New cars more expensive or maybe its options
2023.02.12 05:32
New cars more expensive or maybe its options
By Kristina Sobol
Budrigannews.com – The average cost of a new car in the United States has only recently fallen below sticker after years of parts shortages. However, this overlooks a larger issue: Even before the pandemic, sticker prices kept going up as buyers added more options.
According to Edmunds’ data from two decades ago, the most important factor in vehicle price increases are options, and this trend has been occurring for a long time.
From 24.6 percent in 2002 to 38.1 percent in 2022, “the average price gap between base models and vehicles as optioned up by customers has soared”
Before Covid hampered parts supply and vehicle production, the average sticker price of a new vehicle was approximately $30,000 in 2009 and nearly $40,000 in 2019, according to Edmunds. Edmunds.com data indicate that figure was almost $46,000 last year.
However, despite consumers switching from sedans to SUVs, which are more expensive, the average sticker price for base models has actually decreased slightly when adjusted for inflation. The cost of options that buyers added is the difference.
Edmunds’ historical pricing data were supported by economist Steve Reed from the Bureau of Labor Statistics, a government agency that measures inflation.
He stated, “According to our measures, the real cost of cars has decreased in comparison to other things.”
This is good news for drivers who are willing to go without much: You don’t have to if you don’t want to spend a lot on a new car. Avoid spending a lot of money on options, and automobiles are actually quite affordable.
Take for instance the Nissan Versa, which is the cheapest automobile available for the 2023 model year.
The starting cost is $15,730. That is barely different from the base price of a Hyundai Accent in 2002, when it was the cheapest new car available that year, after accounting for inflation. Despite the fact that the 2023 Versa comes loaded with standard features like a touchscreen, blind spot monitoring, and push-button start, many of which weren’t even available two decades ago, this is the case.
Edmunds data show that over the past two decades, there has been a growing gap between the lowest base price and the average sticker price as sold to customers for a wide range of vehicle types.
For example, in 2002, the Mercedes E-class’s base price was only 11.5% higher than the average sticker price with options, compared to 30% in 2022; Over the same time, it increased from 14% to 41% for the Chevrolet Tahoe; Additionally, it increased from 7% to 21% for the Acura MDX.
From 24.6% in 2002 to 38.1% in 2022, the average price gap between base models and vehicles as optioned by customers increased.
(Obviously, since “adjusted for inflation” is meant to mean that, it shouldn’t come as a surprise that vehicle base prices haven’t gone up in the past couple of decades.) Economists who calculate it take into account the increased quality of new automobiles as a component of overall inflation.
Another factor is competition. Even while adding more safety technology and comfort features like automatic transmissions as standard, automakers have found ways to keep prices low.
Automakers might not make much money, if any, from these models with low prices. According to Moodys director of economic strategy Michael Brisson, however, they can attract customers who can then be up-sold to more expensive versions in what is referred to as a “loss leader” pricing strategy.
Matt Jones, a TrueCar spokesperson who spent 12 years working at auto dealerships, stated that customers are more than willing to cooperate.
The idea that people buy what is the cheapest? That has almost never happened to me,” he stated.
As a result, Americans continue to add more options to their vehicles despite initially receiving more value for their money.
For instance, over the course of the past twenty years, the gap between base models and the typical vehicle with options (as sold to customers) for trucks and SUVs has been steadily increasing.
Surprisingly, GMC’s heavy-duty trucks, which are typically regarded as serious work vehicles, have seen the gap widen the fastest. The current average selling price of a GMC Sierra 2500 HD is now twice the base price.
According to GMC’s head of marketing, Patrick Finnegan, these customers view their large trucks as a reward for years of hard work.
According to Finnegan, “You may think a heavy-duty truck customer might not be in the market for that kind of thing, might not be willing to pay for it.” However, they are actually most excited about some of those features, such as the Bose Premium Series speakers.
According to University of Michigan economist Justin Wolfers, automakers can take advantage of the growing income gap in the United States by offering increasingly opulent option packages. Buyers who have a lot of money can pay more, but people with less money can still buy cars from automakers.
According to Drury of Edmunds.com, this rise in options is the result of a different type of competitive pressure: the competition with neighbors and friends whose cars have the most recent technology. In addition, when purchasing a new vehicle, consumers rarely expect less than they already have.
It is influenced by industry strategy as well. Car buyers rarely have the ability to select individual options. According to Tyson Jominy, an industry analyst with J.D. Power, they typically have to purchase bundles of features or even pay more for more luxurious “trim levels” to obtain the features they desire.
In an email, Jominy wrote, “A classic example is a “Wheels and Tunes” package.” Music and wheels don’t necessarily go together, but if you’re an audiophile, you have to get better wheels to get a branded radio, and vice versa.
According to Consumer Reports managing editor Jeff Bartlett, car shoppers can avoid getting caught in the vortex that encourages them to purchase new vehicles at ever higher prices. He is concerned that car buyers will use the rising cost of the “average new car” as a guide for the price of their next vehicle.
It gives me shivers to think of people who, in this economic climate, might think, “Oh, well, I was just going to buy a $30,000 car but, hey, I guess $50,000 is average, so why not?” He stated
