The Average New Car Now Costs A Family Less Than 9 Months Of Income To Afford

The affordability of a new car is always a moving target because the idea of “affordability” itself isn’t fixed. Variables like household income, car prices, incentives, and vehicle financing can tip “affordability” one way or another. Our current best measure of vehicle affordability now shows that it takes a household roughly 37 weeks of their total income to buy a new car.

That’s actually an improvement! I’m trying to look at the bright side in this Morning Dump, but the news isn’t great to start the week. GM is going to lay off nearly 1,000 people, mostly in North America, as it tries to streamline. Startup Northvolt was supposed to be Europe’s answer to China’s battery dominance and that answer seems to be “Ehhhhhhhh…”

Lemme see. Good news. Good news. Speaking of China and Europe, there’s a possibility that the EU and China’s government have come to some sort of complex technical agreement to avoid tariffs. Maybe.

New Vehicle Affordability Improves A Bit In October

The above chart from Cox Automotive/Moody’s shows the Vehicle Affordability Index, which tries to reduce the complex question of affordability into a fairly straightforward and easy-to-understand metric: How many weeks does it take a median household to afford the average new vehicle?

Generally, we look at the Average Transaction Price (ATP) to determine how expensive cars get, but this doesn’t always take into consideration how much money a family has to buy a car and the interaction of interest rates and incentives.

Affordability generally increased from 2012 to 2019 as the industry managed to sell more than 17 million cars a year for five years in a row. Then the pandemic happened and prices went way up (you can see my Trimflation piece for an explanation of why). The time it would take a family to buy a car jumped to over 42 weeks even as financing costs decreased.

Now it’s down to 37.4 weeks, which means that if you spent all of your money on your car during a given calendar year it would take until approximately September 12th to pay it off. Obviously, no one is giving out 9-month loans and most families also have to pay for shelter, food, and Toca Life World updates.

Since the beginning of the year, though, affordability has mostly increased. Why?

“Auto loan rates are beginning to decline, offering some relief to consumers,” said Cox Automotive Chief Economist Jonathan Smoke. “In October, we also observed an improvement in auto credit availability. Although new-vehicle prices remain stubbornly high, these improvements in auto credit, along with increased incentives from automakers, are driving new-vehicle sales as we approach the end of the year.”

The typical monthly payment is now down to $743 after peaking at $795 in December of 2022.

ATP still remains the toughest part of this measure to get to move as automakers have continued to make increasingly expensive cars and cut the more affordable models (and safety requirements and consumer tastes make vehicles more expensive). I suspect someone is going to come into the market with lower priced cars and trims in the coming years, but that isn’t something that happens overnight.

GM To Lay Off 1,000 People Globally, But Mostly In Michigan

Companies are required to file what’s called a Worker Adjustment and Retraining Notification (a WARN notice), and GM has filed a large one, indicating the loss of more than 600 people in Michigan, including 507 workers at the Global Technical Center in Warren, Michigan,

These cuts include more than 100 people working in various engineering departments as well as some sales staff according to The Detroit News. Here’s what GM has to say:

“In order to win in this competitive market, we need to optimize for speed and excellence,” GM spokesperson Kevin Kelly said in a statement. “This includes operating with efficiency, ensuring we have the right team structure, and focusing on our top priorities as a business. As part of this continuous effort, we’ve made a small number of team reductions. We are grateful to those who helped establish a strong foundation that positions GM to lead in the industry moving forward.”

Most of the individuals who are getting laid off will get a severance equivalent to wages and benefits through January 14th, 2025.

Northvolt Going South Fast

Northvolt is a Swedish batterymaker supported by mostly European-based carmakers like Volvo and BMW. It was supposed to be the next big thing in batteries with former Tesla exec Peter Carlsson at the helm.

Building cars is hard. Building batteries for cars is also hard.

The idea is sound, as Europe badly needs a domestic company that can support a growing demand for batteries, instead of relying on plants in Asia. So far it hasn’t worked. The company has continued to struggle and lost a $2 billion deal with BMW this summer, leaving the automaker to source batteries from Korea’s Samsun SDI.

According to Reuters, this is only getting harder:

Two unpublished documents reviewed by Reuters, marked “Production plan 2024”, show Northvolt has since early September been consistently missing weekly production goals for shippable cells, or cells deemed good enough to be delivered to clients. They include data as recent as the week ending Nov. 10.

The documents show, along with goals for each week, a target to reach 51,000 deliverable cells in one week by the end of 2024.

Contacted by Reuters, Northvolt said the targets had been set on Sept. 5 and were “long out of date”. It did not elaborate on its current production targets, which it said are based on contracted customer deliveries.

This is extremely not ideal, especially as demand isn’t increasing as fast as everyone hoped, thus making investment harder to source.

Did Europe And China Reach A Deal On Tariffs?

The European Union has moved forward with tariffs against Chinese automakers trying to sell cheap electric cars on the continent. This isn’t ideal for everyone and has already resulted in threats from Chinese companies against EU members.

Last week, one of China’s state-controlled television networks (China Central Television) posted on Weibo that there was progress being made on a deal. Specifically, there was a “technical consensus” on how tariffs could be removed.

I’ll let Bloomberg explain:

The two sides have been exploring an agreement on so-called price undertakings — a complex mechanism to control prices and volumes of exports, used to avoid tariffs. China and the trade bloc held talks Nov. 2 to Nov. 7, after which they said that they had made “technical progress” and that they would continue negotiations this week.

How would that work? The simplest way is that a minimum price would be set for imported vehicles. Chinese automakers win because they get more money and European automakers are protected from cars that are too cheap. Consumers probably lose, but it should be comparable to the tariffs put in place.

Will this actually happen? That’s a harder question to answer, and one Weibo post isn’t enough to convince me it is.

What I’m Listening To While Writing TMD

“Work It” by Missy Elliott. A fun way to start the week.

The Big Question

Is that 37-week number bigger or smaller than you expected it to be?