||Industry Analysts: 'Sweet Spot' for Car Buyers is Now
The current generation of vehicles is more fuel-efficient than the last. Engines pack a more powerful punch in a smaller package. And car loans can be stretched as long as eight years.
It's a great time to buy a car, industry analysts say, especially when considering what you'll get for the money in the not-so-distant future. The next generation of cars and trucks will weigh less, but cost more -- and in many cases, lose power and performance.
"We're at the absolute peak of what a normal, everyday car can do performance-wise," said Bill Visnic, a senior editor at Edmunds.com. "A lot of the low-hanging fruit, when it comes to fuel efficiency, has already been picked."
Automakers have already implemented many of the cheapest, most efficient ways to improve fuel efficiency -- turbocharging and dual-clutch transmissions -- that have saved consumers from spending significantly more on new cars.
According to automotive strategist Scenaria Inc., automakers have made greater fuel efficiency gains at less than half the cost than originally projected.
For instance, downsized turbocharged engines cost about $1,000 less in 2012 than was expected only two years earlier -- and at the same time fuel efficiency was improved by about 8 more percentage points above expectations, according to the National Highway Traffic Safety Administration and the Environmental Protection Agency.
And while new vehicles have increased in price over the last few years, the fuel efficiency savings over the life of the car have outpaced those costs.
Though that's been a benefit to buyers now, it will hurt pocketbooks down the road, as automakers will have to spend more -- a cost that will trickle down to consumers — to make even greater improvements to meet federal fuel-efficiency standards.
"Costs are going up," said Sandy Stojkovski, president of Scenaria. "And with the more efficient technologies with lower operating costs already in today's vehicles, now might be the sweet spot in terms of purchasing a new vehicle.
"I've even told my parents it's the right time to buy," she said.
Car-buying rate increases
The average cost of a new car now exceeds $31,000, according to market researcher TrueCar. That's an all-time high and is roughly $3,000 higher than it was three years ago.
Despite that, Americans are buying cars at a much higher rate than three years ago. That's because of two factors: the economy and readily available car loans -- specifically, long-term loans.
Market intelligence firm Experian Automotive has found that some vehicle loan terms now stretch as long as eight years. The reason: Cars are more expensive, and longer loans mean consumers can defer the cost of the car.
According to the most recent Experian data, the average vehicle loan during the fourth quarter last year reached an all-time high of 65 months, up two full months from the prior year. And loans for new cars with terms from 73 to 84 months increased 20 percent.
"If you have to push your payment out for that long, you really can't afford the car and should buy something less expensive," said Hank Hubbard, president of the nonprofit Communicating Arts Credit Union in Detroit, who oversees both new and used car loans.
From 2011 to 2012, the average car loan jumped $272 to $26,691, reflecting the rising cost of cars. Loan lengths will only get longer, analysts project, coinciding with the continued rise of car prices and compounding the total cost of a vehicle.
"I don't expect on the bank side to see lenders doing more than what they're doing today, which is offering low rate, longer term loans," said Melinda Zabritski, director of automotive credit for Experian Automotive.
Upgrades add costs
Automakers have plenty of ways to be more energy efficient today, but implementing them all simultaneously would boost vehicle prices and severely slow auto sales.
The best example of this is electric vehicles. Domestic automakers Ford Motor Co., General Motors Co. and Chrysler Group LLC all sell electric vehicles. And all three -- Ford's Focus electric, GM's Chevrolet Spark and Fiat's 500e -- are significantly more efficient when compared to their gas-powered variants or similarly sized cars.
But partly because of the extreme cost of those vehicles — batteries for the electric cars account for about half the cost of the car -- few can afford them and even fewer buy them, at least right now.
And from a performance standpoint, smaller engines -- though packing a greater punch today then their similarly sized predecessors -- will be limited in power compared to larger motors.
As 2017 and 2025 regulations draw nearer, expensive upgrades like higher-strength steel, aluminum and magnesium parts and engineering features like active, aerodynamic wheel shutters such as those shown on Ford's Atlas pickup concept, will continue to add costs.
(Source: The Detroit News, 05/31/13)
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