It grew easier for Americans to afford a new car in September. Strong income growth and lower vehicle prices were enough to offset higher auto loan rates, improving conditions for car shoppers. Affording a new vehicle is now easier than it was a year ago.
A New Car Takes Less of Your Working Life
The Cox Automotive/Moody’s Analytics Vehicle Affordability Index sounds like something only an economist would care about. But the way it works makes it worth your attention.
Only a tiny percentage of Americans can purchase a new car with cash. Most of us borrow to buy and work to pay off the debt. We pay for our vehicles with our labor and time.
The index measures how long the average earner would have to work to pay off the average new vehicle. It’s a product of Kelley Blue Book’s parent company, Cox Automotive.
The index declined to 42.2 weeks in September. That’s lower than the 42.9 weeks recorded in September 2022.
Still Historically High, but Coming Down
It’s still historically high. The index hovered between 33 and 36 weeks for most of a decade before the COVID-19 pandemic changed the math of car ownership, but it’s down from a peak of 44 weeks last December.
Maybe more poignantly, this is the first time the index has been lower than year-ago results since 2019. Little by little, sanity is returning to car shopping. A new vehicle takes less of your health and allows more labor to go to other needs than last year.
The change came because median income grew 0.3%, the average new-vehicle transaction price declined 0.5%, and incentives from manufacturers were nearly unchanged.
Not all the news is good. The typical new vehicle loan interest rate increased to 10.48% — a new peak.
But, taken together, all the factors mean the estimated typical monthly payment declined 0.8% to $765 from an upwardly revised $771 in August. The average monthly payment reached its all-time high of $794 in December.
An ongoing UAW strike threatens to raise car prices if it drags on long enough. So far, it has barely impacted new car prices, as dealers stocked up on new vehicles in anticipation of the work stoppage and still have plenty to sell.
