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AUTOS MORE AFFORDABLE—HOW THIS AFFECTS YOU
So how much money will consumers have in their pockets after purchasing a new vehicle? According to the “Auto Affordability Index” compiled by Comerica Bank, the purchase of an average-priced new vehicle took 24.7 weeks of median family income in the first quarter. This is down 1.5 weeks from the fourth quarter, and is also down 0.5 weeks compared to a year ago. This means that consumers have more discretionary income in their pockets to purchase specialty-equipment parts and accessories.
Including finance charges, the total cost of buying an average-priced light vehicle was $28,200 in the first quarter, up 1.6% from a year ago. However, the median family income has increased 3.7% from a year ago, according to Comerica Bank. In others words, consumers have 2.1% more discretionary income after buying a new vehicle, assuming that all other expenditures are the same as last year.
“Consumers reacted to the sluggish economy, the rebound in gasoline prices and the softness in home prices by spending about $550 less per car than they did in the fourth quarter,” said Dana Johnson, senior vice president and chief economist at Comerica Bank. “That, along with the availability of more attractive financing rates, reversed somewhat more than half of the last quarter’s deterioration in affordability. With demand soft and the car companies fighting for market share, buyers were able to find pretty attractive deals on new cars in the first quarter.”
Source: Comerica Bank (May 9, 2007). “Auto Affordability Improves in the First Quarter, Comerica Bank Chief Economist Reports.” Comerica Bank Press Release courtesy of PR Newswire.