The affordability of new cars continues to worsen as the automotive industry sets a new high for new car payments. May 2022 was a record-setting month for the automotive industry as the average new car payment rose to $712. Furthermore, new car affordability is worse than ever according to a detailed study by Cox Automotive.
It's no secret that the price of both new and used cars has rapidly increased over the last couple of years. Factors like the global COVID-19 Pandemic, the chip crisis, record inflation, growing interest rates, and an overall drop in vehicle supply continue to balloon new car prices.
According to Cox Automotive, “The number of median weeks of income needed to purchase the average new vehicle increased for the fourth consecutive month reaching 41.3 weeks in May from an upwardly revised 40.8 weeks in April.” This metric is up 19% year over year, which means that new car prices are still growing at a rapid pace.
In May of 2021, the purchase of an average new vehicle only required 33.5 weeks of median income, or almost 8 weeks less than the 41.3 weeks of May 2022. This massive increase in cost includes several factors. Year over year median income grew by only 0.3%, while the price increased by 1.0%, manufacturer incentives declined, and the average interest rate increased by eight basis points.
This isn’t the first time we’ve set a new car price record lately. In January of 2022, the average new car payment was $636, and as predicted this trend has continued in 2022.
The most popular current loan term is 72 months as customers seek to amortize the cost of their loans over a greater loan term. Although this will keep monthly payments lower, it also increases the overall cost of a vehicle as loan interest compounds over the longer loan term. These longer 6-year loans also require owners to keep their vehicles for longer or risk carrying over a loan balance to their next vehicle which can lead to larger financial strain.