New-vehicle affordability improved in August to the best level since May 2021 as every factor moved in the consumer’s favor, according to the Cox Automotive/Moody’s Analytics Vehicle Affordability Index. Factors leading to improved new-vehicle affordability include lower prices and interest rates and higher incomes and incentives.

“The affordability story is complex,” said Cox Automotive Economist Jonathan Smoke. “When analyzing the data, we observe that affordability is becoming less of a macroeconomic issue and more of an automotive industry issue. Automakers are opting to manufacture higher-priced vehicles, so further declines in interest rates will not significantly reduce payments. Instead, income growth will have a greater impact than interest rate changes in the auto industry.”

The estimated average auto loan rate declined in August by 41 basis points to 9.95%, the lowest average rate in more than a year. August was the first month in two years when the average rate was lower year over year. The average price of a new vehicle in August decreased by 0.6% for the month but remained within the same range as the past two-plus years, with growing incentives. Income growth continued, resulting in a 3.6% improvement year over year.

INDUSTRY AVERAGE TRANSACTION PRICE VERSUS INDUSTRY AVERAGE INCENTIVE SPEND AS % OF ATP

The typical payment in August declined 1.6% to $737, the lowest in two years. The number of median weeks of income needed to purchase the average new vehicle declined to 36.1 weeks from a downwardly revised 36.8 weeks in July, reaching the lowest level since May 2021. The estimated number of weeks of median income needed to purchase the average new vehicle in August was down 8.7% from last year. The average monthly payment peaked at $795 in December 2022.