Average American Can No Longer Afford “Average-Priced” New Car or Truck

But upward trend is likely to continue.

by on Mar.12, 2014

The price of the average Chrysler product rose 6.1% year-over-year in February, according to TrueCar.

New car prices have been rising rapidly in recent years, various studies showing that Average Transaction  Prices – what buyers actually pay after factoring in incentives and options – have hit record levels.  And that means that more and more American motorists are being priced out of the market.

The average median-income household can no longer afford to purchase the “average-priced” new car or truck in 24 of the country’s 25 largest metro areas, according to a new study by the financial website Interest.com.  The exception is Washington, D.C., according to the study, which also found that in 16 cities, median family incomes fell at least $10,000 short of what it would take to buy the typical new vehicle.

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“Too many families are spending way too much on new cars and trucks,” said Mike Sante, managing editor of Interest.com. “Just because you can manage the monthly payment doesn’t mean you should let a $30,000 or $40,000 ride gobble up such a huge share of your paycheck.”

The average new vehicle now goes for $32,086, according to Interest.com – which works out to a typical monthly payment of $633.  While the number quoted by other tracking services vary slightly, there’s general agreement that prices are rising a good bit faster than the rate of inflation.  TrueCar.com puts the so-called ATP at $32,074 last month, an increase of $1,110, or 3.6%, from February 2013.

“Average transaction prices continue to rise and are at the highest levels for February in the past five years,” noted TrueCar.

That’s led to an increasing gap between what the average American can afford and what they have to pay to get a new set of wheels.

(February car sales hit by the big chill. Click Here for the story.)

Only in Washington, D.C. could the typical median-income household afford to buy the average new vehicle based on what is known as the 20/4/10 rule, which factors in a 20% down-payment, a four-year loan and insurance – all of which should not exceed 10% of a household’s gross income.

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Using that formula, a typical Washington resident could afford to buy a vehicle priced at $32,531, with a monthly payment of $641.

Second-ranked San Francisco fell more than $4,000 short, with a maximum affordable purchase price of just $28,009, and a $563 monthly car payment.  In Boston, the third-ranked city, the average household could handle no more than a $26,669 purchase and a $520 monthly payment.

In bottom-ranked Tampa, the typical household doesn’t even come close, at a recommended maximum purchase price of just $14,209, and a maximum monthly payment of only $280.

Most analysts blame fast-rising car prices as one of the key reasons why the auto industry is not expected to reach its previous sales peak of more than 17 million vehicles during this economic cycle.

It’s also a factor that has led to a surge in sales of “certified pre-owned” vehicles, typically two- to four-year-old off-lease cars and trucks that have gone through intensive inspections and repairs and which are usually back with like-new warranties.

But motorists who still want the smell and feel of a new car continue to find ways, often by extending loans to five or six years, sometimes even longer. On the positive side, analysts note that automotive finance rates are currently at or near historic lows.

Few expect the upward trend in pricing to mitigate any time soon, however.  For one thing, manufacturers have been cutting back on the lush incentives they used to draw buyers into showrooms during the Great Recession. They’re also passing on the increased cost of new mileage, emissions and safety regulations. And despite it all, consumers continue loading up their vehicles with ever more options that have helped push prices to record levels.

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13 Responses to “Average American Can No Longer Afford “Average-Priced” New Car or Truck”

  1. Jorge M. says:

    Auto prices are constantly increasing way beyond inflation or reason. Much of the increased cost has to do with pie-in-the-sky federal government mandated mpg increases, which are costing consumers thousands of dollars more every year.

    • Mateo in So-Cal says:

      Those mandates are not “pie-in-the-sky” those mandates are fleet averages. Automobile manufacturers can still produce gas guzzlers, but they have to offset those. Besides, the demand is for auto’s with better gas milliage.

  2. Peko says:

    In addition to the MPG (CAFE standards) requirements, it is nearly impossible to find a car without audio systems/phone interfaces/mobile media / on-star transmitters/vehicle stability controls/backup cameras / anti-crash radar and a plethora of other non-essentials for an alert, conscientious driver. You are paying 25% for computerized, mandated garbage that complicates the cars, increases unreliability and maintenance costs, and distracts drivers from driving. I’ll stick with my 1968 Camaro… does exactly what it’s supposed to, with no distractions.

    • Garth says:

      I would have to agree. I do however, like the back up camera idea. I daily drive an 1989 GMC Suburban V1500 and besides the difficult task of getting parts from GM, I like what it does for me.

      I have navigation (my cell phone), I have hands free mobile, blue tooth, file streaming, voice activation calls, USB audio (Alpine stereo) and 4 wheel drive.

      The new 2014 trucks are something else. They have wonderful engines, 6 speed automatic transmissions and all the bells and whistles mentioned by Peko. Do we really need all of that to get a truck sales price of $44,000?

  3. Mario P. says:

    Jorge, I don’t know how I got misdirected to the New Jersey/Tesla story but there you will find my reply.

    • Cj says:

      CORRECT !!!New Miata love it but hit wrong button and computer talked to me . Will keep both but no more 2001 Chevy truck gets 21mpg with AC @ 80 mph .
      Take super Care and it will Last..

  4. Soakee says:

    Consumers are also demanding more safety equipment which also adds to higher prices. Then many of them also wonder why car prices are so high.

  5. Marty says:

    Of course Wash DC is the exception to unaffordability. All those non private sector Fed jobs account for that.

  6. Jorge M. says:

    Many people don’t want to be driving when they can be distracted and playing with electronic toys while careening down the roadway. Driving for them is just an inconvenience employed to get from point A to point B.

    The elctronic toys are often dangerous to drivers, passengers and other commuters but if the masses of clueless, irresponsible sheep desire them and they will increase sales, irresponsible auto makers will supply these distractions. It’s all about the $$$$.

    The bottom line is that auto makers are eliminating a lot of potential buyers due to unrealistic prices. There won’t be another bail-out so they are on their own this time around.

  7. Jim W says:

    Two other factors to consider besides the initial cost. First, unaffordability is also affected by median income; Real median income has gone down since 2008 due to increasing wealth/income inequality. Second, in the early ’70s, most cars didn’t last more than 3-4 years due to either body rot or engines falling apart. And tires didn’t last 60,000. In some ways today’s cars can be considered a bargain!

  8. snuffy smith says:

    To the big auto manufacturers ; Greed is deceptive-it makes you think you are winning when you are really losing…

  9. Bobba says:

    Once again, statistics are misused. It is inappropriate to compare the “AVERAGE” transaction price with the “MEDIAN” income. The author is comparing apples and oranges. In the case of incomes, the average income is always much higher than the median income. This is irrespective of the so called “income gap”. So, in the end, the author wished to make a point and lied/misused the statistics to support the the premise.

    • Paul A. Eisenstein says:

      Very fair point, Bobba.

      Paul E.


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