New cars grew slightly easier for the average American to afford last month. Tariffs had hurt affordability the month before, but the trend has reversed, at least temporarily.
Price is one way to measure affordability, but we think time is a more accurate measurement. The Cox Automotive/Moody’s Analytics Vehicle Affordability Index measures how long it would take the average earner to pay off the average new car. It’s a product of Kelley Blue Book parent company Cox Automotive.
We like the index because it considers changes in Americans’ income and the loans that banks offer to car shoppers (which got more attractive last month).
A Turbulent Half-Decade
- Affordability used to be stable and predictable
- The COVID-19 pandemic sent it reeling, and tariffs have kept it that way
The index stayed between 33 and 36 weeks of income for most of a decade before the COVID-19 pandemic hit. That allowed Americans to grow used to cars taking up a certain percentage of their household budget.
Then the economy got weird. The number rose as high as 44 weeks during the peak of the pandemic. For much of 2024, it worked its way back toward something normal.
But tariffs kicked it back up to 38.2 in May. In June, it crawled down to 37.3 weeks.
Income, Not Car Prices, Improved
- Americans’ incomes improved last month
- Sticker prices of new cars keep going up, but dealers are offering discounts
The improvement came not because cars grew cheaper (sticker prices are rising, though the actual prices most buyers pay are staying relatively flat). Instead, incomes rose last month, and dealers offered heftier discounts in an attempt to lure in shoppers who are largely staying away from sales lots.
Industry experts largely agree that affordability can’t improve much from here in a tariff-limited market.
“Tariffs remain a major headwind for vehicle affordability,” explains Cox Automotive Chief Economist Jonathan Smoke.
“Even with some trade relief, the added cost – up to $5,700 per imported vehicle – hits the most affordable models hardest, limiting options for price-sensitive buyers. We are in the early stages of seeing how manufacturers deal with these added costs, but we do not believe that the American consumer can absorb it all.”