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New-Car Affordability Inches Up As August Prices Slump

September 18, 2017

The August 2017 Auto Buyer’s Affordability Index (ABAI) is 60.1, up 1.2 percent from last month’s value of 59.4. This month’s index increase was largely due to a $309 decrease in the light-vehicle average transaction price (ATP) and aided by an $83 increase in the median household income (MHI) estimate. An ABAI of 60.1 indicates that a prudent, median-income household can only afford 60.1 percent of the new-car average price.

In recent months, both the MHI and ATP data have been marked by large month-to-month changes that obscure the current ABAI trend. These jumps are likely due to a particularly noisy ATP forecast for the month May 2017 ATP, and may also be a result of the transition to a new HMI source (see Note 1). Future ABAI data should better reflect the actual trend for 2017.


Buying power (affordable price change minus the ATP change) is up $251, year-over-year and up $660 relative to January 2016.

Preserving Personal Affordability

Regardless of the state of overall affordability, each new-car buyer can preserve her own financial health by first ensuring that the purchase is affordable. Requisite Press recommends that consumers apply the 20-4-10 auto financing rule (see below) to more easily assess the affordability of a new-car purchase. Shoppers can verify affordability throughout the car-buying process with AffordCheck℠, a free online tool based on the 20-4-10 rule. AffordCheck℠ can be used to determine an affordable price range, and it can also be used to assess specific offers as they are received.

20-4-10 Auto Financing Rule

The ABAI is based on the 20-4-10 auto financing rule. The rule consists of a minimum 20 percent down payment, a maximum 4-year loan term, and monthly payments of no more than 10 percent of gross household income (including insurance). The rule is widely recommended by personal finance experts to maintain financial security, avoid excessive interest costs, and preserve future investment opportunities.

ABAI Methodology

The affordable monthly payment (including principal and interest) is calculated by taking 10 percent of the U.S. monthly median household income and subtracting a U.S. average monthly insurance premium. The affordable price is then calculated using the affordable payment, along with a U.S. average 48-month auto loan interest rate and a U.S. average sales tax rate. A 20 percent down payment is assumed. The ABAI is calculated by dividing the affordable price by the average transaction price and then multiplying by 100.

ABAI Sources

Note 1. Sentier Research ended publication of the U.S. Median Household Income (MHI) calculation as of the June 22, 2017 (May 2017 HMI) release. Starting with the July 2017 index, the ABAI is based on an MHI estimate by Political Calculations. See for more information regarding their methodology.

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