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A $50,000 Chrysler Minivan Explains Slowing U.S. Auto Sales
by Jamie Butters and Keith Naughton
May 1, 2017, 5:00 AM EDT May 1, 2017, 8:50 AM EDT
© Bloomberg L.P.
Source; excerpts follow:

Quote

To understand why the U.S. auto market isn't growing, consider a top-of-the-line minivan from Fiat Chrysler Automobiles NV now costs about $50,000.

With twin second-row touch screens, reclining third-row seats, a vacuum and automated parallel parking, the Chrysler Pacifica packs plenty of features to justify a hefty expense. But this big a price tag puts the prototypical family vehicle out of reach for most Americans.

After U.S. auto sales fell in each of the first three months of the year, the annualized sales pace, adjusted for seasonal trends, probably slowed in April to about 17.1 million, from 17.4 million a year earlier. With marginal buyers beginning to balk due to sticker shock, Ford Motor Co. cautioned last week it's not going to be able to count on price increases to boost North American profits the rest of this year.

"At some point that will be one of the aspects that will continue to drive down the volume," Bob Shanks, Ford's chief financial officer, said in an interview. "It will become tougher."

The average new-car price in the U.S. rose about 2 percent over the past year, according to data from TrueCar Inc.'s ALG. That's an increase more consumers may have been able to stomach when borrowing costs were low and loose credit made pricier trucks and sport utility vehicles more attainable. Industrywide sales have declined 1.5 percent this year through March, according to researcher Autodata Corp.

"Honestly, the average American doesn't come into a new-car dealership," said Steven Szakaly, chief economist of the National Automobile Dealers Association. "We're only selling new cars to about 5 percent of the U.S. population."…

Click through to continue reading; several graphs included.

The editorialists make some very good points, which they support with data, and quotes from executives of several relevant entities. But I have a problem with the apparent premise: How does a loaded, top-of-the-line minivan, which targets a tiny fraction of the car-buying public, "explain" drooping new car sales? After all, it's not the only available model. It doesn't make sense, especially since the authors include several other, more rational explanations for the phenomenon. This is like "explaining" a drop in men's suit sales because designer suits are so expensive. I guess I'm oversensitive to sensationalism.

Some possible influences not mentioned: Labor costs, material costs, regulatory costs, and new technology. Especially that last one: I recently wrote about driving a couple of 2017 Ford Escapes, one or the other of which included auto stop/start engine, active cruise control, blind-spot indicators, a crash-avoidance warning, and (possibly) automatic emergency braking. Some of these may eventually become mandatory standard equipment (like the high-center-mount brake light, etc) but until then, is the new- (and used-) car buying public beginning to expect such features?

And (somewhat relevant), here is a recent article: "Upward mobility has fallen sharply in US: study":

Quote

… 92 percent of children born in 1940 earned more than their parents, but only half of those born in 1984 can say the same, researchers said Monday.


I give the authors a kudo for covering this subject, although I would have preferred a bit more on the analytical side.
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8 Comments On This Entry

Missing from the article is the number of consumers who lease rather than buy. I am impressed with all the technology that goes into vehicles. Doesn't mean I'm all that eager to drop $50k on something that over its lifetime will lose value while at the same time increase recurring expenses.

Originally, I was going to go with a late year model or buy a car that just came off lease. After crunching some numbers, leasing seems to be a better option. I think that you get more value as dealerships would rather lease a new car than have it sit on the lot.
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$25,000 for a new Toyota 86 (Scion FR-S) or a Mini Cooper? Nah.

Thank you federal regulations!
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Perhaps I'm a lone luddite on the prairie here, but I really don't want all the gadgets. I don't need backup cameras, GPS, mapping, ball warmers, crash avoidance indicators, blind spot indicators, cruise control. I don't want the vehicle to drive me, I want to drive the vehicle.
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In 1970 median household income was $7,701 and the average new car sold for $3,543 or just under half median income. Median income in 2016 was $56,516. Half that would be $28,258 and there's still plenty of new cars available for less than that even though the average is $33,560 but that just means the average family either has more disposal income for cars or is more willing to go into debt than in '70 (I suspect the latter).

Consumer Reports: Best new cars for under $25,000

At the upper end?

An upper-end (not TOP end, but upper end) Mercedes in 1970 would have been the 300SEL for $11,467 or right at half-again median income. For half again median income today, or $84,234... well, actually, for considerably LESS than that you can get a Mercedes E300 that starts at $53,075 and peaks at just over $70K with all options.

Flagship Mercedes in '70 was the "600" for $35K or 4.5X median income. Today's equivalent would be the S600 for $191K or only 3.4X median income.

When it comes to cars, not much has changed re "affordability".

Now... if you want to talk about change in housing costs versus change in income over the years...
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gravelrash, on 04 May 2017 - 09:31 AM, said:

Missing from the article is the number of consumers who lease rather than buy. I am impressed with all the technology that goes into vehicles. Doesn't mean I'm all that eager to drop $50k on something that over its lifetime will lose value while at the same time increase recurring expenses.

Originally, I was going to go with a late year model or buy a car that just came off lease. After crunching some numbers, leasing seems to be a better option. I think that you get more value as dealerships would rather lease a new car than have it sit on the lot.


I’m curious but don’t mean to pry: What is the advantage(s) to leasing a car versus taking out a car loan?
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Howsithangin, on 06 May 2017 - 06:06 AM, said:

Perhaps I'm a lone luddite on the prairie here, but I really don't want all the gadgets. I don't need backup cameras, GPS, mapping, ball warmers, crash avoidance indicators, blind spot indicators, cruise control. I don't want the vehicle to drive me, I want to drive the vehicle.


I agree; I love driving, especially with a standard shift. (6 of my 11 vehicles owned were standard; 2 had 3-on-the-tree.) However, as I’ve grown older, and spend more time in rush hour traffic, I have become more comfort-driven. Also, after breaking an elbow and then a foot, I decided I always needed a car with an automatic transmission in my driveway. (Classic standard transmissions are what I call: “4-limb drive”.) So yes, when I buy a new car, I tend to load them with options… I apologize for nothing! ;-)

In a prior blog post, I expressed my frustration that some folks seem to want the car to drive itself:

Quote

C'mon. Either you DRIVE the car or you don't. Technology does not, and cannot replace driver responsibility…

If you’re not willing to do the work then don’t take the job. You don’t have to wait for autonomous vehicles to get from point-A to point-B without paying attention; that’s the purpose of public transportation.

This reminds me; I wanted to get the Subaru STi started last weekend but got distracted by other stuff. Once started, I’ll have to drive it at least 70-miles to bring the battery up, so I have to plan it out. I’m thinking a ride out to Sturbridge and back should do the trick.
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Adam Smithee, on 06 May 2017 - 10:33 AM, said:

In 1970 median household income was $7,701 and the average new car sold for $3,543 or just under half median income. Median income in 2016 was $56,516. Half that would be $28,258 and there's still plenty of new cars available for less than that even though the average is $33,560 but that just means the average family either has more disposal income for cars or is more willing to go into debt than in '70 (I suspect the latter).

Consumer Reports: Best new cars for under $25,000

At the upper end?

An upper-end (not TOP end, but upper end) Mercedes in 1970 would have been the 300SEL for $11,467 or right at half-again median income. For half again median income today, or $84,234... well, actually, for considerably LESS than that you can get a Mercedes E300 that starts at $53,075 and peaks at just over $70K with all options.

Flagship Mercedes in '70 was the "600" for $35K or 4.5X median income. Today's equivalent would be the S600 for $191K or only 3.4X median income.

When it comes to cars, not much has changed re "affordability".

Now... if you want to talk about change in housing costs versus change in income over the years...


A lot of Subarus on that Consumer Reports list! Fulltime AWD is an important plus for some folks but the additional weight reduces fuel economy relevant to comparable 2WD models. Fortunately, retail gasoline is relatively cheap these days.

And “relative expense” seems to be the gist of your post; it’s not the cost of the car per se, it’s other dings to one’s budget. (You seem to tacitly agree that the $50K minivan was not a good exemplar; thank you for that.) Car prices may pale in comparison to food, housing, health, education, etc.
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MADGestic, on 10 May 2017 - 09:12 PM, said:

I agree; I love driving, especially with a standard shift. (6 of my 11 vehicles owned were standard; 2 had 3-on-the-tree.)

Ah....standard transmission.... :cloud9: I can't even find one of those anymore
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