US new car prices outpace incomes, leaving buyers behind
Average new car prices in the US have risen to over $32,000, making them unaffordable for median-income households in nearly every major city, according to recent studies.
The average price of a new car in the United States has climbed to over $32,000, according to recent data from Interest.com and TrueCar.com. This rise has pushed new vehicles beyond the reach of median-income households in almost every major metropolitan area.
Interest.com’s analysis found that in 24 out of the 25 largest US cities, the average-priced new car or truck is now unaffordable for the typical household earning the local median income. The study defines affordability using the standard that car payments should not exceed 10% of a household’s gross income. By this measure, only Washington, D.C. households could still afford the average new vehicle in early 2014.
Average transaction prices rise sharply
TrueCar.com reported the average transaction price for a new vehicle in February reached $32,074, a year-on-year increase of $1,110 or 3.6%. Interest.com’s figure was nearly identical at $32,086. This growth rate is outpacing both wage increases and general inflation, deepening the affordability gap for many American households.
Analysts warn that if this trend continues, it could limit the US car market’s ability to return to its previous sales peak of 17 million vehicles a year. The increasing average price means more buyers are either stretching their finances with longer loan terms or turning to the used car market instead.
Buyers face tough choices as affordability slips
With new car prices rising faster than incomes, many families are forced to spend a greater share of their pay on vehicles or settle for older, higher-mileage used cars. Financial experts caution that just because a monthly payment is manageable does not mean the overall purchase is affordable in the long term.
The squeeze on affordability is particularly acute in cities where living costs are already high. As the price gap widens, automakers may face pressure to offer more entry-level models or increase incentives to keep new vehicles within reach for average buyers.
US car market outlook
While the US economy had shown signs of recovery by early 2014, the benefits have not translated into higher purchasing power for car buyers. Unless wage growth accelerates or manufacturers adjust pricing strategies, the average new car is likely to remain out of reach for most Americans. For more on how price changes have affected other markets, seeUK new car prices edge up in May 2011 as sales slip.
