November 14, 2021
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High Prices Don’t Seem To Be Turning Off Demand For New Cars And Trucks

The average transaction price — what people actually pay for a car or truck, after incentives are taken into account  — is expected to hit a record for the month of April of $37,572, according to J.D. Power and LMC Automotive.

That would be the second-highest month ever, after the all-time record of $37,966, in December 2020. To put that in some context, the average transaction price is up 20% vs. April 2016, just five years ago, according to a joint April forecast between J.D. Power and LMC.

High prices don’t seem to be deterring demand, though. According to the forecast, April auto sales should be about 1.5 million cars and trucks combined. That’s more than double April 2020, but that’s not a representative comparison, because 2020 auto sales bottomed out in April last year, due to coronavirus business shutdowns.

Compared with April 2019, April 2021 auto sales are expected to be about 8% higher than April 2019, the forecasting firms said.

High demand is meeting low supplies of new vehicles for sale, and that’s driving up prices, analysts said. Inventory is low because of the slow recovery in auto production last year, plus a shortage of computer chips used in auto manufacturing this year, which has prolonged the shortage.

Another major factor is the ongoing consumer shift to trucks and truck-like crossover vehicles, as opposed to more traditional passenger cars. Trucks and crossovers tend to be significantly larger, heavier, and more expensive than cars.

Trucks and crossovers are expected to account for about 76% of new-vehicle retail sales in April, Power and LMC said.

Not surprisingly, automakers and dealers are cutting back on discounts, considering demand is strong, prices are high, and supplies are low.

Dealers cite pent-up demand, low interest rates, longer loan terms, and government stimulus money as partial offsets for higher prices.

The average incentive per unit in April is expected to be $3,191, down 35% vs. April 2020. Incentives spiked in April 2020 in response to the pandemic, but incentives subsided again, after auto sales began to recover last year. Compared with pre-pandemic April 2019, the average incentive in April 2021 is down 10%.