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Comerica: auto affordability improving though rates rising

The purchase and financing of an average-priced new vehicle requires 23.2 weeks of median family income in the fourth quarter of 2010, an advance in affordability of 0.5 weeks. Consumers on average spent $700 less (a 3 percent decrease) on a new car. At the same time, the financial costs of a new car increased as the average interest rate on car loans rose 0.5 percent.
Posted: February 18, 2011 - 4:35PM
Author: Don Bain

Comerica Bank analyzed financial data provided by the U.S. government to definitively measure this trend.

"Consumers continued to opt for less expensive cars in the fourth quarter, even as auto loan rates rose and the national recovery gradually reaccelerated," said Dana Johnson, chief economist at Comerica Bank. "The average interest rates on auto loans rose to 4.6 percent, the highest since the first quarter of 2009. Looking ahead, affordability could erode as the cost of financing a new car increases due to rising interest rates."

In the third quarter of last year the average auto consumer was spending $24, 400 on a new car. By the fourth quarter that amount had dropped to $23,700.

Given that interest rates are likely to rise, if you have the way and means, this is an excellent time to make a new car purchase. Your friends will envy you not only for that, but also for having nothing more important to spend your tax refund on.

This report incorporates the latest data on consumer spending on light vehicles and on the terms available on auto loans. The full history of the Index is available upon request.

Comerica Incorporated (NYSE: CMA) is a financial services company headquartered in Dallas, Texas. Comerica focuses on relationships and helping people and businesses find success.

Comerica Bank locations can also be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico.