed the overall costs of owning a car, and they estimated that in 2023, the overall cost of depreciation for a driver of a new car was about $4,500 if they drove 15,000 miles in a year.
What's been the effect of these higher rates and these higher expenses on people's finances?
When you look at household spending, transportation is Americans' second biggest expense. That's behind housing costs. And so when the costs of driving go up, that's really going to strain people's budgets.
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Chapters
6 chapters
1
Why are overall car ownership costs rising even as gas prices fall?
0:04–1:09
2
How much have car insurance premiums increased recently and what does the data show?
1:09–1:53
3
What factors are driving the steep rise in auto insurance costs?
1:53–3:12
4
Which other car-related expenses — repairs, maintenance, parking and tolls — are increasing and by how much?
3:12–5:00
5
How does depreciation affect the true cost of owning a new car?
5:00–5:31
6
What financial impacts are higher car costs having on household budgets and loan delinquencies?
5:31–5:43
Speakers
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