Lifestyle

New Vehicles Cost Almost 9 Months’ Pay

New-vehicle affordability has hit a record low, according to the Cox Automotive/Moody’s Analytics Vehicle Affordability Index.

A computer chip shortage is driving an acute shortage of new cars and trucks. In turn, the short supply and high consumer demand are driving higher prices.

New vehicles were already in short supply last year, due to high demand, and factory shutdowns related to the coronavirus pandemic.

Used-car prices are also high, in part because some new-vehicle shoppers are turning to used vehicles to find the make and model they want, at a more affordable price.

Inventory is especially short for “nearly-new,” 1- to 3-year-old cars and trucks, for some of the same reasons, related to the pandemic. For instance, factory shutdowns last year mean fewer 1-year-old used cars for sale this year. There are also fewer ex-lease vehicles being turned in.

The COVID-related drop in car rentals last year also means fewer ex-rentals on the used-vehicle market this year. Meanwhile, many auto lenders have also cut back on repossessions, for customers who may be affected by COVID. That further reduces the number of used cars for sale at wholesale, dealer-only auctions.

All those factors contribute to higher retail prices.

The Affordability Index measures how many weeks of U.S. median income are needed to purchase the average new vehicle. That is, a higher number means more weeks of work, and less affordability.

In July 2021, the index reached 37.4 weeks, up from 37.2 weeks in June. The July result was the highest number of weeks since the index was created in 2012, Cox Automotive said earlier this week.

In July 2020, the Affordability Index was 31.97 weeks, Cox Automotive said. That was a relatively low number, in part because incentives were higher a year ago.

Separately, Experian Automotive reported Aug. 19 that the average new-vehicle monthly loan payment increased to $575 in the second quarter of 2021, vs. $570 a year ago, an increase of 0.9%.

Used-vehicle payments are up more sharply. The average used-vehicle monthly loan payment is $430 for the second quarter, up 8.3% from a year ago, Experian says.

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