The Car Market is BANKRUPTING Americans (What You Need To Know)

What we are seeing in the car market right now is absolutely insane, and the data is setting off some alarm bells. There are some major red flags going up and signs that are pointing to a huge correction in the car market, which I am so excited to talk about today. We’re also going to cover what we believe is the right way to finance a car, should you need to, a little later on. So, be sure to stick around for that at the end.

To give you a snapshot of where Americans are with cars as a whole right now, total U.S. auto loan debt has reached a staggering $1.6 trillion. Average payments for new cars have climbed to $745, with loan terms now being stretched out to over 68 months. Not only that, but almost 70% of Americans own two or more vehicles, with a third of Americans owning three or more. It’s no wonder that cars are called the number one wealth killer in America. Folks are up to their eyeballs in payments.

But beyond the behavior, let’s look at the broader car market. It’s looking like we’re heading for a major correction. Inventory is piling up across major manufacturers and dealerships, and tariffs continue to be somewhat of an X-factor, with the most recent round having gone into effect in April. So, if you or someone you know is thinking about buying a car in the near future, buckle up.

Oh, bro.

The good news, though: there will likely be no shortage of cars to choose from. And as of right now, July of 2025, around 3 million unsold cars are projected to be sitting on American lots, which is up about 11% from June. So currently, many car manufacturers have over 90 days of inventory supply on their lots. For some context, at the market’s tightest in 2022, the average was only around 18 days of new inventory. During that shortage, there were even some popular models from brands like Honda, Toyota, and Subaru that were available for less than 10 days before being sold.

So, why is all of this happening to the car market? Well, the answer is twofold. Number one, the industry has gone through a really strange period following the pandemic when the car market really started to go haywire. And over the past two years, the auto industry has shown clearer signs of distress. Major manufacturers, including Ford, Volkswagen, and Nissan, have laid off thousands in sweeping workforce reductions, reflecting a broader climate of panic and retrenchment.

Nissan stands out as a particularly stark example. Once Japan’s number two automaker, the company has been battered by rising Chinese competition and weak EV performance in the U.S. According to CNBC, Nissan’s profits collapsed by 90% year-over-year, prompting a 9,000-employee layoff and a 20% cut to global production capacity in late 2024. The CEO even slashed his own pay by 50% as Nissan entered into what are now failed merger talks with Honda, a deal that would have created a $60 billion global giant. The collapse of that deal has left Nissan adrift, and it’s not alone. When legacy automakers begin merging for survival, it’s rarely a sign of innovation. It tends to be a red flag, and many are pointing to Nissan’s crisis as a symptom of a deeper structural instability hitting the sector. The specifics are still playing out, but the pattern is increasingly hard to ignore.

Although it’s still mostly speculative, it seems that tariffs at least are going to muddy the waters as far as when the car market will, if ever, return to normal. There was a 25% tariff imposed on imported light vehicles and auto parts on April 3rd of 2025, now affecting nearly half of U.S. light vehicle sales. Again, predictions are this will increase the average prices of new vehicles by around 13 to 15% per vehicle, according to Axios. So it’s possible that these changes—which are projected to suppress demand—and manufacturer behavior—which has increased domestic supply—are going to create a mismatch between market factors that land us with a big correction in the future. We just don’t know yet.

But with the state of things covered and out of the way, what does this mean for you? What can or what should you do to make sure your financial well-being is not collateral damage in the ever-evolving car market?

I’ll finance it for 78 months.

The number one thing I can recommend you do if you need to buy a car: pay cash. Now, I’m sure this will come as no surprise to most, but cash is generally the most cost-effective way to purchase a car over the long haul. But that only works if you have the cash on hand. That’s why things like emergency reserves are essential, so that when your car goes out on you, you’re not stuck with a desperate decision that lands you with some huge pile of debt.

Easy, easy. You’re not going to get it started that way.

I’m just getting ready. You know, I’m about 32% done with my restoration.

And buying in cash will help keep you inside the parameters of affordability rather than stretching out too much car over the course of a 68-month figure like what we saw earlier.

One way that you can buy used in a pretty cost-effective manner is to buy cars that are somewhere around two to four years old. Since cars take the vast majority of their depreciation hit—or their loss in value—within the first year or so, by waiting until the original owner has eaten that cost, the vehicle’s already taken the biggest depreciation hit—around 30 to 50% of its value. But it still has things like modern safety features, good reliability, and in many cases, remaining warranty coverage.

Buying within this window balances savings with lower risk, as cars are generally past the rapid value drop of new models but haven’t yet reached the age where major repairs become common. It’s the sweet spot where value, dependability, and total cost of ownership tend to align.

Now, with all that said, if you do find yourself needing to finance a vehicle—which, despite what some talking heads would have you believe, may actually be necessary—that’s okay. Just make sure that you’re doing it responsibly. We actually have a little rule of thumb to help you do that. It’s called 20/3/8. That’s 20% down, finance for no more than 3 years, and your total auto payments cannot exceed 8% of your gross income. This will help keep the car purchase within the realm of financial responsibility.

If you want to know how much car you can afford, we do have a car buying calculator available at moneyguide.com/resources.

Also, a valuable tool in the car buying kit: incentives. Incentives are typically things like cashback offers or low-interest financing or discounts provided by automakers to help move inventory. And according to Kelley Blue Book, incentives have grown to 7.2% of average transaction prices in order to create positive momentum for dealers. This means dealers are offering larger discounts than usual to try to attract buyers, which indicates a market that’s likely under pressure to move excess inventory.

Edmunds, which is an online resource for prospective car buyers, has a page called Best Car Deals and Incentives, and it’s a valuable tool for finding manufacturer-backed deals like customer cash rebates or low APR financing. Customer cash is a direct discount off the purchase price, reducing how much you pay or how much you have to borrow. This is ideal if you’re paying cash or you’re using outside financing.

Low APR financing, on the other hand, lowers or eliminates the interest costs when financing through the automaker, often saving thousands over the life of the loan if you qualify. These offers usually can’t be combined, so it’s smart to compare the total costs under both scenarios. Edmunds makes it really easy to search incentives by make and zip code, helping you time your purchase and maximize your savings. And by the way, this is not sponsored by Edmunds. It’s just a really good resource.

It’s true that the automotive industry is currently experiencing unprecedented challenges on multiple fronts: soaring interest rates, dealership loss, overflowing inventory, widespread manufacturer layoffs, and tariffs that may only exacerbate these problems. While all these signs point to an impending market correction, you don’t have to be at the mercy of unpredictable market forces.

Though basic economics suggests prices should fall as supply exceeds demand, tariffs add unique complexity to the equation. But what’s the good news? You can position yourself to win no matter the market conditions. The most crucial factor for financial success in the car market is adopting a mind of intentionality rather than impulsivity—preparing ahead with savings and making strategic decisions based on your true transportation needs rather than your fleeting desires or social pressures.

That’s all we’ve got for this one, but as always, keep building towards your great big beautiful tomorrow.