Average New Car Cost Rises to Nearly $23,600 : Automobiles: Higher interest rates, fewer rebates and increased safety features are cited.
New car buyers beware. It’s harder to buy a new car than at any time in 15 years, based on a study released this week that considers factors like family income and interest rates along with retail prices.
And costs are expected to go even higher in the months ahead.
Fueled by higher interest rates, increased cost for safety features and fewer rebate deals, the average new car costs nearly $23,600 to buy and finance in the third quarter. That’s up almost $1,650 from a year ago, according to a study released Monday by Comerica Bank.
In recent years, low-cost financing and rising incomes have helped consumers afford those shiny new vehicles stuffed with air bags and cleaner exhausts.
But with the Federal Reserve Board boosting interest rates, analysts expect car purchasing costs to rise further as car companies boost finance rates to reflect the higher cost of money.
“Even if the Fed doesn’t do anything more with interest rates, auto loans might go up another half a point or so, maybe even a full point,” said Michael Luckey, with the Luckey Consulting Group in Woodcliff Lake, N.J.
“The auto companies have been intentionally holding them down, particularly GMAC (a GM auto financing subsidiary) and Ford Motor Credit, in an effort to keep business going. But at some point, the rates will continue to go higher.”
On average, every one percentage point rise in the typical auto loan translates into an additional $7 increase in the monthly car payment.
According to Comerica’s auto affordability study, the average car loan rate rose to 9.35% in the third quarter of 1994, up from 8.85% in the second quarter, and 8.78% a year ago.
Comerica’s Chief Economist David Littmann said the rise in interest rates, coupled with increased costs for new safety features, has pushed the average number of weeks a family must work to buy a new car to 37.1 weeks of take-home pay from 35.4 weeks a year ago and just under 30 weeks in the third quarter of 1986.
