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CNN
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After years of parts shortages, the average price people paid for a new car in America just recently dropped below par. Even before the pandemic, sticker prices were steadily rising as buyers loaded up on options.
Data from the automotive website Edmunds.com over the past 20 years shows that options are the biggest driver of rising car prices, and that’s been happening for years.
“Overall, the average price difference between the base model and the vehicle that customers purchased as an option has increased sharply, increasing from 24.6% in 2002 to 38.1% in 2022.”
Edmonds said the average selling price for a new car was about $30,000 in 2009 and reached about $40,000 in 2019. Last year, that amount reached about $46,000, according to data from Edmunds.com.
Yet even as consumers shift from sedans to more expensive SUVs, the average inflation-adjusted base model sticker is actually a bit lower. The difference is the cost of options added by the buyer.
Steve Reed, an economist at the Bureau of Labor Statistics, the government agency that measures inflation, agreed with what Edmonds’ historical price data showed.
“According to our measures, the real cost of the car compared to others is falling,” he said.
This is good news for no-frills drivers. If you don’t want to spend a lot of money on a new car, you don’t have to. Don’t get too hung up on the option list. Cars are actually relatively cheap.
Consider the cheapest car available for model year 2023, the Nissan Versa.
Base price is $15,730. Adjusted for inflation, it’s little different from the base price of a 2002 Hyundai Accent. That’s even though the 2023 Versa has standard features like push-button start, blind spot monitoring, and a touchscreen that weren’t available 20 years ago.
Data from Edmunds.com shows that the gap between the floor mark price and the average sticker price sold to customers has widened over the last 20 years for many different types of vehicles.
For the Mercedes E-Class, for example, the difference between the base sticker price and the average sticker price with options was only 11.5% in 2002 compared to 30% in 2022. For the Chevrolet Tahoe, he jumped from 14% to 41% over the same period. Acura MDX increased from 7% to 21%.
Overall, the average price difference between the base model and the customer’s optional vehicle has increased from 24.6% in 2002 to 38.1% in 2022.
(Of course, it’s not at all surprising that the base price of a car hasn’t risen in the last 20 years. That’s what “inflation-adjusted” means, so it’s inflation-adjusted. New cars is part of the whole picture of inflation for economists to calculate it, Consider a certain amount of quality improvement.
Competition is also a factor. Automakers have found ways to keep prices down while adding safety technology and comfort features, such as standard automatic transmissions.
These base-price models, if at all, may not be big gains for automakers. However, according to Michael Brisson, director of economic strategy at Moody’s, a pricing strategy known as the “loss leader” pricing strategy can attract shoppers who can be sold to the more expensive versions.
According to Matt Jones, a spokesman for auto-price site TrueCar, who worked in car dealerships for 12 years, customers are happy to cooperate.
“The idea that people buy what’s most cost-effective? I’ve seen very few cases like that,” he said.
So while car buyers are paying more to get more from the start, Americans continue to expand their options.
For General Motors’ GMC brand, for example, over the past two decades, the gap between the base model and the average vehicle with options (sold to customers) has steadily widened between trucks and SUVs.
Surprisingly, this gap is growing fastest in GMC heavy trucks, which are typically considered serious work vehicles. The average price of the GMC Sierra 2500 HD sold is now double his base price.
GMC marketing chief Patrick Finnegan said these customers see the heavy trucks as a reward for years of hard work.
“I think heavy truck customers might not want or want to pay for something like that,” Finnegan said. “But like the Bose Premium Series speakers, it’s actually some of the features they’re most excited about.”
University of Michigan economist Justin Wolfers says offering increasingly luxurious option packages is a way for automakers to take advantage of the greater income disparity in the U.S. Wealthy buyers are more , allowing automakers to keep purchases open for those who don’t spend as much.
According to Drury of Edmunds.com, another kind of competitive pressure is driving this choice. That means competing with friends and neighbors who have the latest features in their cars. Plus, when buying a new car, people rarely want less than they used to.
Industry strategy also influences it. Car shoppers rarely get to choose their options individually. According to JD Power industry analyst Tyson Jominy, they usually have to buy a package of features together or pay extra for a more luxurious “trim level.”
“A classic example is the ‘Wheels and Tunes’ package,” Jominy wrote in an email. “There is no inherent association between music and wheels, but if you are an audiophile, you need to get upgraded wheels to get branded radios and vice versa.”
According to Consumer Reports editor-in-chief Jeff Bartlett, car shoppers can avoid getting caught up in the vortex of being drawn to increasingly expensive new cars. He worries that car shoppers will see these “average new car” price increases and use them as a guide to how much their next car will cost.
“In this economic climate, it horrifies me to think, ‘I was going to buy a $30,000 car, but $50,000 is average, why not?'” He said.
