ATLANTA–The median U.S. household needed 42.9 weeks of income as of March 2022 to purchase an average-priced vehicle, according to the latest Cox Automotive/Moody’s Analytics Vehicle Affordability Index.
This is up 18% since last year, and 26% in the past two years, and compares to a 5% decrease from 2012 through 2019, the company said, adding that decade-high interest rates caused a significant increase in the cost of borrowing, which offset the positive effect of the transaction price decline and rising incomes.
Among the findings in the latest Vehicle Affordability Index:
- Interest rates on 72-month new auto loans in March, as estimated by Moody’s Analytics, reached their highest level in more than a decade.
- Interest rates are rising in response to monetary policy tightening by the Federal Reserve. As a result of the moves and expectations, auto interest rates are up 16% since the end of December.
According to Moody’s/Cox Automotive, other factor impacting auto affordability for consumers include:
- Transaction costs skyrocketed as the auto industry struggled to produce vehicles. “Hammered by supply-chain pressures from the global microchip shortage, the auto industry still has not found its footing. The rebound of new-vehicle production in the fourth quarter has not been sustained. Fewer cars were produced in January and February than any month in the fourth quarter of 2021.”
- Median household income has struggled to gain ground since the start of the pandemic, rising slightly more than 2% over the past two years. “This is less than half the rate of growth in the two years prior to the pandemic,” according to the Index analysis.
Looking Forward
The Index is projecting that consumers looking to purchase a new vehicle will continue to be in considerable pain over the next 12-24 months:
- Prices will remain elevated since there is no quick fix for auto supply
- There is increased risk to the semiconductor supply chain due to Russia’s invasion of Ukraine
- The Fed’s stated tightening path, interest rates will go higher before they come back down
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