Monthly Auto Buyer's Affordability Index (ABAI) Targets Improved Consumer Awareness
LOS ANGELES--May 13, 2014: Requisite Press, LLC announced today the initial release of the monthly U.S. Auto Buyer's Affordability Index (ABAI). The purpose of the ABAI is to provide regular, ongoing consumer awareness of new-car affordability considerations for improved household financial health.
The April 2014 ABAI is 52.1 on a scale of 0 to 100. A score of 52.1 indicates that a U.S. median-income buyer following the 20-4-10 auto financing rule can only afford 52.1 percent of the April 2014 new-car average transaction price (ATP). This equates to a maximum affordable price of $15,795, assuming a median income of $53,043 and an ATP of $30,339.
The need for timely, relevant consumer affordability information has become increasingly important in light of trends to higher loan amounts and longer loan durations—both at current highs according to industry observers*. In addition, FICO has observed a growing pessimism among bank risk professionals regarding auto loan delinquency, according to a survey released in April 2014.
The monthly ABAI was developed to enable buyers to easily view current new-car prices in the context of sound financial advice. The 20-4-10 auto financing rule consists of a minimum 20 percent down payment, a maximum four-year loan term, and monthly payments of no more than 10 percent of gross household income. The rule is widely recommended by personal finance experts to maintain financial security, avoid excessive interest costs, and preserve future investment opportunities.
For additional information:
An affordable monthly payment (including principle and interest) was calculated by taking 10 percent of the monthly median household income, and subtracting a monthly insurance premium. The affordable price was calculated using this monthly payment, a 20 percent down payment, a 48-month term and interest rate, and sales tax. The index is equal to the affordable price divided by the average transaction price, and then multiplied by 100.
Median household income is based on the latest U.S. Current Population Survey, derived and published by Sentier Research, LLC (April 24, 2014).
April 2014 average transaction price reference is a combination of industry sources.
U.S. average 48-month interest rate as published by Bankrate.com (April 17, 2014).
2014 state monthly insurance premium averages as published by Insure.com (Feb 21, 2014).
2014 state combined sales tax averages as published by the Tax Foundation (March 18, 2014).
U.S. state population estimates were obtained from the Census Bureau's Population Estimates Program (July 1, 2013)
* J.D Power (Feb. 26, 2014) and Experian Automotive (March 4, 2014).