Why the Average American Can No Longer Afford a New Car

Ford's F-150 is America's best-selling new vehicle. But at an average transaction price of close to $40,000, it's out of reach of many American households -- or should be, says a new report. Photo credit: Ford Motor Co.

Here's a surprising statistic: The average price of a new vehicle in the U.S. is $32,086.

Here's another one: The average U.S. household can't afford it.

Say what? 

That's the conclusion of a new report from, a consumer-finance site owned by Bankrate. The report looked at median household incomes across the U.S. and concluded that new cars are out of reach for many Americans -- or should be.

It sounds a little crazy, but for those of us concerned about the economy -- which should be all of us -- it's worth a closer look.

The median household can't afford the average new car
Here's what the report actually says.

The analysts at took a look at the median household income in the 25 largest U.S. metropolitan areas. They then applied a common rule of thumb for determining how much someone can comfortably afford to spend on a car.

Their conclusion? Only in Washington, D.C., can median-income households afford to buy a new car. 

Washington had the highest median household income of the 25 areas they reviewed. (San Francisco and Boston were next, if you're keeping track.) According to their calculations, that income is just enough to support a $641 monthly payment, which they translate to a purchase price of $32,531 -- just above the average cost of a new vehicle.

But clearly, lots of people in the U.S. buy new cars regularly -- or at least occasionally. 

So how did these folks determine what we can "afford"?

A rule of thumb that says too many people are spending too much on their cars's analysts applied what they call the "20/4/10" rule to determine how much a household can afford to spend on a new vehicle.

That rule works like this: A down payment of at least 20%, financing lasting no more than four years, and total cost -- principal, interest, and insurance -- adding up to no more than 10% of a household's gross income.

Follow that rule, and it's hard to disagree with managing editor Mike Sante, who says that most Americans are spending far more than they can truly afford on new cars and trucks.

Are people really overspending on their cars?
It's easy to get carried away when you're buying a new car or truck. A fun test drive, that new-car smell, and the sales folks are so good at getting you to spend just a little more.

People are spending more, too. Auto loans with terms running for six or even seven years are becoming more and more common. A longer-term loan can get the monthly payment on a big-ticket vehicle down to something you can "afford", but... do you really want to be making payments on a six-year-old car?

What do you think? Are people spending too much money on new cars nowadays? Or is this report making overly conservative assumptions? Scroll down to leave a comment and let me know.

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Read/Post Comments (11) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 16, 2014, at 4:03 PM, stockdissector wrote:

    Yes. I think people are spending too much on cars. People should spend less and invest more.

  • Report this Comment On March 16, 2014, at 4:14 PM, DutchMark wrote:

    While I agree $32K is probably too much for a median income to spend on a car, there are some severe flaws in the reasoning above. It seems to assume that after 4 years, when the car has been paid off, people buy a new one and the previous one is worthless. With average life-spans of cars approaching 12 years that's very far from reality. People can either decide to keep their car longer, with no monthly payments (or, gasp, save for the next one) or they can sell their car on the second-hand market for good money. A well-kept 4-year old F150 still fetches well over half of its new price according to KBB.

  • Report this Comment On March 16, 2014, at 9:11 PM, hunter3203 wrote:

    10% of gross income? That sounds like an awfully conservative percentage.

  • Report this Comment On March 17, 2014, at 12:35 PM, SkepikI wrote:

    EXACTLY why the last NEW car I bought was 1989. And why I drive a 99 Subaru Outback with 408,000 actual miles on it. AND why I will never buy a NEW Car again. 2-3 years old, maybe 4, over average reliability, and keep it till it starts eating me alive with fixes...which my 99 Outback is about to do.....


    BTW JR, great article, great premise for interesting commentary. And, incidentally explains the disconnected idiocy coming from DC and the economists who hang out there....

  • Report this Comment On March 17, 2014, at 12:59 PM, Mega wrote:

    "But clearly, lots of people in the U.S. buy new cars regularly -- or at least occasionally."

    And well over half of the new car buyers have above median income.

  • Report this Comment On March 17, 2014, at 4:31 PM, SkepikI wrote:

    <And well over half of the new car buyers have above median income.>

    If MEDIAN is used in its PROPER statistical reference, this is nearly axiomatic as many of those below the median income wont be buying cars period, let alone NEW CARS.... still I suppose you could make a case for idiocy knowing no lower bounds.....

  • Report this Comment On March 25, 2014, at 5:50 PM, JohnFrankt1954 wrote:

    The average price of a new vehicle in the U.S. is $32,086. The average yearly salary in the US is also probably around that number. Buying a car that costs as much as you make in a year (before taxes) is borderline insane! That's like if an elementary school teacher were to drive a new Benz or if your average secretary pulled up to the office everyday in a new Escalade. It doesn't make sense! Americans need to be smarter with their money!

    Take myself for example - I do not consider myself rich by any means. I earn $90,000 per year (at age 48). I drive a 2004 Toyota Camry that I paid in full for (cash). It's probably worth about 8k. I fill it up once every three weeks for around $25 (with the help of GasBuddy). I insure it for $25/month (from Insurance Panda). I do all maintenance and stuff myself.

    I simply cannot fathom buying a car that costs as much as I make in a year!

  • Report this Comment On January 01, 2015, at 8:08 PM, runner56 wrote:

    I was looking at trucks on line and cant believe the price ! Who is buying these things ? I seen one on line for seventy four thousand the payment is more than my house payment if any one that is middle class say they make 45000 a year can buy this let me know how you did it?

  • Report this Comment On January 05, 2015, at 8:39 PM, hobkyl wrote:

    As I make my daily commute I am astounded daily at the number of nicer newer vehicles on the road. Being that I live outside Rochester, NY (one of the poorest cities in the nation)...I just do not get it. I make around 60k a year. A bought a 3 year old jeep for $15k. It's falling apart now that it is 7 years old (won't buy another jeep ever). And I see brand new or under 3 year old F150s, 4 Runners, Acadias...etc everywhere. At 60k I'm above average for income...yet there's no way I could afford one of these vehicles. Like literally, the money isn't there. How do they do it???? Everyone is making 100k+?

  • Report this Comment On March 28, 2015, at 4:26 AM, AbellCane wrote:

    I wish there were more charities like Vehicles for Change, which helps people who can't afford cars get them.

  • Report this Comment On July 05, 2015, at 10:20 PM, guitarman1964 wrote:

    My wife and I have a household income of over $150k/year. I keep her in a 'newer' car due to her commute so that means we lease her cars. Her current car is a 2014 Hyundai Elantra with a monthly payment of @$169/month. Me? I drive a '94 Toyota pickup that's still going strong. If I was 18, single and making $150k year, I'd probably be in a Corvette but alas, I'm a 50 yr old dude with no one to impress.

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John Rosevear

John Rosevear is the Fool's Senior Auto Specialist. John has been writing about the auto business and investing for over 20 years, and for The Motley Fool since 2007.

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