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Dealers worry as car prices climb

April 6, 2018
As the automotive industry braces for changes including electrification and autonomy, dealers across the U.S. are worried about something much simpler: the price of a new car.
After decades of fighting to protect their businesses and advocating for dealers to Congress and the federal government, dealers see their new mission as advocating for the consumer to keep the cost of a new vehicle low. The average cost of a new car through February was about $32,200, about $500 more than one year earlier, according to J.D. Power, as manufacturers roll out new models with additional technology and safety features, justifying an increase in price. 
Customers also are buying more SUVs and pickup trucks, which usually have higher transactional prices than cars
If the cost of a new car continues to rise at rates it has been, "it will stop sales," said Wes Lutz, chairman of the National Automobile Dealers Association. "It’s just more than the consumer can handle."
But dealers and consumers face a number of challenges. Tightening credit conditions and higher interest rates are driving up monthly payments to an average $525, according to Edmunds.com, adding that interest rates in February hit an eight-year high. New tariffs on steel and aluminum imports could compound the matter.
As automakers such as Toyota Motor Corp. met with their dealers in March at the NADA Show in Las Vegas, Toyota executives told their dealers that "we’re all in the same boat together," but acknowledged that "it’s simple math, with a tariff there’s going to be a price increase," said Jack Hollis, general manager of Toyota North America.
If vehicle selling prices increase by an average $200, as some estimated, it would represent an additional $3.4 billion tax on U.S. consumers.
Dealers said they have to get crafty to get consumers into a new car at a price they can afford. Charlie Gilchrist, the NADA vice chairman, said he sometimes puts consumers into a longer-term lease to drive down monthly payments. But he acknowledged rising interest rates and prices could result in fewer cars sold in 2018. 
"You can’t continue to raise the price because at some point, people won’t buy cars," Gilchrist said.
 
 

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