New Cars Are More Affordable Than Ever

If the recession of 2009 has any upsides - this is definitely going to be one of them. By using an index called Commercial Bank’s Auto Affordability Index, it appears that the amount of income required to buy an average vehicle in America has dropped significantly in the past six months, and the decline shows no signs of slowing.

In 2008 it took almost 23 weeks’ worth of median family income to buy a vehicle at average prices ($26,000). This means that it took the average family nearly 23 weeks of work to earn $26,000. Of course that number doesn’t include a family’s expenses or suggest that a family making that money has that amount to spend on a new car. In May of 2009, the same amount of car now only requires the family to come up with 21.5 weeks of median family income. Why the difference?

Primarily it is due to the lower pricing of all vehicles on the market, greater incentives to buy, and a greater willingness on the part of struggling salespersons to make that cutthroat deal in order to make the sale. With auto manufacturers staring bankruptcy in the face (and in Chrysler’s case, already achieved), they are suddenly finding themselves quite willing and able to part with a car for thousands less than what it was priced at just one year ago.

Their Loss, Your Gain

So with the price of vehicles falling and manufacturers offering juicer incentives to entice customers, surely more families have taken to buying more new automobiles and boosting sales and the flagging auto industry, right? Not quite. Expect to see the price of automobiles drop even further in order to encourage consumers to take the plunge in these dark financial times. Incentives will increase as the price of the vehicle drops further and probably in no time at all, it will take only 20 weeks’ worth of median family income in order to buy a new car. All of this is not necessarily good for the auto manufacturer, however. If the price of a vehicle has to drop to levels of production in order to sell it, you can expect innovation in new features and technology for automobiles to come to a virtual standstill as a result. Also, cars will be sold as more ‘bare bones’ vehicle, with an extremely high premium being paid for those things which are deemed to be ‘luxuries’. So while the economy suffers and brings consumer prices down, it is not a total win-win situation for the buyer.