Vehicles become cheaper, index says

August 9, 2002

Bloomberg News reports that cars and trucks in the United States were at their most affordable level since 1978 in the second quarter because of automakers' incentives and consumers' higher incomes, Comerica Bank said.

The average cost of a new vehicle in the quarter fell to 20.9 weeks of the median family income, from 21.7 weeks a year earlier, the Detroit-based bank's index showed. Auto affordability hasn't worsened since rising to 26 weeks in 1997, Comerica chief economist David Littmann said in an interview.

From this year's first quarter to the second quarter, "incomes rose an average of nearly $800, probably assisted by tax refunds," while average vehicle prices dropped more than $200, Littmann said in a statement.

General Motors Corp., Ford Motor Co. and other automakers offered cash rebates and low-interest financing during the second quarter to spur consumer demand and clear out 2002 models.

Some analysts have said the companies may harm profit margins by raising incentive spending to more than $3,000 a vehicle in recent months. Littmann said the bank's index suggests easier purchase terms will contribute to growth.

"What's good for the consumer is good for the bottom lines of these companies," he said.