Middle-Income Americans Put Off Car Replacements Amid Affordability Concerns

The rise in gas prices has been a hot topic lately, especially since the US and Israel began attacking Iran last weekend. Oil prices have increased by 15% since then, and gasoline prices are following suit. However, in a big-picture economic sense, this matters less than it used to.

In 1973-74, oil intensity of gross domestic product (GDP) was much higher, but it has decreased by about 70% in the US and 60% worldwide since then. The share of US consumer spending going to gasoline and other motor fuel was just 1.8% in December, down from more than 5% in 1979.

Americans still hate it when gas prices go up, though, partly because driving is essential for economic survival in most of the US. Fuel costs are part of a bigger package of expenses that come with owning or leasing a car or truck, and new and used cars and trucks have become more expensive since the Covid-19 pandemic.

A study by the Bureau of Labor Statistics found that, when you put together all the different spending related to motor vehicles, it makes up a smaller share of overall consumer spending than before the pandemic. The top four income quintiles devote about 15% to 16% of their non-housing spending to cars and light trucks.

However, middle- and lower-income consumers are putting off replacing their vehicles for as long as they can due to affordability concerns. Higher-income consumers are less constrained, but overall, the light trucks and especially the cars on America's roads have just been getting older and older.