Shock study: Car prices outpace median income in all but one major city

(February 28, 2013) Median-income families in only one major city can afford the average price Americans are paying for new cars and trucks these days. That's the sobering result of's 2013 Car Affordability Study, which determined how much the typical household in the nation's 25 largest cities should spend on a new vehicle.

It found that median-income car buyers in the Washington, D.C., area could afford to spend $31,940, or enough to buy a luxurious BMW X1 crossover. But those in Tampa could afford to spend less than half that much, or only $14,516, which is enough to buy a subcompact Chevrolet Sonic.

The surprising differences we found among those cities reflect not only a significant variation in median household incomes but a wide range of tax rates and insurance costs.

The results also point to a clear, undeniable conclusion.

We spent more than $30,000 on the average new car and light truck — pickups, SUVs and vans — last year. Yet Washington is the only city where the median-income family could truly afford to pay that much.

“What this research indicates, more than anything, is that a lot of Americans are spending too much money on their cars,” says Mike Sante, managing editor of

“Car costs are one of the most controllable parts of a household's budget. For example, if you live in New York City or San Francisco, you’re probably going to have to pay a lot for housing, but you don’t have to pay a lot for a car. You're better off driving something more affordable and saving or investing the difference.”, a California-based car pricing website, says the average purchase price of new cars and light trucks rose to $30,550 last year.

We wanted to know whether households making the median household income in each city could truly afford that. There are a number of rules on how much you should spend on a vehicle. And we're talking about rules from financial professionals, not from people in the car business.

These rules are designed to let you know the maximum you should spend on a vehicle.

This helps ensure that you'll have money left over to pay your bills and save for the future by, for example, contributing to your 401(k) plan.

Our favorite is the 20/4/10 rule, and we used it in our study. It says you should put down at least 20% on a vehicle, finance it for no more than four years and not let your total monthly vehicle expense (including principal, interest and insurance) exceed 10% of your gross income.

Mari Adam, president of Adam Financial Associates in Boca Raton, Fla., is one of the many certified financial planners who urge car buyers to follow the 20/4/10 rule.

"If you spend too much on a vehicle, it's going to take away from more important things." Adam says. "Often, when you see people run into money problems, part of it is that they are spending too much on vehicles."

We then gathered city-specific data on median income, auto insurance costs and vehicle sales tax rates from the most reliable sources we could find, including the U.S. Census Bureau and National Association of Insurance Commissioners.