STUDY: Average car costs 22.1 weeks of median family income, average price at $26,300
A study by Comerica Bank shows that the average purchase price of a new vehicle went up $300 in the second quarter versus the Q1, bringing the average transaction price to $26,300. The upward swing in prices came at a time when the average household income remained stagnant. The average family needs 22.1 weeks of median family income to pay for their new vehicle purchase, up .3 weeks from Q1. According to the study, higher transaction prices were slightly offset by lower financing rates, down to a very low average of 3.45%; the lowest rate in five years.
Comerica says that the reason the average purchase price rose in Q2 is that customers were buying more expensive cars. That's a bit odd in such a down economy, although lower overall sales could mean that customers who would normally purchase lower priced vehicles stayed out of dealerships altogether. The lower interest rates and higher transaction rates tells us that automakers are likely offering more 0% financing offers, which typically replaces heavy rebates in return for a lower monthly payment. Comerica Chief Economist Dana Johnson feels the average vehicle transaction price will ultimately come back down in Q3, due in part to the success of Cash for Clunkers. Hit the jump to read over the official press release.
[Source: Comerica Bank | Image: Karen Bleier/AFP/Getty]
PRESS RELEASE:
DALLAS, Aug. 17 /PRNewswire-FirstCall/ -- The purchase of an average-priced new vehicle took 22.1 weeks of median family income in the second quarter 2009, according to Comerica Bank's Auto Affordability Index. This reading is up 0.3 of a week, thereby representing a slight deterioration in affordability compared to the prior quarter. Median family income was essentially unchanged in the second quarter. The total cost of buying and financing a new car rose, however, due entirely to the fact that consumers chose to buy more expensive cars on average. The average price of a light vehicle purchased in the second quarter rose by $300 to $26,300.
(Logo: http://www.newscom.com/cgi-bin/prnh/20010807/CMALOGO)
"While consumers opted to buy more expensive vehicles last quarter, a sharp drop in financing costs held down our affordability index," said Dana Johnson, Chief Economist at Comerica Bank. "Reflecting the partial normalization of credit markets, the average rate paid on a car loan at finance companies was only 3.45 percent last quarter, the lowest level seen in five years. In the current quarter, our affordability index very possibly will reach a new best reflecting the cash-for-clunkers program that is now in place."
This report incorporates the latest data on consumer spending on light vehicles and on the terms available on auto loans. The full history of the Index is available upon request.
Comerica Incorporated is a financial services company headquartered in Dallas, Texas, and strategically aligned by three business segments: The Business Bank, The Retail Bank, and Wealth & Institutional Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. Comerica reported total assets of $63.6 billion as of June 30, 2009. To receive e-mail alerts of breaking Comerica news, go to http://www.comerica.com/newsalerts.
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Reader Comments (Page 1 of 3)
BIG 10:46AM (8/18/2009)
i wish it only cost me 22 weeks of my income.
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adam1drift 11:58AM (8/18/2009)
I'd like to know how many weeks of income it took to buy cars in the 60's and 50's back when you could get a top of the line vette for under 4k
Ben 12:11PM (8/18/2009)
Well, adam1drift, a quick search of the Census Bureau's website shows that the median household income in 1960 was $5,620. That's the equivalent of $32,693, in 2006 dollars. The median income in 2006? $58,407. So cars are much more affordable now than they were back then.
adam1drift 12:22PM (8/18/2009)
Great Job Ben! thanks
smartmlp 1:51PM (8/18/2009)
FYI: According to the US Census bureau, in 2007 the median household income was $50,223. Reference: http://www.census.gov/Press-Release/www/releases/archives/income_wealth/012528.html
Sean 10:54AM (8/18/2009)
"An email has been sent to confirm the comment"
Uh, the password in the field is correct.
And another thing, why can't I log in to the account manager thingy?
Reply
Sean 10:54AM (8/18/2009)
And now it posts, what the hell?
Frank 1:34PM (8/18/2009)
I have had the same problems. I would like to change my avatar but when I try to log into my account it says Password incorrect or invalid. And yet it's the same password I use to post (when that works). ???
dal20402 10:57AM (8/18/2009)
There is no way I could afford a car costing 22 weeks of my income. With reasonable financing I wouldn't have any money left over for anything else.
My current car, which I bought three months ago, cost almost exactly 13 weeks of my income, and the only reason it made sense to go that high was 0% financing.
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Alex 10:59AM (8/18/2009)
I have always wondered if there was a formula to figure out how expensive a car you can afford based on your income. I realize there would be a lot of variables that make this difficult, but to have a baseline I think would help a lot of people get a grasp on what they can actually afford.
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CB 11:05AM (8/18/2009)
Yeah, it's called debt to income ratio. A bank with good customer service will sit down with a customer and go over the current monthly income and monthly debt payments to see how much more debt that can afford.
If you have a lot of debt in other areas, don't add a car payment to that mix. If you have no debt, you could probably afford to spend a much higher percentage of your income on a car.
Epyx 11:46AM (8/18/2009)
There were general rules of thumb that are still good to follow if one makes enough money.
It used to be a house should cost no more than 2.5 annual pay - so 50K a year =150K house.
Used be that the rule to limit total transportation costs, including car payments, insurance, maintenance and fuel, to no more than10 percent of gross income. So for $50K salary the transportation costs are limited to $5K a year. Good luck with that, Very possible when one maintains a car for a long time and pays of the purchase up front. May mean no new cars for some.
Obviously, the more you make the easier these rules are to follow.
Frank 1:43PM (8/18/2009)
50K a year x 2.5 =125K for a house. Maybe you have a future as politician. (just kiding - your point is well taken) :-)
Epyx 2:19PM (8/18/2009)
Crap - good catch!
cdwrx 11:05AM (8/18/2009)
"Comerica says that the reason the average purchase price rose in Q2 is that customers were buying more expensive cars."
Ya think?
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adam1drift 12:02PM (8/18/2009)
I love when people say the same thing twice in one sentence! Helps us dumb people out here understand.
Ari 11:05AM (8/18/2009)
You ain't seen nothing yet. Wait till the auto manufacturers pass the cost of CAFE compliance on to consumers.
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skicat 11:09AM (8/18/2009)
Are they talking gross income or take-home? (IMHO, take-home is the only real measure of affordability.) My 2002 SVT Focus (bought used in 2003), cost me just over 14 weeks of my take-home pay, including 5-year financing @ 3.9%. It's the most money I've ever spent on a car, and I make an excellent living for a single guy in the 21st century.
(And yes, all my friends think I'm cheap!)
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Epyx 11:51AM (8/18/2009)
I dont think dividing the total purchase price into one years pay make any sense unless the car is paid in cash.
IMO the value of the car as % of income or payments as a % of income are better metrics.
skicat 12:21PM (8/18/2009)
Sounds good. That's the way I have always figured what I want to borrow on a mortgage (as opposed to what the bank said I qualified for).