Are new cars simply becoming too expensive for many consumers?
The average price of new car currently sits right around $32,200, $500 more than the average price spent on a vehicle this time last year. As a whole, consumers are spending an increasing amount of money on vehicles.
However, while an increasing average price would usually be welcomed news for dealerships, those same dealers are now becoming worried. In fact, many automotive dealerships are concerned that the price of new vehicles may be getting too high.
Wes Lutz, the chairman of the National Automobile Dealers Association (NADA) is concerned that if new car prices continue to rise, “it will stop sales.”
“It’s just more than the consumer can handle,” says Lutz.
While new technologies do make cars safer, they also make them more expensive
One reason why vehicles are becoming increasingly expensive is advancements in vehicle safety and technology. Automakers justify price increases due to new in-vehicle tech and more advanced safety systems.
Of course, automakers don’t hold all of the responsibility for the increasing average price spent on cars. Consumers are buying more SUVs and pickup trucks, vehicles that carry higher transaction prices than smaller sedans.
America is learning that SUVs don’t come cheap
Consumers do have a limit to the amount that they are willing to spend on a new vehicle. Several dealers are beginning to worry that the average transaction price of a new car may be rapidly approaching that limit.
“You can’t continue to raise the price because at some point, people won’t buy cars,” explains Charlie Gilchrist, the vice chairman of NADA.
Complicating the situation are tightening credit conditions and higher interest rates. According to Edmunds.com, the average monthly payment on a car now exceeds $525 a month.
Another factor that could potentially increase the price of a new car even more are the recent U.S. tariffs on steel and aluminum. Jim Lentz, the Chief Executive of Toyota’s North American operations, stated that vehicle prices could increase about $200 on average across the industry due to the tariffs.
Tariffs on steel and aluminum could potentially cause new car prices to increase across the industry
“It’s simple math,” says Jack Hollis, general manager of Toyota North America. “With a tariff there’s going to be a price increase.”
Many dealerships are convincing consumers to opt for a longer-term lease to drive down their monthly payments. However, strategies like these are hardly a fix for what is becoming a market that many consumers will be priced out of.
News Source: The Wall Street Journal (subscription required)
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