Average new vehicle transaction prices continue to climb, but when the value of the dollar is considered, are they actually more expensive or less? The surprising answer.
Data provided to BestRide by J.D. Power shows that the average new vehicle transaction cost in 2003 was $24,773. Today, the average new vehicle costs a whopping $33,695. That seems like a huge increase in the cost to the consumer, but only if you don’t factor in the changing value of the U.S. dollar. We used the website USInflationCalculator.com to calculate the value of a new vehicle in 2003 using today’s dollar value and found that it comes to $34,224. In fact, new vehicle prices are rising in dollars, but they are costing less than in 2003 when the true value of those dollars is considered. This is because of inflation, which is currently at a rate of about two percent per year. Inflation rates are presently low by historical standards, and lower than this time last year.
Are vehicle buyers’ incomes keeping pace with inflation? The U.S. median income in 2003 was $43,317. By 2017, the latest year for which accurate census data is available, U.S. median household income had risen to over $60,000. Much of that rise was, of course, gobbled up by inflation. However, not all of it was. The U.S. median income in what is called “real” dollars, or inflation-adjusted dollars, has risen a bit from 2003 to today. The top-earning households in America have seen the highest increase in dollars, but all earnings brackets have seen a small gain in median household earnings in the past two decades. Households aren’t earning significantly more in real dollars than in past decades, but household income is rising a bit or staying steady.
Average vehicle prices can also give a skewed picture of what prices consumers are willing to pay for a specific vehicle they have in mind. One of the most important automotive segments is pickup trucks. Overall, pickups are the most popular-selling individual nameplates, with Ford’s F-Series, the Ram pickup line, and the Chevy Silverado now the top nameplates in overall sales. It is no secret that high-end pickup trucks are increasingly popular. The last pickup we tested was the five-passenger Ram 1500 Limited Crew Cab 1500 priced at $68,390. In its last quarterly report, General Motors reported that its truck-heavy fleet had seen an average transaction price increase of $938 year over year. However, its pickups average transaction price rose by a stunning $5,800 in the past six months. Over the full year from April 2018 through April 2019, GM reported that its prices for its new pickups were $8,040 higher compared to their outgoing models.
GM is focusing on high-end trims and doesn’t mind sacrificing a few unit sales to sell at higher profits. “Our production launch was very smooth and crew cab sales are brisk, especially those with premium trims,” said Kurt McNeil, U.S. vice president, Sales Operations. To make the most profit from its popular trucks GM didn’t just raise its sticker prices, it also reduced its discounts by $175 on average this past year. General Motors says that more than 95 percent of the all-new GMC Sierra pickup truck crew cab sales were high-end trims in the first quarter of this year. In response to shifting preferences, GM will continue to shift its production toward those pricey truck configurations. “We are bullish on pickups and expect to gain sales momentum throughout the year,” said McNeil. “We are installing capacity in Flint to build more HD pickups in total, more crew cab models, more dualies and diesel models, too, all in response to dealer and customer demand.” Meanwhile, GM is closing plants that made more affordable car models.
However, focusing on pricey pickups, and the few automakers dependant on them for survival, may give a skewed view of the affordable end of the market. Affordable vehicle models may not follow the upward pricing trend trucks are exhibiting. One perfect example is Volkswagen Jetta. The Jetta is an affordable small sedan. Over time, the Jetta has grown in size, power, and fuel efficiency, and has become much safer to drive. Yet, the Jetta’s price has dropped meaningfully over the decades when inflation is considered. Interestingly, the Jetta even dropped in price when inflation is not considered from 2018 to 2019. The Jetta’s base price dropped by $100 over the last year. It now starts at $18,545. This despite its ever-growing list of standard features. Despite its value, the Jetta is an outlier according to J.D. Power who says that sales of vehicles under $20,000 are down 25% from last year, but demand for vehicles costing $40,000 and higher are up 7%. This statistic seems ominous, but remember, inflation may have simply bumped more models’ transaction prices above the $20K and $40K cutoff mark.
Another growing market segment is also proving Americans are happy to buy more expensive vehicles if they don’t actually cost them more. Electric vehicles are growing in popularity and have the highest transaction prices for vehicles their size and capabilities. However, they actually cost consumers much less than the transaction price might suggest. For example, the Chevy Bolt LT is a compact car with a sticker price of $34,095. During 2018, that vehicle came with a $7,500 federal tax credit and most of the states where it is popular added thousands more in rebates for buyers. In Massachusetts, buyers were “paying” $10,000 less than the transaction price would suggest. Tesla’s pricey models made up 52% of the American EV market in 2018 and every one of the luxury/performance models Tesla sold qualified its buyer for a federal tax break. Even the ones costing $130,000. A recent bipartisan bill in Congresses proposes an expansion of this price support program.
With Americans making small but steady long-term inflation-adjusted gains over time, and with the inflation-adjusted average cost of vehicles a bit lower than in past decades, new vehicles are actually costing Americans less over time on average, not more.
Source Note: The following new vehicle average transaction price data was provided to BestRide by J.D. Power’s Jillian Breska, Supervisor, Corporate Communications. These are the unadjusted prices (before inflation corrections).