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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.
Young Buyers Dwindling
Higher vehicle prices also put younger, first-time buyers in jeopardy. The demographic already faces a shrunken labor market with an unemployment rate of 7.5% in April, according to the Bureau of Labor Statistics. That’s much improved over the peak of 10% in October 2009 but still high compared with pre-recession levels.
New college graduates, a demographic auto makers typically counted on to arrive at dealerships fresh from their commencement ceremonies, also face the burden of record-high education debt.
The Project on Student Debt, an independent research and policy organization, finds two-thirds of college seniors graduating in 2011 carried a loan debt of $26,600, while unemployment for those graduates stood at 8.8%.
The interest rates on federal student loans is set to double on July 1 after the lowered rates of the 2007 economic stimulus package expire.
Michael Sivak, research scientist and director-sustainable worldwide transportation at the University of Michigan, says unemployment rates and student-loan debts are combining with higher vehicle prices to keep young people out of new cars and trucks.
Social factors also limit the number of young buyers, he says, as fewer pursue a driver’s license and more move to urban areas with public transportation.
Sivak’s research shows on average Americans aged 45-54 years buy the majority of new vehicles annually, representing about 26% of all new-vehicle buyers in 2011, followed by those aged 55-64 years at 23%. Americans aged 25-34 years accounted for 10% of buyers in 2011, down from 15% in 2007. The research concludes auto makers should market to older buyers for greater sales success.
Michael Sprague, executive vice president-marketing at Kia, an auto maker that primarily caters to the lower end of the price spectrum but now is muscling into segments with better-educated and wealthier customers, says the auto maker’s transaction prices have grown in recent years.
And while Kia customers generally have been younger than the average car buyer, many new customers are moving away from luxury, near-luxury and mainstream products to buy a less-expensive vehicle and then fill it with features.
“A lot of it is driven by consumers that have these premium vehicles and realize (they) don’t need to pay more when (they) can get a Kia with compelling design, filled with the latest technologies and great safety for less,” Sprague says.
The fact is all auto makers are vying for that buyer, forcing them to keep a sharper eye on costs.
“There is a lot of parity in the market,” Chevrolet’s Perry says. “Everyone is fighting for more differentiation, how to bring more value, how to enhance the ownership experience. “You would not believe the effort that goes into taking price out of vehicles. It is counting nickels to make sure we are being as value-oriented as we can. It’s not about the lowest price.”
– with Christie Schweinsberg in Delmar, CA, and Jim Mateja in Chicago