Higher Prices, Fewer Choices For New Car Buyers Coming

May 16, 2011
2012 Ford Focus

2012 Ford Focus

There’s bad news on the horizon for new car buyers: demand is up and supply is down, so automakers are reducing incentives used to move new car inventory.

It's most stark in small cars. Increasing fuel prices have caused a surge in demand for smaller, more fuel-efficient cars and trucks, and automakers are reporting supply problems on popular models. Hyundai, for example, is having a hard time meeting demand for Elantra and Sonata sedans, while Ford cites inventory shortages on the Fiesta, Focus and even the new Explorer SUV. GM says they’re short on inventory of Cruze sedans, as well as the fuel-efficient Chevy Equinox and GMC Terrain crossovers.

The net result is that as inventory levels drop, prices rise: Edmunds reports that the average price for a Honda Civic has increased by $1,615 between February and May, and that the average price of a Toyota Corolla has increased by $2,147 in the same time.

Supply and demand is also causing manufacturers to rethink sales incentives. April discounts on new car inventory were at their lowest in five years, and translated to an average discount of $2,320 per vehicle sold. By comparison, discounts in April of 2010 worked out to be $2,590 on each new vehicle. Increasing raw material prices make the situation worse; since many manufacturers have raised prices already this year, shrinking incentives is a way to capture additional lost margins without further price increases.

If there’s good news, it’s that the price increases are likely to be temporary. Toyota and Nissan have already announced incentives on some models, excluding their most fuel-efficient and in-demand products. Bargains, in the form of low-interest financing and cash rebates, can still be had on less popular or soon-to-be-discontinued models.

If you're shopping for a new car this summer, it will still be possible to get a good deal, but you’ll probably have to work a bit harder at it than in past years.

[Detroit News]

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