NEW VEHICLES HAVE BECOME LESS AFFORDABLE FOR THE FIRST TIME THIS YEAR
- New vehicles became less affordable in April due to decreased promotions and incentives from car companies.
- Average monthly payments increased by 1.8% in April.
- Vehicle affordability is influenced by pricing, incentives, and average income, making it a key indicator of economic trends.
New vehicles have become less affordable since the pandemic, and while things were looking up during the year's first three months of 2024, new-vehicle affordability took a hit again in April – the first time this year. This is according to the latest report by Cox Automotive, which also revealed that car companies were less aggressive in offering promotions and incentives in April, resulting in less affordable brand-new vehicles on the market.
“The decline in affordability resulted from negative trends in pricing and incentives, as manufacturers and dealers were less aggressive on promotions and discounting than they were for the quarter end,” said Cox Automotive Chief Economist Jonathan Smoke.
Still Better Than Last Year
While price tags, which fluctuate quite frequently for some cars like the Tesla Model 3, greatly affect vehicle affordability, other factors, such as incentives and discounts, should also be considered. The study found that the average monthly payment for a brand-new vehicle in April was $762 – a 1.8% increase compared to March. The average number of weeks needed to purchase a brand-new vehicle increased from 37.1 to 37.7.
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It wasn't all doom and gloom, though. Despite the decline in affordability, things were still better than in April last year, which saw higher vehicle prices and lower incentives. The interest rates were also lower then, but the number of weeks needed for an average-earning American to buy a brand-new vehicle was higher by 5.1% compared to last month. The estimated average auto loan rate was the lowest in nine months, too, but that wasn't enough to offset the decline in incentives offered by car companies.
Tesla Cuts Prices To Combat Declining EV Sales
Electric vehicle giant Tesla isn't immune to plummeting EV sales and the rise of Chinese imports and, in response, is cutting prices across the board.Points To Consider
The economics of vehicle sales are tricky. Many factors need to be considered, like manufacturing and inventory. Some companies, like Nissan, even allow dealers to sell below invoice prices to help move vehicles out of dealership lots.
Vehicle prices, including incentives and promotions, and average income go hand in hand, which means new-vehicle affordability is something we can watch out for as an adverse effect of the pandemic. Let's hope the decline in April was just a hiccup in an otherwise improving trend this year.
Source: Cox Automotive