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Consumer Confidence Pushes Prices Up, Incentives Down

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2013 Ford F-150 Lariat

2013 Ford F-150 Lariat

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In some parts of the world, economies remain shaky, but here in the U.S., financial markets are strong and shoppers are optimistic. Naturally, there's a downside to that.

Consumer confidence has surged over the past few months. Numerically speaking, it now rests at 84.5, its highest level since July of 2007, well before the Great Recession took over the front pages. Roughly 58% of the country believes that the U.S. economy is on the way up, and more people report that their personal finances have improved, not worsened, for the first time since 2008.

That's great news for our bank accounts and our net worth, but it can be a real hindrance when shopping for new cars. The upswing in confidence has given a boost to car sales, and as we learned in Econ 101, when demand for a product increases, so do prices.

That's borne out in figures from TrueCar, which show that new-car prices for May 2013 sat about 2% above those in May 2012. Between the relatively high vehicle pricetags and the many, many add-on options available to consumers, the average cost of a new car last month was $30,978, up from $30,360 a year earlier.

Ford Motor Company has fared particularly well. TrueCar's Jesse Toprak notes that "Ford enjoyed a 4.5 percent gain in their average transaction price over last year, with the recovering housing market fueling the resurgence of demand for large trucks like the F-150. This, along with a 40 percent increase in Explorer sales, has moved their average transaction prices above $33,000, an all-time high ATP for the brand." 

Helping to keep such prices in the air is a general lack of incentives. On average, manufacturers spent $2,482 per vehicle in incentives last month. That's down 3% from May of 2012, when automakers spent $2,559.

A few companies are bucking that trend, though. Chrysler's incentive spending rose 2.6% over the past year, while Ford's jumped a much heftier 12.7%. At the top of the heap, we find Hyundai/Kia, which spent 13.1% more on incentives in May 2013 than they did one year prior. (Perhaps they're still trying to recover from their recent fuel economy fiasco.)

OUR TAKE

There are a lot of theories about the best and worst times to buy a new car. Some advisors even suggest that you avoid buying new cars altogether and instead opt for "new used" vehicles.

We're not going to debate the relative merits of those hypotheses right now. What we will say is that, barring some major catastrophe, analysts expect the U.S. economy to experience fairly steady growth over the next several years. That means that new-car prices aren't likely to drop anytime soon, and incentives may not rise, either.

If you're a bargain-hunter, many of us suggest watching for the arrival of new models, which typically takes place during the second half of the year (though not always). As 2014 vehicles arrive on the lots, dealers are likely to sweeten their deals on 2013 rides. Keep your eyes open.

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