Car companies making more on each vehicle sold

By McClatchy Tribune Newspapers
Posted July 9, 2010 at 2:35 p.m.

While sales of cars and trucks in the U.S. continue to be more sluggish than expected, automakers –  especially the Detroit Three — are seeing the largest increase in average transaction prices in more than five years.

Industrywide, consumers spent an estimated average of $29,217 on a new car or truck from January through May, an increase of $1,057, or 3.7 percent, from last year, according to estimates provided by Edmunds’ estimate is based on a sampling of data from about 40 percent of U.S. dealers.
But the Detroit Three are outpacing the industry’s gains,  giving them  an opportunity to improve profit margins. Edmunds says average transaction prices rose 5.5 percent for Chrysler, 4.3 percent for Ford and 3.8 percent for General Motors.

Thomas King, senior director at J.D. Power and Associates, said the recent financial collapse, during which the automakers restructured and closed 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 automakers have embraced a more disciplined approach that represents a fundamental “change in the dynamic of the industry.

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

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

That has helped the Detroit Three lower incentives by an average of 4.5 percent, or $156, per vehicle this year.

Toyota’s prices, meanwhile, have increased 4.1 percent through May, according to That happened even as the automaker boosted incentives by 22.3 percent to attract buyers during its recent recall troubles, according to Autodata.

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

Because of the economic collapse, Nerad said the only  buyers are  the most economically secure and with the best credit. Those buyers also are likely to buy more expensive cars loaded with options.

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

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

“We just had too much complexity,” Felice said.

On Thursday, Ford said its 2011 Ford Fiesta would include options such as $322 illuminated scuff plates and a $136 illuminated shift knob.

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

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

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