New cars are crazy expensive but, if you’re careful, they don;t have to be- QHN
After years of parts shortages, the average price people paid for a new car in America only recently dropped back below sticker. But this ignores a larger issue: Even pre-pandemic, sticker prices were steadily ticking higher as buyers load up on options.
Two decades of historic data from auto website Edmunds.com indicates that options are the biggest driver in rising vehicle prices — and that it’s been happening over many years.
“Overall, the average price gap between base models and vehicles as optioned up by customers has soared, rising from 24.6% in 2002 to 38.1% in 2022.”
The average sticker price of a new vehicle, as purchased, was about $30,000 in 2009 and reached almost $40,000 in 2019, before Covid hampered parts supply and vehicle production, according to Edmunds. Last year that figure reached almost $46,000, according to data from Edmunds.com.
Yet the average sticker for base models, adjusted for inflation, has actually gone down a little — even as consumers have shifted from sedans to more expensive SUVs. The difference is the cost of options buyers added on.
Steve Reed, an economist with Bureau of Labor Statistics, a government agency that measures inflation, concurred with what Edmunds’ historic pricing data indicated.
“According to our measures, the real cost of cars relative to other things has declined,” he said.
That’s good news for drivers willing to go no-frills: If you don’t want to pay lots of a new car, you don’t have to. Don’t dip heavily into the options list, and cars are actually relatively cheap.
Consider the Nissan Versa, the cheapest car available for the 2023 model year.
It has a base price of $15,730. Adjusted for inflation, that’s barely different from the base price of a Hyundai Accent in 2002, the cheapest new car available that year. This is despite the fact the 2023 Versa is loaded with standard features — including push-button start, blind spot monitoring and a touchscreen — of which many weren’t even available two decades ago.
For lots of different types of vehicles, gaps between the lowest base price and the average sticker price as sold to customers have grown over the past two decades, according to Edmunds.com data.
For the Mercedes E-class, for example, the difference between the base sticker price and the average sticker with options was just 11.5% in 2002 compared to 30% in 2022; for the Chevrolet Tahoe, it jumped from 14% to 41% over that same period; and for the Acura MDX it increased from 7% to 21%.
Overall, the average price gap between base models and vehicles as optioned up by customers rose from 24.6% in 2002 to 38.1% in 2022.
(Of course, it’s not entirely surprising that base prices of vehicles haven’t gone up in the past couple of decades, adjusted for inflation, since that is what “adjusted for inflation” is supposed to mean. New cars are part of the overall inflation picture for economists who calculate it, accounting for a certain amount of improved quality.
Competition is a factor, too. Car companies have found ways to keep prices down even while adding more safety technology and comfort features like standard automatic transmissions.
These base price models may not make much money, if any, for automakers. But they can attract shoppers who can then be up-sold to more expensive versions in what’s known as a “loss leader” pricing strategy, said Michael Brisson, director of economic strategy at Moodys.
And customers are more than willing to play along, said Matt Jones, a spokesperson for the auto pricing site TrueCar who spent 12 years working at auto dealerships.
“The idea that people buy the most cost-effective thing? I have almost never seen that be the case,” he said.
So, even though vehicle shoppers are getting more for their money to start with, Americans keep piling on options.
For General Motors’ GMC brand, for example, the gap between base models and the average vehicle with options (as sold to customers) has been growing steadily among trucks and SUVs for the last 20 years.
Surprisingly, the gap has been growing fastest in GMC’s heavy-duty trucks, usually thought of as serious work vehicles. The average price of a GMC Sierra 2500 HD, as sold, is now double the base price.
These customers see their big trucks as a reward for years of hard work, said Patrick Finnegan, head of marketing for GMC.
“You may think a heavy-duty truck customer might not be in the market for that sort of thing, might not be willing to pay for it,” said Finnegan. “But it’s some of those features that they’re actually most excited about, like Bose Premium Series speakers.”
Offering increasingly luxurious option packages is a way for automakers to take advantage of greater income disparity in the United States, said University of Michigan economist Justin Wolfers. Wealthy buyers can pay more while automakers maintain purchase opportunities for those without as much to spend.
A different kind of competitive pressure has resulted in this rise in options, said Edmunds.com’s Drury: the competition with friends and neighbors who have the latest features on their cars. Plus, when buying a new vehicle, people seldom want less than they had before.
Industry strategy also plays into it. Car shoppers can rarely pick and choose options individually. Instead, they usually have to buy packages of features together or even pay more for more luxurious “trim levels” to get features they want, said Tyson Jominy, an industry analyst with J.D. Power.
“A classic example is a ‘Wheels and Tunes’ package,” Jominy wrote in an email. “There’s no inherent link between music and wheels, but if you’re an audiophile you have to get the upgraded wheels to get the branded radio, and vice versa.”
Car shoppers can avoid getting caught in the vortex pulling them toward ever more expensive new vehicles, said Jeff Bartlett, managing editor at Consumer Reports. He worries that car shoppers seeing these rising prices for the “average new car” will use that as a guide to what their next car should cost.
“It gives me shivers to think of people in this economic climate, thinking, ‘Oh, well, I was just going buy a $30,000 car but, hey, I guess $50,000 is average, so why not?” he said.
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