US New Vehicle Affordability at Highest Level in 41 Months

Vehicles for sale are on display at a Toyota dealership in Houston on Jan. 4, 2022. Brandon Bell/Getty Images

The affordability of new vehicles in the United States improved last month due to a combination of lower prices and higher incomes, according to automotive services company Cox Automotive.

“The average price of new vehicles decreased by 2.2 percent” in January compared with December 2024, making cars cheaper for buyers last month, Cox said in a Feb. 17 statement. “Affordability was further supported by income growth, which increased by 3.6 percent year-over-year.”

The number of median weeks of income required to buy a new vehicle was 37.7 weeks in January, down from 38.2 weeks in December.

Amid these factors, the affordability of new vehicles hit the “best level” in 41 months last month. The improvement in affordability came even as average auto loan rates jumped by 5 basis points in January.

“New-vehicle affordability received a boost from the lower prices typically observed in January following the luxury brand sales surge in December,” said Jonathan Smoke, chief economist at Cox.

“These lower prices, combined with higher incomes, more than offset lower incentives and a slight increase in interest rates during January.”

Last week, vehicle valuation company Kelley Blue Book (KBB) said that the average transaction prices of new vehicles tend to dip “notably” on a monthly basis in January as luxury car sales peak in December and tumble the following month.

“Many of the top luxury brands, including Audi, BMW, Cadillac, and Lexus, posted significantly fewer sales in January compared to December, with some brands’ sales volumes lower by more than 50 percent.”

“With fewer high-priced vehicles in the sales mix, [average transaction prices] generally trend lower,” KBB stated.

According to KBB estimates, new vehicle sales in 2024 finished just above 16 million units. For this year, Cox is forecasting sales to increase modestly to 16.3 million units.

“Positive economic growth coupled with improved buying conditions should lead to a 2 percent-3 percent gain,” the company stated.

“However, policy changes regarding tariffs and electric vehicle tax credits from the Trump administration could have negative effects on the outlook, particularly in the second half of the year.”

Tariffs and Affordability

President Donald Trump has announced several tariffs that could have an impact on vehicle affordability in the United States.

A proposed 25 percent tariff on Mexican and Canadian imports is currently on a 30-day pause and could soon be implemented. The administration has already imposed 25 percent tariffs on aluminum and steel imports, which are key inputs in the auto sector.

According to a recent statement by automotive data company JATO, tariffs on vehicles manufactured in Mexico and Canada are set to significantly affect car sales in the United States.

Out of the 16.1 million new light vehicles sold in America last year, 61 percent were manufactured locally, it said. The remaining came from other nations, including 13.6 percent from Mexico and 4.5 percent from Canada.

“The Latin American nation is also the largest country of origin for cars sold by Volkswagen Group in the U.S., accounting for almost half (44 percent) of its total sales in the country in 2024. Similarly, Mexico was the second largest country of origin for vehicles sold in the U.S. by Stellantis, Nissan, Mazda, Honda, and Ford,” JATO stated.

A 25 percent tariff on a $25,000 vehicle from Mexico or Canada adds an extra $6,250 in cost, which may be fully or partially passed on to American customers, thereby worsening affordability.

However, Cox Automotive said it was confident that a compromise would be worked out on the matter in due time. It expects any tariff pain to be short-lived.

During a recent news conference, Nissan CEO Makoto Uchida suggested that the company could move production out of Mexico if Washington goes ahead with the 25 percent tariffs.

“We are exporting a large volume to the U.S., so if there’s a high tariff, this will have huge implications on our business, so we need to monitor this carefully,” Uchida said.

“If the high tariffs are imposed, we need to be ready for this,” he said. “And maybe we can transfer the production of these models elsewhere. If this were the decision, we will think how we can make it a reality while monitoring the situation.”