Prices for new automobiles continue their steady escalation
Rising Car Prices and Stagnating Wages compromise Affordability
In a concerning development, the affordability of new cars in Germany has significantly deteriorated over the past five years. This is evidenced by a joint study from consulting firm Oliver Wyman and market researchers at Jato Dynamics.
Between 2019 and 2024, the average net income in Germany grew by approximately 24%, increasing from around €26,100 to nearly €32,400. However, the average price of a new car surged by about 40%, climbing from around €30,200 to almost €41,800. As a result, the ratio of new car price to annual salary rose from 1.16 in 2019 to 1.29 in 2024, signifying an 11% decrease in affordability for the typical consumer [2][1].
The escalation in car prices can be attributed to a variety of factors, including increasing production costs, material price hikes, and broader inflationary pressures [2]. An influential factor is the shift towards electric and hybrid vehicles, which accounts for almost half of the observed price increase [2][1]. The high cost of advanced battery technology used in electric vehicles (EVs) drives up production costs, eventually affecting the final price paid by consumers [2][1].
Further complicating the situation is the impact of European Union (EU) and German regulations promoting greener vehicles and higher safety standards. These standards drive up complexity and weight in cars, further raising production costs [3]. Additionally, the availability of entry-level car models has diminished as manufacturers have shifted their focus towards higher-priced, higher-margin vehicles [1][3].
In an attempt to offset the higher upfront costs, more and more consumers are turning to leasing, financing options, and used car markets. Consequently, new car purchases in Germany have decreased by 22% over the same period [1][1].
On a positive note, findings from a research overview by the Fraunhofer Institute for Systems and Innovation Research (ISI) indicate that electric cars can offer long-term savings. Mid-range electric vehicles can be more economical than internal combustion engine cars after three years of typical use and with their own charging capacity [1]. This is due to both cheaper energy costs as well as lower maintenance costs [1].
[1] ntv.de[2] raf/dpa[3] Reuters.com
- Despite the growth in employment policies within the automotive industry aimed at reducing costs, the increasing price of new cars due to factors like advancements in technology, material price hikes, and regulatory requirements has eroded affordability, as stated in the community policy recommendations from the Fraunhofer Institute for Systems and Innovation Research (ISI).
- In light of the stagnating wages and the rising price of new cars, the lifestyle choices of many Germans have shifted towards financing or leasing options, as well as the exploration of used car markets, indicating a business trend towards catering to these financial needs.
- The Finance Ministry, recognizing the impact of these trends on consumers, is considering implementing strategies to make electric vehicles (EVs) more affordable by subsidizing the high costs associated with advanced battery technology and promoting employment policies that encourage the production of entry-level EVs, thereby ensuring a more balanced investment in both technology and affordability within the lifestyle sector.
