New-Vehicle Affordability Improved Again in August

Income and vehicle market dynamics continued to favor consumers in August, as new-vehicle affordability improved again, extending the monthly streak of modest improvement all year. This time, strong income growth and higher incentives were enough to offset somewhat higher prices and steady but high interest rates. Although prices increased slightly, the typical payment also went up. However, the number of median weeks of income required to buy an average new vehicle decreased to 42.1 weeks from the previous month’s revised value of 42.2 weeks. This number was slightly lower than the 42.2 weeks recorded in August of last year.

Cox Automotive/Moody’s Analytics Vehicle Affordability Index

August 2023

Weeks of Income Needed to Purchase a New Light Vehicle

“The improvement streak continued in August for new-vehicle affordability,” notes Cox Automotive Chief Economist Jonathan Smoke. “But will it last with a UAW strike underway? History has shown that an average UAW strike does not disrupt the retail automotive business, but this version may not be ‘average’ given that there’s never been a strike impacting all three major automakers at the same time.” [Read more on the potential UAW strike implications in Smoke on Cars.]

Estimated Typical New Car Monthly Payment Increases to $760

The median income grew 0.3%, the average new-vehicle transaction price increased 0.6%, according to Kelley Blue Book, and incentives from manufacturers increased. The typical new-vehicle loan interest rate was steady at 9.62%, which remained at a peak. As a result of these changes, the estimated typical monthly payment increased by 0.2% to $760 from a downwardly revised $759 in July. The average monthly payment peaked at $795 in December.

New-vehicle affordability in August was modestly better than a year ago when prices were only slightly lower, but interest rates were more than two percentage points lower. The estimated number of weeks of median income needed to purchase the average new vehicle in August was down 1.1% from last year.

Click here for the full methodology for the Cox Automotive/Moody’s Analytics Vehicle Affordability Index.

The next update of the Cox Automotive/Moody’s Analytics Vehicle Affordability Index will be published on Oct. 16, 2023.

¹ The index input of the average interest rate paid by consumers is calculated to reflect a 72-month, fixed-rate loan. For the Dealertrack estimated, volume-weighted average new loan rate, visit the Auto Market Snapshot.

The Cox Automotive/Moody’s Analytics Vehicle Affordability Index (VAI) is updated monthly using the latest data from government and industry sources, including key pricing data from Kelley Blue Book, a Cox Automotive company. This important industry measure will be released at mid-month to indicate if the prices paid for new vehicles are moving out of consumers’ financial reach or becoming more affordable over time.