Vehicle prices test college grads

New-car prices have increased since 2020 at a faster clip than starting salaries, eroding vehicle affordability and dampening sales.

While recent undergraduates can expect to score $68,680 at their first job out of school this year, a new car would swallow up 71.1% of those resources, according to the latest data from the National Association of Colleges and Employers . Since 2020, average new-car transaction prices have climbed 46.3% to $48,799, according to Kelley Blue Book , while starting salaries have increased 29.6%.

When it comes to salaries, college grads are often compensated for their specialized skill sets — like engineering, computer science and business. Vehicle affordability becomes even tougher for average working Americans, about half of whom lack college degrees. The average annual salary for a full-time American worker is $63,795, though the median salary is lower, at $59,384, according to SoFi .

In April, consumers needed 37.3 median weeks of income to buy a new vehicle , compared with 36.3 weeks in March, according to the Cox Automotive/Moody’s Analytics Vehicle Affordability Index. On a dollar basis, the average monthly payment was $753 in April.

Vehicle Affordability Index April 2025 Weeks of income needed to purchase a new light vehicle [caption id="attachment_58352435" align="aligncenter" width="1024"] (Courtesy/Cox Automotive)[/caption] But monthly payments exceed $1,000 for nearly 20% of consumers, which further impairs affordability, particularly for younger car buyers. The share of new-vehicle registrations by adults aged 18 to 34 dropped to 9.9% last quarter, from 12% in the first quarter of 2021, according to S&P Global Mobility . By comparison, new-vehicle registrations for adults in the 55-plus age bracket increased to 48.6% from 44.8% in the same period.

Weakened securitized loan performance This reduced affordability is contributing to worsening performance in prime auto loan securitizations, according to a recent report from S&P Global Ratings. “Despite low levels of unemployment, certain prime auto loan asset-backed security issuers are reporting higher-than-expected cumulative net losses on their pools ,” S&P noted in the report. “We believe that some of the deterioration is due to the increasing proportion of pooled loans for which obligors have a payment-to-income (PTI) ratio of greater than 10%.”

The S&P report highlights securitization data from lenders across the credit spectrum — specifically, Mercedes-Benz Financial Services ( MBFS), VW Credit , CarMax Auto Finance and Carvana . The rating agency pointed out that these financiers had an increased percentage of loans with PTIs greater than 10% in 2023 and certain 2024 pools, and those loans have resulted in a disproportional share of charge-offs.

For MBFS, the percentage of loans with PTI ratios exceeding 10% rose to 30% for its 2024-1 transaction, compared with 17% for the 2018-1 securitization, yet 43% of the total charge-offs in the pool through February have come from these loans. Similarly, the percentage of obligors with PTI ratios surpassing 10% for CarMax's 2023-2 pool increased to 28% and have represented 51% of the defaults.

Using the $68,680 salary figure for recent grads, we can extrapolate $5,723 in monthly take-home pay. If we apply the $753 average monthly payment from the Cox/Moody’s affordability index, the PTI ratio is 13.2% — above the recommended 10% level.

The auto loan PTI ratio for average working Americans is even higher. Applying the $753-a-month car loan payment to the $4,948 monthly take-home pay for a $59,384 salary translates to a 15.2% PTI ratio.

Longer-term loans With prices so steep, consumers are opting to stretch loan terms to make new cars attainable. For instance, 84-month loans hit a record high last quarter, accounting for 19.8% of new-vehicle financing, according to Edmunds , up from 15.8% in the prior-year period.

Historically, consumers who faced difficulty purchasing new vehicles would buy used cars instead. But inflated used-car prices — driven by supply chain issues stemming from the pandemic and resulting inventory shortages — create a similar affordability challenge.

In fact, the gap between new- and used-car average transaction prices narrowed to $16,970 last quarter, according to Edmunds, marking the first time it has fallen below $17,000 since the third quarter of 2022.

Here are the numbers: The average transaction price for a 3-year-old used vehicle was $30,522 last quarter, Edmunds noted, up from $20,942 in mid-2020. In other words, used-car prices shot up 45.7% in the past five years.

Average monthly used-car payments have posted increases, too, jumping to $550 from $412 back in 2020. Using those figures, auto loan PTI based on the median $59,384 salary would still surpass the recommended 10% ratio, at 11.1%. Recent grads who snare a $68,680 salary would come in at a 9.6% PTI ratio, in line with the recommended 10% level.

By comparison, used-car affordability for consumers back in 2020 was more feasible. A $412 monthly payment on a recent grad’s $55,260 salary translated to an 8.9% PTI ratio.

Federal Reserve announces emergency meeting on auto lending regulations • Click for details

MARKET SNAPSHOT

Risk Management, Under The Hood

Vehicle prices test college grads

Related Posts

Lenders eye expanded leasing options as affordability challenges grow

Forward-flow picks up steam as private investors eye auto finance

Dealers fight growing transport fraud, when scammers impersonate shipping companies

Auto finance dealer strategies evolve as profitability tightens in 2026

Bank of America consumer vehicle net charge-offs tick down

CarMax Auto Finance originations down 1.5%

Wells Fargo Auto originations soar 110% YoY

Chase Auto originations down 3% YoY

Daily Intelligence Brief

Sponsored

Why credit unions give dealers an edge in today’s auto market

Driving better decision-making across auto finance operations with SAS

Auto finance’s first line of defense: Raising the standard in integrated software partnerships and data strategy

Driving Innovation in Automotive Refunds: How Onbe and Allied Solutions Are Modernizing the Payment Experience

Navigating the Margin Squeeze: EVs, Tariffs & Pricing — A Q&A with Earnix

Enhancing credit approaches to boost conversion and dealer loyalty

Tesla announces new fleet financing program

About

Company

Daily Newsletter