Greetings! Welcome to my first pricing post.
There was an interesting article in USA Today (February 26th, 2013) that talks about the affordability of cars in 25 major North America metro areas based on the average income.
Interest.com, an offshoot of Bankrate.com, has a guideline for the affordability of cars based on family income. It is the "20/4/10" rule. Pay a down payment of at least 20%, keep the loan to 4 years or less and ensure the monthly payment does not exceed 10% of a household's gross income.
While the article focuses on prudent consumer budgeting and spending, it also has interesting ramifications with regards to car pricing. You can check it out to see where your city ranks in terms of affordability of cars. According to the rankings, the city of Washington DC has the highest affordability with an average purchase price of $31,940 and a payment of $628 per month. Tampa ranks last in this list of 25 with an affordability of $14,516 and a monthy payment of $282.
24 of of the 25 major cities have an affordability estimate that is less than the average sales price of the cars which is over $30,000 roughly a $2,000 increase from a year ago. This indicates higher transaction pricing (even with attractive incentives being offered). Certainly, dealers and manufacturers factor in the incomes in various cities and other related demographics and attributes that influence car prices.
Affordability aside, car sales in 2012 increased 14% compated to 2011 to about 14.5 Million. There were many new and desirable models released in 2012. Car sales forecast for 2013 looks upbeat. Automotive market research firms J.D. Power and LMC Automotive state that the February 2014 auto sales are trending 7% higher than February of last year. LMC Automotive has revised their forecast of automotive sales to be 15.3 Million revised upward by 0.2 Million from their earlier forecast. This is inline with other industry forecasts including Lacey Plache, Chief Economist at Edmunds.com who expects 15 Million and Lonnie Miller, Vice President, Marketing & Industry Analysis, at R. L. Polk who forecasts 15.4 Million also and expects the industry to break the 16 Million mark in early 2015. While these numbers are still well below the breakthrough sales seen between 2000 and 2007, they are a vast improvement over the subsequent period between 2008 and 2011.
So, when it comes to pent up demand affordability does not appear to be a key factor. At least at a macro level. Prevailing demand conditions dictate pricing power.
Link to USA Today article - Study: Have new cars become unaffordable?
Link to J.D. Power, LMC Automotive article - Auto Sales Remain Strong, Automakers Keep Lid On Incentives
Link to Edmunds.com forecast - Edmunds.com 2013 Auto Sales Forecast: 15 Million
Link to R.L. Polk forecast - Autos in 2013 and Beyond - Industry Trends to Watch
Your thoughts and comments are welcome!
There was an interesting article in USA Today (February 26th, 2013) that talks about the affordability of cars in 25 major North America metro areas based on the average income.
Interest.com, an offshoot of Bankrate.com, has a guideline for the affordability of cars based on family income. It is the "20/4/10" rule. Pay a down payment of at least 20%, keep the loan to 4 years or less and ensure the monthly payment does not exceed 10% of a household's gross income.
While the article focuses on prudent consumer budgeting and spending, it also has interesting ramifications with regards to car pricing. You can check it out to see where your city ranks in terms of affordability of cars. According to the rankings, the city of Washington DC has the highest affordability with an average purchase price of $31,940 and a payment of $628 per month. Tampa ranks last in this list of 25 with an affordability of $14,516 and a monthy payment of $282.
24 of of the 25 major cities have an affordability estimate that is less than the average sales price of the cars which is over $30,000 roughly a $2,000 increase from a year ago. This indicates higher transaction pricing (even with attractive incentives being offered). Certainly, dealers and manufacturers factor in the incomes in various cities and other related demographics and attributes that influence car prices.
Affordability aside, car sales in 2012 increased 14% compated to 2011 to about 14.5 Million. There were many new and desirable models released in 2012. Car sales forecast for 2013 looks upbeat. Automotive market research firms J.D. Power and LMC Automotive state that the February 2014 auto sales are trending 7% higher than February of last year. LMC Automotive has revised their forecast of automotive sales to be 15.3 Million revised upward by 0.2 Million from their earlier forecast. This is inline with other industry forecasts including Lacey Plache, Chief Economist at Edmunds.com who expects 15 Million and Lonnie Miller, Vice President, Marketing & Industry Analysis, at R. L. Polk who forecasts 15.4 Million also and expects the industry to break the 16 Million mark in early 2015. While these numbers are still well below the breakthrough sales seen between 2000 and 2007, they are a vast improvement over the subsequent period between 2008 and 2011. So, when it comes to pent up demand affordability does not appear to be a key factor. At least at a macro level. Prevailing demand conditions dictate pricing power.
- A healthy demand relieves price pressure.
- With relieved price pressure, incentive and promotional spending can be better managed.
- Introduction of new and/or updated products adds fuel to pent up demand.
- Luxury and desirable automobiles can trump affordability.
Link to USA Today article - Study: Have new cars become unaffordable?
Link to J.D. Power, LMC Automotive article - Auto Sales Remain Strong, Automakers Keep Lid On Incentives
Link to Edmunds.com forecast - Edmunds.com 2013 Auto Sales Forecast: 15 Million
Link to R.L. Polk forecast - Autos in 2013 and Beyond - Industry Trends to Watch
Your thoughts and comments are welcome!
