Data from Cox Automotive suggests that vehicle affordability improved slightly in April, although pricing pressures remain high.
The Vehicle Affordability Index found that the median number of weeks required to save enough for a new car declined from 43.2 in March to 42.9 in April. Wage growth, lower price tags and more incentives saw financial hardship in the market lessen, allowing the average monthly payment to fall 0.3% to $766. Cox Automotive notes that this amount is the lowest since last October.
However, while the new-vehicle climate improved to a degree, multiple factors are keeping the market from regaining its health. Auto loan interest rates rose to 9.52%, spurred in part by a national banking crisis, increased caution from lenders and the Federal Reserve’s disinflationary measures. Cox Automotive chief economist Jonathan Smoke noted that economic conditions continued to be the greatest source of affordability issues, writing, “We continue to see subprime buyers squeezed out of the auto market by the Fed repeatedly moving rates higher.” This, he notes, has limited new vehicle purchases to “mostly high-income, high-credit-score buyers.”
Furthermore, while pricing pressures fell from March, the average cost of a new car remains elevated by 4.9% from last year. Although the auto industry has significantly scaled production to address inventory shortages, the effects of these efforts have yet to be felt by consumers. Affordability issues remain a prominent fixture of the post-pandemic new vehicle market, and while demand has remained strong throughout the first quarter, it remains to be seen how long the positive trends can be sustained before greater discounts and incentives are introduced.
