Car buyers enjoyed a more affordable new vehicle market in September in spite of rising interest rates and economic headwinds.
According to Cox Automotive’s monthly report, measures of affordability improved both month-over-month and year-over-year in September. It cost roughly 42.2 weeks of income to purchase a new vehicle before the start of October, a decrease of 0.9% from August and 1.6% from September 2022.
The number not only represents one of the most consumer-friendly periods in the new vehicle market seen in months, but it also marks the first time that new vehicle affordability has improved on an annual basis since before the onset of the COVID pandemic. For car buyers, market conditions have now improved for three consecutive months and have not deteriorated in ten.
Behind the scenes, consumers in September made more but spent less on new vehicles than they had previously. According to the latest employment report, Americans earned 0.2% more than they had in August and 4.2% more than in the prior year. Combined with a 0.5% reduction in new car transaction prices and a 0.8% decline in monthly payments, these factors drove costs down and made vehicles more affordable.
The improvements in pricing and income negated the impact of another factor: loan interest rates. Auto financing rates rose by nearly 1 point from August to 10.48% in September, the highest number on record. This shift, while negative, gives additional emphasis to the positive trends seen throughout the month. On a broad scale, interest rates and inflation are frequently cited in the post-pandemic economy as the two most harmful factors impacting businesses and consumers.
To reverse course on these issues, prices must become more affordable, something that already seems to be happening in the new vehicle market. Although this may be worrisome news for dealership profit margins, the return of consumer-friendly conditions is a positive sign both for the automotive industry and the economy as a whole.