Good News: Auto Affordability Improves, Could Lead To Stronger Sales

February 14, 2012

At a time when it seems like everything is going up in price, here’s a rare bit of good news: an “average priced” new car got more affordable in the fourth quarter of last year, requiring just 23.1 weeks of median family income to purchase. From a dollars-and-cents perspective, that means that the cost of a new car dropped by an average of $1,050, or approximately four percent.

That gives cars bought from October through December of 2011 the best affordability rating since the third quarter of 2009, which was roughly the peak of the recent economic downturn. Back then, car dealers were forced to offer deep discounts to lure buyers into showrooms, and an uncertain economic picture left many hesitant to spend money on new cars.

Driving last year's gains in affordability, according to Comerica Bank, were growth in personal income and improving household credit conditions. A strengthening job market added to consumer confidence, making households more willing to assume debt in the form of new-car loans.

Comerica believes that this improved automotive affordability, plus additional job growth and pent-up demand for new cars, will translate to strong auto sales in early 2012. If January’s generally positive new car sales numbers (General Motors excepted) were any indication, Comerica’s forecast may prove to be accurate.

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