The Damn Economy Is Ruining Our Deals. Where Is The Recession When We Need It?

Bertel Schmitt
by Bertel Schmitt

Car prices are at an all-time high. Cash rebates and incentives are evaporating in front of our eyes. U.S. consumers are paying 11 percent more on average for a new vehicle, to a record $28,341, up from $25,505 on average in 2008. Yesterday, J.D. Power presented the inflationary news to car dealers assembled in Las Vegas for the National Automobile Dealers Association convention.

Dealers applauded.

Cash rebates and other incentives have dropped by more than $400 since 2008, to $2,680 from $3,018, reports the Wall Street Journal from the conference.

Adding insult to higher prices, the customers are getting the blame. They drive the average price higher by purchasing more features like in-vehicle entertainment, it is said. Auto makers follow the trend, add the features as standard, and raise the price.

Bertel Schmitt
Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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  • DeadWeight DeadWeight on Feb 04, 2012

    I am deeply suspicious of the price data, but assuming it's accurate or roughly so, consider that: 1) There had been pent up demand building since 2008, which say annual U.S. car sales fall to around 10 million from the 17.1 million sold in 2006 (2009, 2010 and even 2011 were all far below 2006 levels, as well). 2) Easy credit is most definitely back in auto sales, partly due to government intervention. I know this to be the case, and I can attest to the fact that General Motors and Chrysler sales of late have been driven in a big way by being able to get people with very low FICO scores approved for loans, whether on a purchase or lease (Cadillac was approving Tier I AND Tier II customers for their CTS blowout in January). We'll see what affects selling more cars to people with bad credit (again) has in the coming months and years. 3) To the extent average new transaction prices have risen, there's no doubt that more available options, especially in the gadget/electronic/entertainment category, are costly add-ons, that those dealers surviving the culling in 2008 and 2009 now have fewer competitors within their territory to deal with, and that automakers (thus far) have managed their productions and inventory levels in a disciplined fashion (although there's evidence of channel stuffing starting to take place again). I am not sanguine on the health of the economy. While credit conditions have improved and there has been stabilization of what was a plunging economy, much of the reported good economic news of late doesn't look nearly as rosy upon close examination and a peak under the hood. Having said all of this, there's no question that the reduction in vehicle dealers and vehicle supply has helped to offset the significant drop in consumer demand for new cars and trucks, and that far more options are now available to and desired by the consumer (even ones with poor credit), who are finding it easier to obtain financing. I believe 2013 is going to be a volatile year, as the money printing by the Fed has a tendency to slow post Presidential elections, if history is any guide. For what it's worth, I've helped two relatives purchase new cars recently, and they both were able to purchase these vehicles for significantly less than I expected (one purchase was for just under 19k on a vehicle that had a MSRP of nearly 24k, and the other was for about 33k on a vehicle that had a MSRP of 41k).

  • SCE to AUX SCE to AUX on Feb 04, 2012

    If prices are up due to high-margin adders like entertainment stuff, then I'm not sympathetic. Consumers are driving this, just as they do the salaries of professional athletes.

  • Sector 5 Sector 5 on Feb 05, 2012

    Leasors at lease end would probably be better off buying then selling privately and pocketing the profit than handing it the dealer.

  • Icemilkcoffee Icemilkcoffee on Feb 06, 2012

    It's pent up demand. We are buying our first new car since 2004 this month.

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