New car sales continue to benefit from positive economic trends, says a new report from Edmunds.com. While sales are not growing as rapidly as they did in 2013 and 2014, sales remain very healthy.
The U.S. light vehicle market in May had one of its best-selling months since the Great Recession. May is generally a strong month, with consumers flush with cash from tax returns, and upcoming summer vacation trips spurring strong demand, and this May was no exception, said Charles Chesbrough, the chief economist for IHS Automotive. The IHS Automotive sales forecast remains unchanged at 16.9 million units, while others are predicting sales in excess of 17 million units.
Sales are not only on the rise compared with last year, but also buyers are looking for pricier vehicles. Car shoppers’ revived interest in more expensive vehicles, which is led in some measure by the ongoing interest trucks and SUVs, is unlikely to end any time soon, according to the firm’s latest U.S. market analysis. Positive economic trends such as lower unemployment, higher confidence in the economy, and lower gas prices are encouraging shoppers to seek out bigger and more expensive vehicles, the analysis found.
“The cost-conscious, fuel-efficient mentality from the recession and early recovery years has faded,” said Edmunds’ Chief Economist Dr. Lacey Plache. “We expect these economic trends to continue into next year at least, so there’s every reason to believe that shopper preferences for larger and more expensive vehicles will continue along the same path that we’ve seen emerge in the past year or so.”
Plache’s team studied the three most-shopped vehicle segments, comparing the sticker prices of vehicles sold in the past two years with the sticker prices of new vehicles configured by consumers on Edmunds.com during that period. In all three segments, the prices of configured vehicles increased relative to transaction prices.
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In January 2013, the average price of a configured midsize car was approximately $28,300. By January 2015, that average rose to $29,800 while the average transaction price in this segment went up from $29,100 to $29,500 in the same period.
In January 2013, the average price of a configured compact crossover was approximately $28,000. By January 2015, that average rose to $28,900 while the average transaction price in this segment went up from $27,600 to $28,400.
In January 2013, the average price of a configured compact car was approximately $22,300. By January 2015, that average rose to $23,200 while the average transaction price in this segment went up from $21,500 to $21,900.
“In each of the three top segments, the share of shoppers configuring higher-end, better equipped vehicles has increased while the share configuring lower-end vehicles has decreased. These changes are much greater than price band shifts due to MSRP updates would be,” Plache said.
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The upgrading of the new vehicle market is also obvious when you consider that trucks and SUVs have outsold cars in each of the last 21 months, despite significant average price differences between those segments.
In May, for example, the average transaction price for trucks and SUVs was nearly $37,000, while the average transaction price for cars was about $27,400. Most shoppers are not only more attracted to those bigger vehicles, but they are paying on average $9,500 more to own one, she said.
Two factors making it easier for shoppers to afford more expensive vehicles are cheaper credit and the gravitation toward leasing. Last month, 9.5% of buyers who financed a new vehicle got a 0% loan – the highest percentage since last September. In addition, more than 28% of new cars and trucks sold so far in 2015 were leased, putting the year on pace for the auto industry’s highest lease penetration rate ever. In May, the average monthly payment for leased vehicles was $420, compared to $490 for financed vehicles.
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Interestingly, these trends are not currently resulting in growth of the market share of the luxury vehicles. Shopper consideration of most luxury vehicle segments has been flat from 2013 to 2015; midrange luxury vehicle consideration has actually dipped a bit.
I don’t believe the majority of consumers agree the economy is improving. I think those of means are buying new cars because they were not significantly impacted by the economic recession.