Auto Affordability Is The Highest Since 2009 And Will Boost Car Sales In 2012: Great Time To Buy

Mark Perry
updated | Author's Website

From Comerica Bank:

“The purchase and financing of an average-priced new vehicle took 23.1 weeks of median family income in the fourth quarter of 2011, the best affordability reading since the third quarter of 2009. Consumers on average spent $1,050 less (a decrease of 4.0 percent) on new cars in the fourth quarter. 
“Auto affordability improved at the end of 2011, boosted by gains in personal income that were, in turn, supported by stronger job creation,” said Robert Dye, Chief Economist of Comerica Bank in Dallas. “Household credit conditions are also improving, as shown by the low household financial obligations ratio, which measures total debt payments as a percentage of income. When you put those two concepts together, it means that households are increasingly willing to take on a reasonable amount of debt by purchasing an attractively priced automobile. Those favorable trends are allowing consumers to feel more confident about unleashing their pent-up demand for automobiles. Favorable affordability and improved job growth mean more upside potential for auto sales in early 2012.”
MP: See related CD post showing that the household financial obligations ratio fell to an 18 year-low in 2011 at 16.5%, the lowest level since 1993, which will contribute to ongoing gains in car sales in 2012 as mentioned above, along with low interest rates, increased affordability, new models, and improving labor market conditions, which together bode well for making this the best year in auto sales since 2007.  
It’s also interesting to note that over the last 15 years, auto affordability has consistently increased, and new cars today are about 20% more affordable than in the mid-1990s.  Reasons for increased affordability over time likely include falling financing costs, rising incomes, and super-competitive pricing.  Add in quality and safety improvements, and better options (OnStar, satellite radio, navigation, etc.), and there’s probably never been a better time than today to purchase a new vehicle.     

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