Good News! That New Car Is More Expensive

Cars are getting more expensive--and that's a good sign for the U.S. auto industry.

The Auto Affordability Index from Comerica Bank measures how much consumers paid for the average new car, in terms of the number of weeks of median family income. Last quarter, the average-priced new car cost 23 weeks of median family income, up from 21.8 weeks the quarter before-- the lowest figure since Comerica began keeping track in 1979.

Comerica said the low point was exaggerated by the U.S. government Cash for Clunkers program, which paid a bounty for people to trade for more fuel-efficient cars.

But the bigger factor was that Chrysler, Ford (F) and General Motors had for years pushed big price discounts to inflate demand--even when that meant they lost money on a sale. That strategy was a big contributor to Chrysler and GM going bankrupt last year.

Now the Detroit Three are trying to switch to a "pull" strategy--that is, not building cars until they have orders for them. The car companies want to lower their break-even points so they can become profitable at much lower volumes.

GM has been frank in disclosing its success in commanding higher prices for at least its most promising new cars as they replace the previous generation, in some cases by several thousand dollars. The hope is that as the entire line-up turns over, in the course of the next few years, all models will make money--even small cars, which have been notorious money-losers for U.S. manufacturers. In absolute terms, the Comerica figures show that the cost of the average new car increased $1,500, to $27,000.

The reason why the latest Affordability Index isn't completely bad news for consumers is that the average interest rate on car loans fell 19 basis points to 3.47 percent. Besides, since the U.S. government is a major shareholder of Chrysler and GM; the prosperity of those companies is in taxpayers' self-interest. One way or another, U.S. consumers are keeping the Detroit Three afloat.

Chart: Comerica