May 2025 brought little relief in terms of new-vehicle affordability, with conditions holding steady at the worst levels seen this year. According to the Cox Automotive/Moody’s Analytics Vehicle Affordability Index, the market’s struggle to balance pricing, interest rates, and income growth are continuing to challenge consumers’ purchasing power.
With persistent pressures from high-interest rates and the ripple effects of tariffs, the path to improved affordability remains unclear. May essentially mirrored April, a month that already marked the worst affordability levels of the year.
“The U.S. economy remains fundamentally strong, but the recent tariffs have had a swift and measurable impact on vehicle affordability,” said Cox Automotive Chief Economist Jonathan Smoke. “After reaching the lowest affordability point of the year in April, the market essentially flatlined at that level in May.”
A Closer Look
Interest rates continue to be a struggle for consumers even though they’ve slowly improved this year. The estimated average auto loan rate slightly increased in May, rising by 9 basis points month over month to reach 9.88 percent. That’s a modest improvement of 77 points compared to the previous year, but it still represents a significant barrier for would-be buyers.
The average monthly payment for a new vehicle nudged higher by 0.2 percent, reaching $756. This figure marks the highest monthly payment since December 2024’s $795 and reflects the mounting cost pressures facing consumers. The number of weeks of median income required to afford the average new vehicle held steady at 37.4 weeks. While this was a slight improvement compared to May 2024, when affordability required 39.0 weeks of income, progress remains sluggish.
The unavoidable factor gnawing at affordability right now is the impact of tariffs. Recent policy moves have directly influenced both pricing and overall consumer sentiment in the market. These barriers are driving a wedge between consumers and their ability to purchase new vehicles. This “tariff effect” creates a ripple, as auto manufacturers hesitate to lower prices while consumers wrestle with tightened budgets.
Affordability Compared to Last Year
Even though new-vehicle pricing is not in a particularly inspiring spot for consumers, affordability has still shown some improvement over the same period last year. A mix of slightly lower interest rates and stronger income growth offset higher vehicle prices, offering a marginally better picture:
Median income growth grew 3.4 percent year-over-year, providing some relief to affordability constraints. Stronger income levels helped marginally counteract the pressure from high-interest rates. Also, while high, interest rates were still lower than those in 2024, contributing to some overall moderation. Even so, it’s worth noting that any newfound stability is fragile.
With monthly payments reaching their highest levels since late 2024, the summer auto market will likely face continued pressure, especially as the inventory of vehicles not affected by tariffs continues to dwindle. Consumers remain price-sensitive, and stagnant affordability may keep many buyers sidelined as the year progresses.
“The forces that typically drive improvement – like incentives and income growth – have been neutralized by stubbornly high interest rates and stagnant prices,” said Smoke. “Without meaningful gains in wages and further easing of rates, we’re likely to see affordability limit demand as we move into the summer months.”
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