The purchase and financing of an average-priced new vehicle cost 23.4 weeks of median family income in the first quarter of 2010, according to Comerica Bank’s Auto Affordability Index. That takes into account both median wages and purchase prices of new cars.
The first quarter reading showed affordability worsened by 0.3 weeks from the Index’s revised fourth quarter level of 23.1 weeks of median family income. The average total cost of buying and financing a new car increased by $500 to $27,500, an 8 percent annual rate increase from the previous quarter. That may not sound like much, but it’s the trend that we care about – car prices (including finance charges) are rising faster than incomes.
Median family income is estimated to have risen at a 2 percent annual rate in the first quarter. Average car loan rates increased to 4.3 percent, 50 basis points (or half a percent) above the 2009 average of 3.8 percent.
“Affordability deteriorated slightly in the first quarter, mostly due to the rise in interest rates on car loans,” said Dana Johnson, Chief Economist at Comerica Bank. “With the ongoing improvement in the economy, consumers were willing to pay a bit more for new vehicles, allowing the car companies to offer less generous discounts and financing terms. The result is that auto affordability in the first quarter was the lowest in nine quarters.