Rising incentives and falling interest rates combined to make new vehicles more affordable in August compared to July. In fact, they are at the most affordable levels in more than three years, according to new data.
New vehicles were the most affordable they’ve been in more than three years last month.
The latest Cox Automotive/Moody’s Analytics Vehicle Affordability Index reveals that several factors came together to improve vehicle affordability to its best level since May 2021. In addition to the incentives and interest rates, prices fell and incomes rose in August, moving the needle in the consumer’s favor.
“The affordability story is complex,” said Cox Automotive Economist Jonathan Smoke. “When analyzing the data, we observe that affordability is becoming less of a macroeconomic issue and more of an automotive industry issue.
“Automakers are opting to manufacture higher-priced vehicles, so further declines in interest rates will not significantly reduce payments. Instead, income growth will have a greater impact than interest rate changes in the auto industry.”
The numbers
Interest rates fell below 10% in August, the lowest they’ve been in the last 12 months.
The average interest rate for auto loans fell to 9.95%, which is the lowest they’ve been in the last 12 months. The drop also marked the first time in two years that rates were lower on a year-over-year basis.
The average price of a new vehicle in August decreased by 0.6% for the month but remained within the same range as the past two-plus years, with growing incentives. Income growth continued, resulting in a 3.6% improvement year over year.
Consumers paid less on average in August as the average transaction price, or ATP, fell slightly to $47,870 from $48,166 in July.
The average incentive package in August equaled 7.2% of ATP, up from 7% in July to the highest level since the first half of 2021. A year ago, incentive spending was 4.8% of ATP. In the past decade, incentive spending peaked at 10.8% of ATP in December 2019.
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Buying a vehicle
The average transaction price for a new vehicle fell slightly in August to $47,870.
With lower interest rates and lower prices come lower monthly payments. The average monthly payment for a new vehicle in August came in at $737, a decline of 1.6%. It was also the lowest number in two years, Cox analysts noted.
The average monthly payment peaked at $795 in December 2022.
The number of median weeks of income needed to purchase the average new vehicle declined to 36.1 weeks from a downwardly revised 36.8 weeks in July, reaching the lowest level since May 2021.
The estimated number of weeks of median income needed to purchase the average new vehicle in August was down 8.7% from last year.
I don’t know anyone who thinks $47,870 is affordable. Especially when you consider that by the time you park it in your driveway it’s worth closer to $40,000.