Edmunds used to recommend consumers spend no more than 15 percent of take-home pay on a new-vehicle payment.
But the concept of affordability is more complex these days, said Jessica Caldwell, executive director of insights for Edmunds, an industry data analysis firm owned by used-car retailer CarMax. Caldwell told Automotive News she couldn’t provide a new rule of thumb.
“There’s so many variables, it’s hard to stick an exact number on it,” Caldwell said.
Buyers’ situations vary widely. People in their early 30s living with their parents could spend half of their income on a vehicle without issue, she said. But someone living in Los Angeles or San Francisco who needs to reserve the majority of their pay for housing “probably not.”
By Edmunds’ old metric, new vehicles have become less attainable for the typical American, a trend that started even before the coronavirus pandemic.
The average new-vehicle loan payment in the first quarter of 2022 was $648, according to Edmunds. But the median full-time worker made about $4,494 a month for the same period, according to the Bureau of Labor Statistics, making a new car loan about 14 percent of monthly income — before taxes.
That makes for a payment certain to exceed 15 percent of the median American’s take-home pay.
That same calculation put the average new-vehicle payment at 14 percent of pretax income for the first quarter of 2019 as well.
Marc Levine, of Boynton Beach, Fla., who is searching for a new vehicle for his 16-year-old son, said he doesn’t have a rule of thumb in evaluating vehicle pricing.
“I go by the value; I go by the numbers,” said Levine, who described himself as middle-class. Residual value and finance charges are key considerations for him.
Levine also doesn’t have a hard and fast monthly payment restriction, he said. After all, a higher-priced vehicle could be a more attractive package for the money than a less expensive one.
“That’s what makes the difference,” Levine said.