New York (CNN) After years of parts shortages, the average price people paid for a new car in the U.S. recently dropped back off the sticker. But that ignores a bigger problem: Even before the pandemic, sticker prices were steadily rising as buyers loaded up on options.
Two decades of historical data from the auto website Edmunds.com indicate that options are the main driver of rising vehicle prices, and have been for many years.
“Overall, the average price gap between base models and customer-opted vehicles has skyrocketed, from 24.6% in 2002 to 38.1% in 2022.”
The average sticker price of a new vehicle, as purchased, was about $30,000 in 2009 and reached nearly $40,000 in 2019, before Covid hampered parts supply and production vehicles, according to Edmunds. Last year, that number reached nearly $46,000, according to data from Edmunds.com.
However, the average sticker for base models, adjusted for inflation, has fallen somewhat, even as consumers have shifted from sedans to more expensive SUVs. The difference is the cost to buyers of added options.
Steve Reed, an economist at the Bureau of Labor Statistics, a government agency that measures inflation, agreed with what Edmunds’ historical price data indicated.
“By our measure, the real cost of cars relative to other things has gone down,” he said.
That’s good news for drivers willing to go no-frills: If you don’t want to pay a lot for a new car, you don’t have to. You don’t dive too far into the options list, and the cars are actually relatively cheap.
The base is not so basic anymore
Consider the Nissan Versa, the cheapest car available for the 2023 model year.
It has a base price of $15,730. Adjusted for inflation, that’s not much different than the base price of a Hyundai Accent in 2002, the cheapest new car available that year. That’s despite the fact that the 2023 Versa is loaded with standard features like push-button start, blind spot monitoring and a touchscreen, many of which weren’t even available two decades ago.
For many different vehicle types, the differences between the lowest base price and the average sticker price sold to customers have grown over the past two decades, according to data from Edmunds.com.
For the Mercedes E-Class, for example, the difference between the base sticker price and the average sticker with options was just 11.5% in 2002 compared to 30% in 2022; for the Chevrolet Tahoe, it jumped from 14% to 41% during that same period; and for the Acura MDX it increased from 7% to 21%.
Overall, the average price difference between base models and vehicles, based on customer choice, increased from 24.6% in 2002 to 38.1% in 2022.
(Of course, it’s not entirely surprising that base vehicle prices haven’t increased in the past two decades, adjusted for inflation, since that’s what “adjusted for inflation” is supposed to mean. New cars are part of the whole picture of inflation for the economists who calculate it, which means a certain amount of improvement in quality.
Competition is also a factor. Auto companies have found ways to keep prices down while adding more safety technology and comfort features like standard automatic transmissions.
These base-priced models may not make much, if any, money for automakers. But they can attract buyers who can then sell to more expensive versions in what is known as a “loss leader” pricing strategy, said Michael Brisson, director of economic strategy at Moodys.
And customers are more than willing to gamble, said Matt Jones, a spokesman for auto pricing site TrueCar who spent 12 years working at car dealerships.
“The idea that people buy the most profitable thing? I’ve almost never seen that happen,” he said.
It depends on you
So even though car buyers are getting more money to start with, Americans continue to pile up options.
For General Motors’ GMC brand, for example, the gap between base models and the optioned midsize vehicle (as sold to customers) has grown steadily between trucks and SUVs over the past 20 years.
Surprisingly, the gap has been growing fastest in GMC’s heavy-duty trucks, which are typically considered serious work vehicles. The average price of a GMC Sierra 2500 HD, as sold, is now double the base price.
Those customers see their big trucks as a reward for years of hard work, said Patrick Finnegan, GMC’s chief marketing officer.
“You might think that a heavy-duty truck customer might not be in the market for that kind of thing, might not be willing to pay for it,” Finnegan said. “But it’s some of these features that really excite them the most, like the Bose Premium Series speakers.”
Offering increasingly luxurious option packages is one way for automakers to take advantage of America’s widening income disparity, said University of Michigan economist Justin Wolfers. Wealthy buyers can pay more while automakers maintain buying opportunities for those who don’t have as much to spend.
Pressure to update
A different kind of competitive pressure has led to this increase in options, said Edmunds.com’s Drury: competition with friends and neighbors who have the latest features in their cars. Also, when buying a new vehicle, people rarely want less than what they had before.
The strategy of the sector also plays a role. Car buyers rarely get to choose options individually. Instead, they typically have to buy feature packages together or even pay more for more luxurious “trim levels” to get the features they want, said Tyson Jominy, industry analyst at JD Power.
“A classic example is a ‘Wheels and Tunes’ package,” Jominy wrote in an email. “There is no inherent link between music and wheels, but if you’re an audiophile, you have to get the upgraded wheels to branded radio, and vice versa.”
Car buyers can avoid getting caught up in the vortex of increasingly expensive new vehicles, said Jeff Bartlett, editor-in-chief of Consumer Reports. He worries that car buyers who see the “average new car” prices going up will use that as a guide to what their next car should cost.
“It gives me chills to think about people in this economic climate, thinking, ‘Oh, well, I was just going to buy a $30,000 car, but, hey, I guess $50,000 is the average, so why not?'” He he said.
