These are good times for auto makers. Sales are soaring and new car shoppers, encouraged by low gasoline prices, rock-bottom interest rates and an improving job market, are going for bigger vehicles with more options. All of which means heftier price tags on new cars.
The numbers are still coming in, but analysts believe car makers had their best November in more than a decade. Chrysler’s sales rose 20 percent to nearly 171,000 vehicles, the company reported Tuesday. General Motors, Volkswagen and Toyota also reported gains. TrueCar has forecast that U.S. auto sales for November will total 1.3 million--an increase of 4.1 percent from the same month a year earlier.
The best part for car makers is that transaction prices are also increasing, which analysts say reflects the increasing popularity of large trucks and SUVs. Low gas prices are making those vehicles more palatable for shoppers. Buyers are also being helped by low interest rates, which allow them to finance more expensive cars for longer periods of time without feeling the financial pinch.
“Both of these factors reduce the near-term, out-of-pocket costs buyers spend on a new vehicle,” said Karl Brauer, a senior analyst with Kelley Blue Book. “If it sounds like there’s a potential downside to this situation, well, there is. People are still spending a lot, relatively speaking, for their new cars, but it doesn’t feel like a lot because it is spread out over six or seven years.”
So far this year, the average transaction price for a new vehicle sold in the U.S. has been $32,415—up $325 from last year, according to Kelley Blue Book. Overall, prices have been on the rise for the past decade—except for 2008 and 2009 when auto sales tanked during the recession.
But once the downturn ended, people started spending more as they bought bigger autos. Since 2009, the proportion of new vehicle sales attributed to trucks and SUVs has jumped from 43.4 percent to 49.1 percent, Kelley Blue Book said.
So far this trend is a boon for auto makers. It can also work well for consumers--assuming they hold to their new cars until they are paid off. "As long as buyers keep the car for the entire loan length, and as long as they get a low interest rate, it's not a terrible way to get a new car," Brauer said. "But if they switch vehicles in the first four to five years after a purchase, or if they pay a high interest rate, it's going to be a costly purchase."