Tag Archives: vehicle prices

A Drop in the Proverbial Bucket

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By Gary S. Vasilash

Adjusting interest rates can be a tricky business for the Federal Reserve.

On the one hand, it wants to reduce the amount of borrowing and—consequently—spending.

That helps reduce inflation.

On the other hand, it doesn’t want to reduce the amount such that the economy falls into a recession.

Consumers don’t like inflation. That’s because things cost more.

Consumers don’t like high interest rates. That’s because they have to spend more to borrow the money to buy things.

Things like cars.

Kelley Blue Book announced the average transaction price (ATP) for new vehicles was down 1% in March compared to the ATP in February.

What’s more (or less), the March ATP was down 5.4% compared with December 2022, when ATPs were at their peak.

It’s not like new vehicles are inexpensive, even with that 1% drop.

The ATP—and remember, this is average—for March is $47,218.

Erin Keating, executive analyst at Cox Automotive, said, “It bears repeating that historically high interest rates and associated inflation combined with an ever-widening deficit of available vehicles at lower price points, will continue to challenge affordability for most car buyers.”

So there’s the interest rate-inflation situation.

The Disappearing Econo Box

Keating’s observation about “widening deficit of available vehicles at lower price points” is key.

KBB found that in March there were some 275 new-vehicle models available in the U.S.

Of the 275 only eight had ATPs of less than $25,000.

Three percent. Imagine trying to find one.

But apparently either people have lots of money or they’re willing to borrow it: in March sales of vehicles with ATPs above $75,000 were greater than those under $25,000: approximately 81,000 of the former and 52,000 of the latter.

Perhaps high interest rates are having an effect—on the lower portion of the market.

Of course, chances are OEMs are putting out vehicles with higher sticker prices because they can make more money on them than those that are more economical.

What You Need to Know If Vehicle Shopping

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First the good news, according to Michelle Krebs, executive analyst for Cox Automotive:

“The surge in new car prices appears to have peaked.”

That is the new vehicle average transaction price fell 1.8% in January compared to December.

Now it is “just” $46,404.

But while not exactly an entire shoe dropping, Krebs adds:

“Yet, while we expect vehicle supply to improve, it will continue to be tight particularly through the first half of the year. Because of this, we expect prices to remain high for the foreseeable future, but car shoppers can rest assured we don’t anticipate any more record highs.”

Not records. Just high.

Here’s another thing that probably won’t make you feel much better.

Cox calculates that car shoppers for non-lux vehicles are paying, on average, more than $900 above sticker. A year ago those customers were paying $1,600 or more below sticker.

For those in the lux segment it is a similar story, just higher numbers. As in paying $1,300 above sticker when last year the prices out the door were $2,400 under MSRP.

One way of looking at this is that for non-lux cars customers are paying a $2,500 penalty for waiting (the swing from minus $1,600 to plus $900) and the lux buyers $3,700.

With inflation and rising interest rates, however, it may be a good idea to shop earlier rather than later lest those factors add to the sticker.

Remember: MSRP is “suggested” price, not what you’re going to sign off on.

About that Beater’s Price

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According to Kelley Blue Book, which knows about such things, the average used vehicle price at the close of 2021 was $28,205.

That was 28% higher than it was at the end of 2020.

42% higher than in December 2019.

(One thing that is a little odd about this: Given that there was a decrease in the miles traveled during the lockdown portion of that period, as in, say, people working from home and therefore not driving, wouldn’t you imagine that the demand for used vehicles—yes, we know that the lack of semiconductors reduced the availability of new cars, which put some people into the used market—would have been lower, or is it simply that they could have been much higher?)

Back to that $28,205.

According to the U.S. Census Bureau, the median household income in the U.S. in 2020 (these were the latest figures collected as of September 2021) was $67,521, a 2.9% decrease from 2019.

Let’s say for the sake of argument that there was a 5% increase in 2021 (an arbitrary figure based on nothing).

That would make the median income $70,897.

The average used car would be about 40% of that annual income.

Something to Think About Regarding Vehicle Prices

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By Gary S. Vasilash

Here are some interesting observations from Charlie Chesbrough, senior economist and senior director of Industry Insights at Cox Automotive.

Chesbrough, during a presentation at the Federal Reserve of Chicago’s 28th Annual Automotive Insights Symposium, pointed out that new vehicle inventory at the end of 2021 was 63% below what it was in 2020.

Not a whole lot of inventory on those dealers’ lots.

He said the day supply of vehicles is about 35 days, and that when vehicles show up on dealer lots they get bought up just as quickly as they are dropped off.

What’s more, the average price of a vehicle is MSRP plus something.

In other words, that sticker is a suggestion. The price goes up from there.

What’s more, people are paying more than ever—average transactions at $47,077, according to Kelley Blue Book—and dealers and OEMs are racking up the rewards.

“This is a tight supply situation and I don’t know that the industry is in much of a hurry to change it.”

Why would they?

The Big Spend

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Seems like vehicle buyers are buying—costs be damned

By Gary S. Vasilash

“Importantly, consumer spending will still advance despite higher prices due to pent-up demand and record savings balances.” That’s Richard Curtin, chief economist for the Surveys of Consumers, University of Michigan.

In the survey for May it was discovered that consumer confidence fell compared to the data for April. A concern is with inflation.

According to the U.S. Bureau of Labor Statistics (BLS), the Consumer Price Index was up by 4.2% for the 12-month period ending in the cruelest month. That was the highest rise since September 2008, when it hit 4.9%.

What was a big contributing factor to both the fall in consumer confidence and the increase in consumer prices? Vehicle prices.

In the case of used cars and trucks, the BLS measured a 10% increase in prices—the largest one-month increase since they started measuring back in 1953.

But it seems that shoppers aren’t all that concerned.

According to Cox Automotive:

“Four out of ten consumers are willing to pay above the manufacturer’s suggested retail price (MSRP), and those willing to pay over MSRP are willing to accept a 12% premium.”

Cox calculates that based on the average MSRP for new vehicles in April being $41,950, according to Kelley Blue Book, “many consumers are willing to pay $5,000 over sticker price.”

Somehow politicians are blamed for inflation.

Seems like consumers might have more than a cameo role in this scenario.