New-Car Affordability Rises 9 Percent as Incomes Outpace Prices
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LOS ANGELES -- July 15, 2015: Requisite Press, LLC reported today a June 2015 Auto Buyer's Affordability Index (ABAI) of 57.4, indicating that a prudent, median-income household can afford 57.4 percent of the new-car average price. The index is up nearly 9 percent from June 2014 (52.7) and has increased every month so far this year. However, in light of the industry-wide embrace of long-term auto loans—regardless of near-term automotive advances—it's more important than ever before for consumers to assess the overall affordability of each new-car purchase.
This month's ABAI of 57.4 is based on a median household income of $55,192—an improvement of more than $1,800 from June 2014. The average transaction price increased only $152 over the same time period. However, auto loan duration and amount financed are at record levels.
"The increased use of long-term loans is often rationalized by pointing to the longer operating life of today's cars," said Phil Kelton (@Phil_Kelton), President of Requisite Press. "However, with the rapid advance of automotive technology, a 2015 model may be wholly inadequate in 2021—even if it's still drivable."
New-car buyers using long-term loans risk carrying negative equity into their next purchase. To avoid this situation, Requisite Press encourages consumers to consider the overall affordability of a purchase rather than simply focusing on the monthly payment. A rule of thumb, such as the 20-4-10 auto financing rule, can serve as a useful guide.
Consumers can easily keep an eye on affordability throughout the car buying process by using AffordCheck (SM), a free online tool based on the 20-4-10 auto financing rule.
AffordCheck (SM) is available at:
The June 2015 ABAI of 57.4 is based on a median household income of $55,192, a light-vehicle average transaction price of $30,494, and adherence to the 20-4-10 auto financing rule. This equates to an affordable monthly payment of $347 and price of $17,499.
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 4-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.
The index is published each month, along with additional information, at the following location:
