June 25, 2024

A Bad Year for Car Bargains

Though the average price remains below historic highs when adjusted for inflation, nominally it has never been so high, according to the auto-research site TrueCar.com. That concerns some car company executives, who fear that the industry’s recent comeback could be stalled if buyers start experiencing sticker shock.

And early sales data for this month are not encouraging: Retail sales of new vehicles are projected to total about 850,000 in May, according to J. D. Power Associates. That translates to an annual seasonally adjusted selling rate of about 9.6 million units, a significant drop-off from the 10.7 million rate achieved from January through April. The data exclude sales to rental car and other fleets.

“You’ve got to figure out that sweet spot where you offer just enough incentives to get people to buy your cars without sacrificing profitability,” said Jesse Toprak, vice president of industry trends at TrueCar.

Several factors account for the rising prices. Because there are more new models on the market than in recent years, automakers need fewer incentives to lure consumers into the showrooms. The earthquake in Japan has also caused shortages of some cars and crossover vehicles built there by Toyota, Honda and Nissan, which has driven the prices up on the limited inventory in stock.

Car companies are also commanding better prices for their small cars because of added features like entertainment systems and heated seats. Consumers are increasingly paying more to get upscale options on smaller cars that were once primarily bare-bones purchases.

“On a dollar basis, they’re paying more, but they’re getting a whole lot more car than in the past,” said Mr. Toprak.

The average transaction price for a new vehicle in the United States, including rebates and other incentives, reached $29,602 in April, according to TrueCar.com. That figure represented an increase of $324 over March. But automakers are not necessarily getting greedy, industry analysts said. Some of the increases are going toward covering higher material costs, and the companies are also taking advantage of strong demand.

General Motors, for example, is running short on supply of its Chevrolet Cruze compact car, and the Ford Motor Company is low on inventories of its Focus sedan and Explorer S.U.V. Some of the biggest year-over-year price increases are found on revamped, hot-selling models like Chrysler’s Jeep Grand Cherokee and Honda’s Odyssey minivan.

“The pricing is more of a symptom of lack of supply than anything else,” said Jim Farley, Ford’s head of global sales marketing. “But it is affecting the industry’s volumes.”

Ford and Toyota announced across-the-board price increases this year on their 2011 models. Ford said it would raise prices by an average of $117, or 0.4 percent, while Toyota said it would lift prices by about 1.7 percent on many of its Toyota, Lexus and Scion models. G.M. has said it will charge more for many of its vehicles, by an average of $123.

But the increases are only part of the equation. Overall discounts and sales incentives fell to their lowest levels in five years in April, according to the automotive site Edmunds.com.

Incentives averaged about $2,320 per vehicle in April, a $370 reduction from the period a year earlier. Some of the reduction is attributed to sales programs that expired and were not renewed. Japanese carmakers have also pulled back incentives because of the earthquake-related shortages, and the American companies have followed suit.

“Our incentive strategy is based on the competitive environment,” said Mr. Farley. “There’s been a drastic change because stocks have been depleted and we’re launching a lot of new products that don’t require incentives to sell.”

Automakers always try to balance the need for incentives against consumers’ demand. But if companies pull back too far on discounts, some potential shoppers will simply wait until the next deals are announced.

The American automakers are not as reliant on heavy incentives as in years past, mostly because the companies closed dozens of factories to bring their production in better balance with their market shares.

They also have little reason to pile on discounts when their Japanese competitors have cut incentives so drastically.

“Putting incentives on cars you don’t have doesn’t make sense,” said Neale A. Kuperman, president of Rockland Toyota in Blauvelt, N.Y.

Mr. Kuperman said he usually sold up to 20 Prius gas-electric hybrid cars each month, but so far in May has only sold six. His overall dealership sales volumes are down about 50 percent because of inventory shortages.

There are no discounts available on many models because of supply constraints, he said.

“As much as everybody likes to think that we set the prices, the market dictates it,” said Mr. Kuperman. “When there’s less of a supply, the prices tend to go up. When there’s more, the prices go down.”

J. D. Powers’s executive director of forecasting, Jeff Schuster, said the lower sales so far in May could be attributed partly to higher transaction prices, as well as rising fuel costs and inventory shortages.

With fleet sales included, the annual selling rate for May so far is about 11.9 million vehicles, compared with a 13.2 million rate for the previous four months combined.

Even with the sales drop, Mr. Schuster said that vehicle prices, without incentives, had risen about 1.6 percent in May from April.

“It makes for better margins for the automakers, but on potentially lower volumes,” he said.

Article source: http://feeds.nytimes.com/click.phdo?i=e909959e27605212ae1b07460c656b63

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