Vehicles Most Affordable Since 2002, Economist Sees Eventual Rebound
May 12, 2008
By Bill Visnic
Proof that auto-industry incentives work, in a way the car companies probably prefer they wouldn't: Dallas-based Comerica Bank last week issued its quarterly Auto Affordability Index, which showed vehicles are more affordable than they have been in the past six years.
Comerica's Affordability Index says in the first quarter it took 23.9 weeks of a median family's income to purchase an average-priced new vehicle. The number of weeks required to work to purchase a vehicle is the lowest since 2002 -- and flirts with lows not seen since 1980. Comerica says the average new-vehicle price in the first quarter was $24,627, the lowest quarterly average in more than two years.
The culprit - that's the term if you're on the selling side of the transaction - is incentives. Edmunds.com earlier reported that April incentives for all automakers averaged $2,449 in April. A heavy figure, but for the U.S. domestic automakers, whose model ranges still are overweighted with fuel-hungry pickups and SUVs, the number is more profit-numbing: $3,377 per vehicle sold in April.
Another factor, says Comerica Chief Economist Dana Johnson, is that buyers are migrating to more fuel-efficient choices, typically smaller cars or crossover vehicles that don't wear the hefty sticker prices of the full-size pickups and SUVs.
"It's a buyers market and the producers are being forced to offer bigger discounts in one form or another," Johnson said in a release. But more-efficient vehicles also have lower sticker prices, he adds, saying, "Buyers also are holding down their driving costs by choosing smaller, more fuel-efficient cars."
He tells AutoObserver the latest Affordability Index number "reflects the interaction between supply and demand. Demand is relatively soft -- car companies are in a fierce fight for market share.
Johnson predicts lower relative prices eventually will help automakers pull out of the current sales slump because "people buy more of things that are relatively inexpensive." And judging by the Affordability Index, vehicles are relatively cheap -- and buyers eventually should respond with increased purchases.
The eventual upside for automakers is that Comerica's economist doesn't think sales have topped out. Johnson says that although the country definitely is in a period of economic weakness, "we have not seen a peak in vehicle purchases. We will see a rebound." He predicts total light-vehicle sales will set new records in the future.
"Car prices have been falling for a long time," he says. "It's not been as dramatic as for such high-tech things as computers," but he says that although the production mix, particularly for the U.S. Big Three, is not well-aligned with current demand, consistently low relative prices for vehicles eventually should drive new record volumes as affordability tempts households to buy additional vehicles.
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