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Bankrate's 2008 Car Guide
Dollar$ & $en$e
Whether you're in the market for basic transportation or a status symbol, financial savvy always helps.
Dollars & $en$e
Cars most affordable since 1980

It's been almost 30 years since new cars were as affordable as they are today.

True, the automotive industry is in its worst sales drought in more than a decade, but that could be good news if you are in the market for a new ride.

Reader poll results

That's because the combination of dismal sales and increased competition between automakers has forced them to make cars more affordable to the average family since 1980 -- except for a brief sales tumble following the Sept. 11 terrorist attacks. Watch related video

According to Comerica Bank's Auto Affordability Index, a new vehicle today averages $27,704, including finance charges. Based on the typical family's income of about $61,000, that translates to almost 23.1 weeks of income. That is down 1.9 weeks from a year ago, and almost eight weeks below the peak of nearly 31 weeks registered by the index in 1994.

In previous cycles, people had been drawing off the equity in their homes to supplement their (car) buying power, but that is just not an option anymore.

"With gasoline prices soaring, interest rates on car loans rising, and the economy wobbly, those consumers who are still in the market for a new vehicle are opting for less expensive models, wrote Dana Johnson, Comerica's chief economist, in the study. "It's a buyers market, and the producers are being forced to offer bigger discounts in one form or another." He says consumers are holding down costs by driving smaller cars, reflected by the fact that the average amount spent on a new car in the first quarter of 2008 was $24,627, the lowest average in the past 2.5 years.

Weak sales are the main driver forcing prices down, with sales of new vehicles down more than 18 percent from a year ago.

"Auto sales haven't been as low as they were in June in 15 years," says Sophia Koropeckyj, an economist for Moody's Economy.com.

Auto affordability index

Koropeckyj says those soft sales numbers come as a direct result of a soft economy, particularly when it comes to job numbers.

"Employment is weak. People who lost their job(s) can't buy a car, and people who haven't lost their job(s) are working fewer hours," she says. "In previous cycles, people had been drawing off the equity in their homes to supplement their buying power, but that is just not an option anymore."

With such economic uncertainty, many people are opting for used cars instead of shiny new ones, which does nothing for the auto manufacturers, who have new vehicles continuously spewing off assembly lines, says Philip Reed, senior consumer advice editor for Edmunds.com.

-- Posted: Aug. 4, 2008
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