Carmakers benefit from rising prices

Detroit: Though sales of cars and trucks in the US continue to be more sluggish than expected, carmakers are enjoying the largest increase in average transaction prices in more than five years.

Industrywide, consumers spent an estimated average of $29,217 (Dh107,292) on a new car or truck from January through May an increase of $1,057, or 3.7 per cent, from last year, according to estimates provided by Edmunds.com. Edmunds' figures are based on a sampling of data from about 40 per cent of US dealers.

The Detroit Three are outpacing the industry's gains giving the carmakers an opportunity to improve profit margins. Edmunds says average transaction prices increased 5.5 per cent for Chrysler, 4.3 per cent for Ford Motor Company and 3.8 per cent for General Motors Company.

Thomas King, senior director at J.D. Power & Associates, said the recent financial collapse, which helped the carmakers restructure and close extra plants, helped them reduce production and cut incentives.

"In the past, you had manufacturers focusing a little more on improving volume and reducing prices to get that volume," King said.

Now, King said, carmakers have embraced a more disciplined approach that represents a fundamental change in the dynamic of the industry.

Though the underlying reasons for the transaction increases are somewhat different for each carmaker, they generally include inventory reductions, reduced incentives, a demographic shift among buyers this year and consumers' deciding to buy new technology and options.

Inventory supplies

According to WardsAuto.com, GM had a 56-day supply of inventory at the end of June, while Ford and Chrysler stood at 59, which is lower than the historic averages for domestic carmakers. Generally, a 60-day supply of inventory is considered optimal.

That has helped the three companies lower incentives by an average of 4.5 per cent, or $156, per vehicle this year.

Toyota Motor Corporation's prices have increased 4.1 per cent through May, according to Edmunds.com. That happened even as the carmaker boosted incentive prices by 22.3 per cent to attract buyers despite its recent recalls, according to Autodata.

Also, all carmakers are seeing average transaction prices increase this year because of a change in the type of consumers who are buying cars, said Jack Nerad, market analyst for Kelley Blue Book.

Because of the economic collapse, Nerad said the only consumers who are buying cars are those who are the most economically secure and with the best credit. Those buyers also are likely to be comfortable buying more-expensive cars loaded with options.

Ford has been working for several years to capture those buyers by reducing the number of options it offers and doing a better job of marketing the most desirable options, said John Felice, general marketing manager of the Ford division.

For example, Ford reduced the number of combinations and options it offered on its Ford Mustang to less than 10,000 from nearly 350,000 between 2008 and 2010.

"We just had too much complexity," Felice said.

On Thursday, Ford said its 2011 Ford Fiesta would include options such as illuminated scuff plates and a $136 illuminated shift knob.

At GM, fewer brands and popular new products are lifting prices. The carmaker has shed four of its eight brands in the last year, and products such as its Chevrolet Equinox, GMC Acadia and Buick Enclave mid-size crossovers have been big hits, giving the company the highest average transaction price of any full-line carmaker.

"Hot products that are in tight supply are pretty much the story," said GM spokesman Tom Wilkinson. "Economics 101."