Auto Affordability Improves Even as Rates Begin to Rise, Comerica Bank Reports

DALLAS, Feb. 16, 2011 -- The purchase and financing of an average-priced new vehicle took 23.2 weeks of median family income in the fourth quarter of 2010, an improvement in affordability of 0.5 weeks.  Consumers on average spent $700 less (a decline of 3 percent) on a new car in the fourth quarter.  At the same time, the cost of financing a new car increased as the average interest rate on car loans rose 0.5 percent.  The third quarter reading was revised down 0.1 weeks to 23.7 weeks of median family income.

"Consumers continued to opt for less expensive cars in the fourth quarter, even as auto loan rates rose and the national recovery gradually reaccelerated," said Dana Johnson, Chief Economist at Comerica Bank.  "The average interest rates on auto loans rose to 4.6 percent, the highest since the first quarter of 2009.  Looking ahead, affordability could erode as the cost of financing a new car increases due to rising interest rates."

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.