This is because the total vehicle cost of buying and financing a new car fell more sharply than income, reflecting falling interest rates on car loans and increase incentives. The total cost of buying an average-priced light vehicle fell to $26,000 in the first quarter, down $1,700 from the prior quarter.
"Part of the sharp decline in interest rates on car loans may have reflected some normalization of conditions in credit markets,” said Dana Johnson, Chief Economist at Comerica Bank. "However, with consumers sharply cutting back on their spending in the context of the severe recession, the car companies became much more aggressive in offering reduced financing rates as well as other types of discounts."
The new finding incorporates the latest data on consumer spending on light vehicles and on the terms available on auto loans.
Just as an example of the extent to which cars are being discounted, Chrysler’s incentives averaged $5,566 per vehicle in February alone and this week the company announced as much $6,000 in incentives on some new vehicles.