||The Surprising Reason for Record New Vehicle Prices
Buyers are paying record average prices for new cars. But it's not gouging by automakers. Rather, more customers are ordering all the frills.
The average price of a new car is running at $30,748, up 6.9% from a year ago. Consumers are choosing more expensive trim levels and makers are being smarter about producing the right combinations of options and trim levels that minimize the chance that cars will be spurned on sales lots.
Average prices will increase in the next few months, level off, and then see small increases again next year, said Jesse Toprak, vice president of industry trends at online research firm TrueCar.com.
Alan Helfman, whose family owns River Oaks Chrysler and Ford dealerships in Houston, said "interest rates are low, used car prices are high and people are willing to pay for vehicles with all the amenities. Things are very, very good."
After decades of training customers to wait for the biggest rebate, or cut-rate lease, buyers are coming to terms with a seller's market. In 2005 and 2006, Detroit automakers routinely offered 15% to 20% discounts. Not now.
"Now it's 5%," Toprak said, with production more in line with demand.
The average incentive in March was $2,440, down $43 from a year ago, according to TrueCar. And it fell $36 from February as the trend to keep rebates in check continues.
"Consumers are being weaned off incentives, but not voluntarily," said analyst Joe Phillippi of AutoTrends Consulting in Andover, N.J. "Nobody wants to pay retail (sticker price), but now they are being forced to pay close to it."
The consolation is vehicles are holding their residual value better and used car prices have never been higher.
Consumers are not balking. U.S. auto sales in March ran at a 14.4 million annual sales rate, up from 13.1 million in March 2011.
"Sales do not seem to be artificially inflated," Barclays Capital analyst Brian Johnson said in a report analyzing the sales data. "Strong sales were not supported by incentives."
In contrast to the surplus of assembly capacity that drove General Motors and Chrysler to seek government support, now most automakers are letting a gradual steady sales recovery determine how much they boost production plans.
The industry took out brands and closed plants so capacity has come down overall, which has kept supplies tight, said Phillippi.
A perfect example: General Motors' decision to shut down production of the Chevrolet Volt for a month rather than adding more incentives to sell down growing inventory, Phillippi said. "GM had the discipline to take down production."
The upside of these actions: GM's vehicles sold in March at an average price of $33,289, 3.4% higher than a year earlier, according to TrueCar data. The hot-selling Chevrolet Equinox is selling for an average price of $27,437, up 6.5% from a year earlier.
At Ford, the new Focus is selling for $3,100 more than the outgoing model, Mark Fields, Ford president of the Americas, told investors this week in New York. TrueCar puts the difference at $3,137 -- a 19.5% increase.
Toyota is getting 9.5% more, on average, for its redesigned Camry.
"Automakers have finally found their sweet spot...keeping incentives to a minimum," Toprak said.
Big winners include Chrysler (average selling price up 6.4% in March to $29,842), GM (up 3.4% to $33,289), Hyundai and Kia (up a whopping 9.4% to $21,717), and Nissan (up 7.4% to $28,322).
A wave of compelling, redesigned vehicles hitting the market helps, Toprak said. Higher gas prices have customers buying loaded versions of smaller vehicles.
In the past, small cars carried heavy incentives. Now, compacts come with deals worth $1,000 or less while subcompacts are offered with only $700 off, he said.
Toprak sees little danger of automakers going back to their old ways.
"They learned valuable lessons and the new structure of companies should prevent it. They are more flexible organizations and the emphasis is on profit, not market share."
(Source: USA Today, 04/10/12)
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