New car affordability hits 3-year high in July

Author

Anna del Villar
August 16, 2024

Car buyers are catching a slight break as new vehicle affordability inched up in July, reaching its best level since 2021.

Driving the news: According to Cox Automotive’s Vehicle Affordability Index, this improvement was the result of growing incentives and a modest decline in interest rates. 

By the numbers:

  • The average auto loan rate dropped by 30 basis points to 10.22%, the lowest rate in a year but still considerably higher than pre-pandemic levels.

  • The average monthly payment for a new vehicle fell by 1.5% to $753, down from a peak of $795 in December 2022.

  • The number of weeks of median income required to purchase a new vehicle decreased to 37 weeks in July, down from 37.6 weeks in June and a 6.2% improvement from last year.

Why it matters: Despite several affordability factors moving in favor of consumers last month, the new car market remains tough for buyers. The decline in prices is slow, and while the average transaction price (ATP) dropped $106 year-over-year, it is still comparatively high at $48,401. On top of that, tight credit conditions continue to make it challenging for many buyers to secure loans.

Zoom in: Increased incentives ( 7% of ATP) are helping to offset costs as inventory levels stabilize from June’s DMS software outages. The U.S. supply of unsold new vehicles stood at 2.79 million units at the start of August, down 3.6% from the previous month. However, brand-by-brand, the supply picture is mixed:

  • New models from brands like MINI, Honda, Genesis, Jaguar, Volvo, and Subaru are beginning to arrive, with 40% or more of their current inventory consisting of 2025 vehicles.

  • Stellantis, particularly its Ram brand, has more than double the industry average days’ supply of 68 days. Dodge is doing a bit better at 131 days and Chrysler has 105 days.

  • On the other hand, popular vehicles like the Honda CR-V, Chevrolet Trax, Toyota Camry, and Nissan Sentra are in high demand with lower-than-average days’ supply.

What’s next: As incentives continue to rise, dealerships are likely to focus on moving older inventory to make room for incoming 2025 models. Meaning, that car buyers will likely be able to secure better deals, especially on outgoing 2023 models.

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