Auto affordability about to take a turn for the better

Auto affordability about to take a turn for the better

Americans with the U.S. median household income of $54,457 can only afford a $16,448 car, which is just 54.1 percent of the average vehicle transaction price. Those figures from the October Auto Buyerês Affordability Index sound shocking, but the statement comes with several strong caveats.

First, the figures are based on the traditional 20-4-10 auto financing rule: a 20 percent down payment, a maximum four-year loan, and total monthly vehicle expense, including insurance, of 10 percent or less of gross income. Dealers see that rule violated every day.

Second, median income is quite a bit higher in the Washington area.

Third and this is mixed news for dealers transaction prices have started to weaken, according to Requisite Press, which produces the affordability index. –The current pricing trend, taken in context of historical data, could signal an end to 35 years of prices outpacing incomes,” the company writes. –New-car affordability is likely to improve in the near term if the current rate of income growth continues.” The rate of increase in transaction prices has slowed every year since 2011, and new vehicle prices will likely fall this year for the first time since 2009. Dealers want consumers to be able to afford the vehicle they buy, but on the other hand, higher transaction prices mean more profit on the low-margin part of the business; that is to say, new-car sales.