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New-Car Affordability Index Hits Record Level In February

March 15, 2017

The February 2017 Auto Buyer’s Affordability Index (ABAI) is 60.0— a 1.1 point increase from last month and an all-time high for the index. The jump in the ABAI came as both light-vehicle average transaction price (ATP) and the median household income (MHI) moved in a supportive direction. (ATP: -1.35%, MHI: +0.4%). An ABAI of 60.0 indicates that a prudent, median-income household can only afford 60 percent of the new-car average price.

The 1.1 point index increase in February marks the largest single-month increase since June 2015 (+1.2 points). By contrast, the index increased by only 0.5 points for all of 2016. The February ABAI value of 60.0 is 0.7 points higher than the previous high set in March 2016 (59.3).

Buying power (affordable price change minus the ATP change) jumped $529 in February—the largest single-month increase since February 2015 ($675). By contrast, buying power decreased by $46 in 2016. (See figure below.)

Consumer Opportunity

Regardless of the overall state of affordability, individual car buyers can actively improve the affordability of a new-vehicle purchase. Requisite Press recommends four key actions that are likely to reduce the total cost of a purchase: Obtain preapproved financing, sell a trade-in separately, avoid costly add-ons, and obtain a market price. In aggregate, these actions can save consumers thousands of dollars and significantly improve the affordability of a new-vehicle purchase.

Details of these money-saving tips, and much more, is included in a newly release e-book titled The 15-Minute Guide to Negotiation-Free New Car Buying: Simple Save More and Stress Less. The e-book is available for preview and purchase at

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

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