New cars are now more affordable than they’ve been in 45 months. The good news is not expected to last. It may have already ended before it reached you.
The data come from a measurement called the Cox Automotive/Moody’s Analytics Vehicle Affordability Index. It’s our favorite measure of affordability because it acknowledges that few Americans buy cars with cash. Instead, we buy cars with time. We borrow to buy and work to pay off the loan.
So, the index measures how long the average earner would need to work to pay off the average new car loan. Kelley Blue Book parent company Cox Automotive publishes the index.
Related: Is Now the Time to Buy, Sell, or Trade-in a Car?
In March, it hit a 45-month low, 36.7 weeks. That’s 4.5% quicker than a year ago, when the average earner spent 38.4 weeks of income on a new car. The average monthly payment during the month was $739.
That may still sound high. The index routinely fluctuated between 33 and 36 weeks before the COVID-19 pandemic disrupted the car market with supply chain shortages and fluctuating demand. But the index is nearly back in its pre-COVID groove.
Tariffs Likely to Spoil the Good News
Sigh. You know what’s coming next, don’t you? What’s ahead: supply chain shortages and fluctuating demand.
It’s likely already begun. Tariffs on new cars started in early April, raising the prices of vehicles brought in from outside North America. Cars built in North America aren’t safe, either. Tariffs on car parts will start May 3. Every vehicle built in North America uses imported parts, so they will likely raise the prices of cars not hit by the April tariffs.
Cox Automotive Chief Economist Jonathan Smoke explains, “After a near-term surge in buying, we expect sales to fall, new and used prices to increase, and some models to be eliminated. The tighter supply and higher prices we expect will be reminiscent of 2021.”
Used car prices began to rise in response in March. New car prices stayed steady, but the nationwide sales pace sped up as Americans sought to buy cars already in the country before tariffs began. Lenders loosened their standards, allowing more Americans to qualify for new car loans during the month.
President Trump recently suggested that he might pause the tariffs or allow exemptions for some importers.