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Auto Buyer’s Affordability Index:
September 2014

Released: October 8, 2014
Phil Kelton, Requisite Press, LLC


The September 2014 Auto Buyer’s Affordability Index (ABAI) is 54.1 on a scale of 0 to 100. A score of 54.1 indicates that a U.S. median-income buyer following the 20-4-10 auto financing rule can only afford 54.1 percent of the September 2014 new-car average transaction price (ATP). This equates to a maximum affordable price of $16,404, assuming a median income of $54,346 and an ATP of $30,340.

The ABAI is down slightly this month compared to 54.8 for August. However, affordability is up from the April 2014 value of 52.1, corresponding to more than $600 of additional buying power for consumers.

The affordable new-car price for September is $16,404. With this price limit, only a small percentage of the 262 models under $35,000 are affordable for the September median-income buyer, based on the Manufacturer’s Suggested Retail Price (MSRP). None of the 37 crossover sport utility vehicle (SUV) models priced under $35,000, as listed by U.S. News Best Cars, are affordable.

However, when savings are maximized at every step of the car buying process—sales price, trade-in, financing, and add-ons—the affordable model selection nearly triples, including a selection of crossover SUV models.

The table below shows the results of maximized savings, increasing the affordable price from $16,404, and 22 available models, to $20,500. With this price limit increase, the number of affordable models increases to 62, including a selection of crossover SUVs. The contribution of each of the four focus areas is described below.

Sept 2014 Maximized Savings Table final


Sales Price

The majority of new cars are essentially commodities and this quality is a savings opportunity for consumers. With the ease of e-mailed quote requests, it’s not unusual to obtain savings of 10 to 15 percent. For the example above, a savings of 10 percent was assumed.


A great new-car price is often offset with a poor trade-in offer. Car buyers are very likely to get more for their new car by either selling to a private party, or obtaining competitive offers from multiple dealers. In this example, it was assumed that the difference between the dealer trade-in and private party sale values is a good estimate of the potential additional value.

The trade-in was assumed to be a 2009 Toyota Corolla sedan, with automatic transmission, a standard configuration, and 60,000 miles. was used for the evaluation, and a condition of Good was assumed.

For the 5-year-old Toyota Corolla, the current difference between dealer trade-in and a private party sale value on is $1,501. This additional value was added to the 20 percent down payment.


Dealer financing, and particularly the practice of adding variable dealer profit to wholesale rates, is under sustained review by the Consumer Finance Protection Bureau (CFPB). In light of this environment, the National Automobile Dealers Association (NADA) has recommended that dealers establish a financing profit ceiling, and only offer rate reductions if an acceptable reason is documented. Competition is one of those reasons cited.

With this dealer financing environment, and the recent announcement by Chrysler Capital of their dealer profit rate ceiling of 1.75 percent, it’s assumed that a car buyer with competitive financing would see a 1 percent rate reduction. The example above used a 2.97 percent rate with a 4-year term, instead of the September ABAI interest rate of 3.97 percent.


The example above assumed that the car buyer did not purchase any add-ons such as an extended service contract. Unplanned repair costs, if any, are assumed to be covered by the prudent buyer’s emergency savings. This category did not increase the sales price, or contribute to the savings.

The Auto Buyer’s Weekly Edge

Informed, up-to-date car buyers have the best opportunity to maximize savings on a new-car purchase. To support this objective, Requisite Press has launched the Auto Buyer’s Weekly Edge videocast, an ongoing source of news, views, and information for car buyers.

Each week, the most relevant news headlines from across the mainstream and automotive press will be highlighted, with additional focus on the story of the week.

ABAI Methodology

The monthly ABAI was developed to enable buyers to easily view current new-car prices in the context of sound financial advice. The 20-4-10 auto financing 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. The rule is widely recommended by personal finance experts to maintain financial security, avoid excessive interest costs, and preserve future investment opportunities.

An affordable monthly payment (including principal and interest) was calculated by taking 10 percent of the U.S. monthly median household income, and subtracting a U.S. average monthly insurance premium. For an income of $54,346 and a monthly insurance premium of $130, the affordable monthly payment is $323.

An affordable price was 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 was assumed. For a payment of $323, an interest rate of 3.97 percent, and a sales tax rate of 7.26 percent, the affordable price is $16,404.

The September 2014 ABAI was calculated by dividing the affordable price of $16,404 by the average transaction price of $30,340, and then multiplying by 100.

The affordable price result can be easily recreated by using AffordCheck℠:

Option: Check a quote, Yearly Income: $54,346, Local Sales Tax: 7.26%, Monthly Cost of Additional Cars: $0, Term: 48 months, Interest Rate: 3.97%, Bottom-Line Price: $16,404, Down Payment: $3,281, Yearly Insurance Premium: $1,560.

Returns a monthly payment of $323, and verifies a 20 percent down payment, 10 percent income, and corresponding Afford Score of 100.0.


New Car Average Transaction Price

The Average Transaction Price reference used in the September 2014 index is $30,340 based on the estimate published by on October 1, 2014.

U. S. Median Household Income

The median household income used for the September 2014 index is $54,346, based on a simple curve fit forecast using Sentier Research estimates for April 2014 through September 2014. Sentier Research did not publish median household income data this month due pending analysis of the effects of changes in the Current Population Survey sample design.

U.S. Average 48-Month Auto Loan Interest Rate

The interest rate used in the September 2014 index is 3.97 percent. The interest rate is the national average 48-month interest rate for September 18, 2014 published by based on a weekly survey of large banks and thrifts. does not keep an archive of past 2014 rates. However, the rates for September 18th can be found at

U. S. Average Insurance Premium

The insurance premium used in the calculation of the September 2014 index is $130 per month. The premium is based on state average insurance premiums published by for 2014, and then weighted by state population to develop a national average. The state population estimates are from the Census Bureau’s Population Estimates Program, Annual Estimates of the Resident Population: April 1, 2010 to July 1, 2013, 2013 Population Estimates (ID PEPANNRES).

U. S Average Sales Tax Rate

The sales tax rate used in the calculation of the September 2014 index is 7.26 percent. This rate is based on state average combined sales tax rates published by the Tax Foundation for the Midyear Update 2014, and then weighted by state population to develop a national average. Population numbers used were identical to those used for the insurance premium calculation.