New cars are now easier to afford than at any point since the summer of 2021. However, the auto market is steadily dividing, creating one market for wealthy shoppers looking at luxury cars and another for those shopping at mainstream prices.
“Affordability is relative,“ noted Jonathan Smoke, chief economist at Cox Automotive. “We’re back to a K-shaped economy where higher-income individuals are faring much better, while lower-income individuals face more challenges. In February, the average price of a new vehicle decreased again, improving affordability. This decrease, combined with higher incomes, more than offset reduced incentives and slightly higher interest rates.”
Cox Automotive owns Kelley Blue Book.
Time and Money
Prices are one way to measure the cost of a new car. However, we find that time is a more effective measure for many.
The Cox Automotive/Moody’s Analytics Vehicle Affordability Index measures how long the average earner would have to work to pay off the average new car loan.
Related: Is Now the Time to Buy, Sell, or Trade-in a Car?
The index routinely stayed between 33 and 36 weeks for most of a decade before the COVID-19 pandemic upended car prices. It rose as high as 44 weeks in December of 2022. The average monthly payment hit $795 then.
Last month, the index fell to 37.2 weeks. It’s steadily growing closer to historic norms. The average monthly payment now sits at $748, declining by 1% in February.
For many shoppers, actual payments are lower. With the divided market, Americans bought a record number of six-figure cars last month. But the average compact SUV — the best-selling type of vehicle in America — went for just $36,198.