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The pricing gains are good news for auto makers, but for many consumers it is leading to downsizing. Loan terms are getting longer and higher prices are putting younger, first-time buyers in jeopardy.
Redesigned pickups, such as Chevy Silverado, to further drive up average transaction prices.
New vehicles are more expensive and experts don’t see a reversal in the trend, causing U.S. car buyers to jockey between segments, pursue longer loan terms and lease rather than buy.
“New-vehicle prices are growing,” confirms Larry Dixon, senior manager-marketing intelligence, at the National Automobile Dealers Assn. Year-to-date average transaction prices have jumped 13% to $28,831, from $25,505 in 2008, according to J.D. Power and Associates.
Incentive spending per-unit has dropped 5% to $2,856, from $3,018 in the timeframe, while median household incomes have grown but at a much slower pace of 4%, to $87,834 from $84,406.
The rising price of cars is putting some consumers on the ropes, and unchecked it could jeopardize the U.S. industry’s successful turnaround, experts say. A number of factors are driving prices upward.
For starters, Americans are buying cars and light trucks with more content as record-high prices for used-vehicle trade-ins give them greater purchasing power to check more option boxes at the dealer. It’s a good time to buy new, with interest rates at record lows fueling a surging comeback in car sales for the industry.
Pricey pickups also are helping lead the way. The pricing gains are good news for auto makers looking to fatten up financially from the 2008-2009 recession that pushedand into bankruptcy.
But for many consumers, higher prices are forcing them to reluctantly downsize their new vehicles. For example, an owner of a 5-year-old midsize car will find a new compact car costs as much as the original price for his trade-in. This risks poor customer satisfaction.
While loan terms are getting longer to defray the costs, buyers could be left with negative equity when they go to trade in their vehicles, creating another satisfaction issue and a hurdle to future purchases.
Higher prices also put into jeopardy first-time buyers, who generally are younger and facing a weak job market and record-high student loan burdens for those just completing college.
Still, new-vehicle prices show no sign of retreating anytime soon. Indeed, looming federal fuel-economy rules and new safety mandates are forcing auto makers to add an ever-growing list of costly efficiency-improving technology to their cars and trucks.
Car buyers are left to bear the brunt of these escalating costs and eventually will have to absorb higher interest rates once they begin to climb from today’s rock-bottom levels.