If signs of improvement in the U.S. economy are encouraging you to consider buying a new vehicle, then you might be in for a few surprises when you step back into a showroom. You should be prepared to find vehicles that have even more electronic wizardry, better fuel economy and smaller engines that provide as much or more power than the vehicles that they’ll replace. You also should be prepared to pay more as a result.
As is the norm, consumer prices are increasing amid rapid changes in the automotive industry. With federal fuel-economy regulations now staring them in the face, automakers are hyping smaller vehicles like never before. They’re turning to aluminum, lightweight steel and carbon fiber—none of which comes inexpensively—in a drive to trim more vehicle weight and increase fuel economy. Automakers quietly are adding more electric vehicles (EVs) to their model lineups as well as honing conventional engines to achieve the type of eye-popping fuel-economy tallies that previously were obtainable only by hybrids.
Moreover, they’re making these changes against the backdrop of a rise in vehicle sales in 2013, which means that automakers can charge more for vehicles, according to Christopher Chaney, who is a senior vice president at consulting company Strategic Vision. He says the advantage for consumers is that even with increased profit, competition for consumer investment remains strong between automakers, so more money is being poured into the research and development of innovations. Consumers appear to be buying into the advancements. According to a TrueCar report from September 2013, consumers paid an average of $31,252 in August 2013 for a new vehicle, which is up almost $1,000 from $30,274 in August 2012. The increase is a reflection of overall sales from automakers and consumers showing a willingness to spend on options, such as leather seats, navigation systems and safety packages, according to TrueCar.
Even as automakers keep an eye on the competition, you might not find much in the way of deals, particularly because newer models made up the bulk of the sales gains. According to Autodata, sales rose by 7.7 percent during the first half of 2013 from the year-earlier period, so the motivation to offer incentives isn’t strong. The average discount, which can come as zero percent financing or cash back, among other incentives, was $2,684 in July 2013. That’s only a slight increase from July 2012, and, unless the economic revival hits a pothole, those incentives are expected to remain slim in 2014, according to the analysts whom we interviewed.
GASSING UP. After all of the hype over the past few years about alternative fuel sources, gasoline-powered engines continue to dominate the automotive market. Still, LMC Automotive projects that the share of gasoline-powered vehicles that are on the road will slip to 72 percent of vehicles in 2020 from 90 percent in 2010. Fortunately, engines now are made to be much more fuel-stingy as automakers, which forever raced to create more-powerful engines, now compete to create more-efficient ones in the same breath.
“Until 5 years ago, it was always more horsepower,” says Mike Omotoso of LMC Automotive. “But the combo of high gas prices and the recession were a wake-up call for the consumer.”
The average fuel economy of new vehicles, adjusted based on sales as of press time, increased to 24.8 mpg overall for 2013 model-year vehicles from 20.7 mpg for the 2008 model year, according to University of Michigan Transportation Research Institute (UMTRI). Although a gain of 4.1 mpg over 5 years might not seem like much, it’s a “substantial” improvement, according to Michael Sivak of UMTRI. He says it takes automakers a long time to increase fuel economy throughout their entire fleet.