It may sound counter-intuitive to think that with an down economy, including sales volume still at least a few million vehicles away from peaks last decade, that the average price of new cars is on the rise. But it is.
New analysis of sales data from last month by TrueCar showed an average sales price of $30,748, which marks a substantial 6.9 percent climb from just a year ago.
So what exactly is behind the climb in new car pricing? With the small car segments booming one would logically think average transaction prices would be smaller as well, but not so. The answer lies in the fact that consumers are ticking option boxes like never before, with the average new car being close to “fully loaded.” It is from those options that profits.
To give an example of how much those options have changed things, Ford’s president of the Americas, Mark Fields, told investors that the automaker is selling the Focus for an average of $3,100 more per car than the previous model year, which comes out to just shy of a 20 percent increase.
Aside from options, the other huge factor driving up transaction prices is the reduction of incentives that were significantly cutting into manufacturer profits and average transaction prices. This has been made possible by automakers, especially the Domestic Three, changing their business model to rely more on forecasting and producing vehicles at proper volumes and sticking to their asking prices. In the past, automakers were guilty of producing vehicles that otherwise were not demanded and then relying on heavy incentives to move them from dealer lots.
Now that American automakers have reduced their production capacity to what they refer to as “right levels,” they are able to produce vehicles at or slightly above plant capacity, without churning our more cars than the market demands at or near suggested retail prices. As for where prices are expected to go in the future, TrueCar believes that the average price is close to leveling out, something expected to happen at about $31,000 even for each new car sold.