U.S. Auto Buyers Spend More to Trade-Up Vehicles
Americans consumers were snapping up the latest pricey automobiles in April perhaps due to low gasoline prices and generous leasing terms. However, most buyers have actually ended up paying much more for their car than in the same period than year ago. Spring is the season when the pace of auto sales typically weakens, but trade-up offers are bringing a whirlwind of optimism of brisk summer sales. As of now, executives at several auto companies are projecting 2015 light-vehicle sales to hit record numbers for the first time since early last decade.
Buyers have been opting for luxury cars and sport-utility vehicles in recent months, while some select work vehicles with extra options. Those sales end up driving drive the average price paid for a vehicle up to a higher premium compared to previous years.
It has been widely reported that pickups and SUVs, which are far more profitable for automakers than passenger vehicles, have taken up a significant percentage of market share than a year ago for total auto sales in the US. Helping fuel that rise is the change in the price of gasoline which went down significantly for a brief period of time relative to a year ago. This combination of richer prices and rising sales has the auto industry in a much healthier place than it was the last time sales were this strong. Back in the early 2000s, hefty rebates and discounts from US auto makers started a price war until demand began to sour in 2008.
It’s no secret that cheap gasoline has breathed new life into SUVs and trucks, vehicle types that have long been criticized for being gas guzzlers. Now these vehicles even include dozens of smaller car-based crossovers, such as the Honda C-RV or Ford Motor Co.’s aluminum-bodied F-150. Tougher federal emissions standards lifted fuel-economy numbers for those cars, providing incentive for drivers. So not only are these trucks more fuel-efficient than their predecessors, they even carry loads of technology and luxuries once shunned by your typical pickup buyer. And apparently, they are even willing to pay more to have these features included.
However, new tech and standards wouldn’t cause such a spike in the amount of money spent. The foundation for the higher prices might actually be longer-duration loans. This is an industry where 36-month terms once were standard but now it is actually more common to see loans spanning upwards of 7+ years. While these loans are available to buyers with good credit looking for a low monthly payments on a premium car, they do come with the downside of potentially locking them out of the new-car market for several years.
If a dealer can lower the monthly payments a buyer will walk out of the store and may come to realize that have potentially they spent thousands more overall than they initially planned to. So while it is good that the auto industry is improving in comparison to previous years, the burden once again ends up on consumers. And is it really good in the long run to allow consumers to spend many years paying off one vehicle when “newness” is still incredibly important to the industry?
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