In recent years, vehicle affordability has been a significant pain point for dealers and consumers. However, February marked a turning point. According to the latest Cox Automotive/Moody’s Analytics Vehicle Affordability Index, new-vehicle affordability improved, reaching its best level since mid-2021.
Several factors contributed to this improvement, including price decreases, income growth, and more favorable economic conditions. According to Kelley Blue Book data, the average price for a new vehicle dropped by 1.3% in February. This price reduction, combined with a 3.5% increase in year-over-year growth income, provided consumers with a boost in affordability.
In addition to lower vehicle prices, the average monthly payment also decreased in February. The average payment dropped by 1.1% to $748, a 1.3% year-over-year decrease. This is drastic from the peak of December 2022, when the average monthly payment was $795.
Another critical metric for measuring affordability is the number of weeks of median income needed to purchase the average new vehicle. This figure dropped to 37.2 weeks in February, a slight decrease from January’s 37.7. Compared to February 2023, this marks a 1.3-week improvement year-over-year.
While the average new vehicle price was slightly lower last year, several factors made affordability more challenging than it is today. Last year, household income was lower, interest rates were higher, and fewer incentives were available to consumers, creating a more challenging environment for car buyers.
Affordability is influenced by many factors, and Cox Automotive’s Chief Economist Jonathan Smoke notes that it’s inherently relative. While the decrease in new vehicle prices is a positive development, Smoke emphasizes that higher-income households are benefitting more from these changes than lower-income households who continue to face affordability challenges.
Despite this, the combination of lower average vehicle prices and higher incomes offset some of the effects of reduced incentives and increased interest rates, making new-vehicle affordability more manageable for many.
