New-vehicle affordability worsens in October as incentives fall

On the Dash:

• New-vehicle affordability declined for the third straight month in October due to reduced incentives.
• Monthly payments rose to $766, the highest level in 16 months.
• Despite higher rates and fewer incentives, affordability remained better than it was one year ago.

New-vehicle affordability declined again in October as shrinking incentives outweighed steady income growth and slightly lower transaction prices, according to the latest Cox Automotive and Moody’s Analytics Vehicle Affordability Index. The decline marked the third straight month of worsening conditions, after the lowest affordability level since December 2024 was recorded in September.

Automakers reduced incentives across most segments, which limited any benefit consumers may have gained from softer pricing. The average new-vehicle transaction price dropped 0.4% for the month after reaching a record high, based on Kelley Blue Book’s October report. Median income growth remained strong at 3.5% year over year, yet it was not enough to improve the overall affordability outlook.

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Financing costs provided little relief. The estimated average auto loan rate in October increased slightly, rising two basis points to 9.49%. That level was still 83 basis points lower than a year earlier. Rising loan expenses and reduced incentives pushed monthly payments higher.

The typical monthly payment reached $766 in October, up 0.4% from September and 1.2% from a year earlier. It was the highest payment level in 16 months, approaching the $795 peak set in December 2022. The number of weeks of median income needed to purchase the average new vehicle also increased, rising to 36.43 weeks from 36.40 in September.

Even with elevated rates and fewer incentives, affordability remained better than it was a year ago. In October 2024, buyers needed 37.2 weeks of income to afford the average new vehicle, which was 2% higher than the reading this October. Income growth over the same period rose 3.5% while transaction prices gained 2% year over year.

The data suggests that pricing pressure and higher monthly payments will continue to shape buying decisions as consumers navigate a market where affordability gains are limited and sensitive to shifts in incentives and interest rates.