Are Consumers Buying More Expensive Vehicles in a Recession?

While we maybe in the midst of a recession, in a slight reversal from the the first quarter of this year, the average price of a new-vehicle ticked up slightly, according to the Comerica Automobile Affordability Index. During the second quarter of this year it took 22.1 weeks of medium family income, which is up .3 weeks from the first quarter to buy a new ride.

Although the average new-vehicle loan interest rate dropped to a five-year low of 3.45 percent last quarter, are consumers returning to their old habits of buying more expensive vehicles? While it maybe to early to determine this now, we'll review the trends again after the year is over. The latest study revealed that the average new-vehicle cost $26,300 in the second quarter, as opposed to $26,000 during the first quarter, up by $300. Just wondering: Does this study factor in those consumers who were unable to get qualified for financing due to financial strains, which may have caused their credit scores to drop like a rock? If it did, this could cause consumers to get higher rates thus driving up the overall cost of a new-vehicle, too.

New Study: Credit Crisis Drives Down Car Prices

As new-car sales continue to slide in reverse, consumers who are in a position to invest in one are finding that they are a lot more affordable to drive these days. According to Comerica's Bank Auto Affordability Index, during the first three months of this year, it only took 21.5 weeks of the median family income to buy a vehicle. This is down from 22.8 weeks during the last quarter of 2008.

In terms of actual numbers, this means the average priced new-car cost $26,000 in the first quarter of this year, which allowed consumers to keep an extra $1,700 in their pockets. To lure customers into the showrooms, many of the automakers are offering cut rate financing and healthy rebates. And while you typically expect the domestic automakers to offer such deals, luxury import automakers like BMW and Mercedes - who are offering 0.9 percent financing and making the first two payments on select vehicles, are playing the incentive game too. With these type of incentives, it should be obvious why the cost of buying a new-vehicle is down significantly.

Car Loans Becoming Less Affordable

According to Comerica's Bank Auto Affordability Index released today, it took an average of 22.8 weeks to purchase a new car in the last quarter of 2008, up .5 weeks from the third quarter and down 1.3 weeks in compared to the last quarter of 2007.

Added to the time to pay off a vehicle are the rising interest rates on car loans, too. The total cost to buy an average light vehicle was $27,700, up $600 from the third quarter of 2008. This has also occurred while the medium family income has slid south.