New Car Prices Rising Along With Sales

Although cash rebates and incentives for automobile purchases have dropped by more than $400 since 2008, vehicles have been selling in the US for record high prices which average 11 percent higher than 2008.  In 2011, Ford reported a profit of $20.2 billion and Chrysler Group LLC reported its first fourth quarter and full-year profit since exiting bankruptcy protection and announced the addition of 1,800 workers to its Illinois assembly plant.  In addition to higher prices, January sales rose 11% over one year ago to their fastest pace in close to four years.  While these signs are optimistic, J.D. Power warns that riskier consumers have been able to access loans, which allows lenders to purchase cars they may not be able to afford.

The increased sales volume of cars is the result of an increased demand for automobiles.  This is the result of either an improving economy, easier access to loans, or, most likely, a combination of the two.  While an increased sales price, volume, and the creation of jobs warrants optimism, manufacturers and analysts need to be wary of lenders purchasing automobiles that they can not afford.  If too many people default and can not afford to pay back their car loans, the gains made by the newly advancing industry may be lost.  The increased price in cars is largely due to consumers demanding new features in their cars, and more expensive standard features.  Due to increased demand for cars, and hiring of new workers in assembly plants, the supply of automobiles should increase, eventually lowering the price of cars.


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