New Cars Affordable to Fewer People

New Cars Affordable to Fewer People

April 24, 2012
Originally published in OneNewsNow

From Chris Woodward's column on OneNewsNow:

Marlo Lewis, senior fellow for the Center for Energy and Environment at the Competitive Enterprise Institute (CEI), says the theory underpinning NADA's conclusions is straightforward.

"Before an auto dealer will write you a loan for a new car, he wants to make sure that you have a certain debt service-to-income ratio. In most cases, the maximum payment that they will consider is a monthly interest payment that's up to 40 percent of your monthly income," Lewis explains.

So if the car is more expensive, and the interest payment goes up beyond 40 percent, then fewer people will be eligible for the loans, explains Lewis.

"Then, they argue that the government's estimate of how much additional cost will result from these regulations is unrealistically low," the CEI senior fellow notes. "They say it's more like $4,800 rather than $3,000."

If that is true, Lewis estimates that anywhere from 10-11 million drivers would be priced out of the new car market by 2025.