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U.S. vehicle prices have hit a record high average of $31,252, up nearly $1,000 from the same time last year. High-end stereos, navigation systems, leather seats, and other new features that American car customers are adding have inflated the price, which experts say may not be sustainable. A change in interest rates could cause buyers to drop pricier options.
Americans are paying record prices for new cars and trucks, and they have only themselves to blame.
The average sale price of a vehicle in the U.S. hit $31,252 last month, up almost $1,000 over the same time last year. The sharp increase has been driven by consumers loading cars up with high-end stereos, navigation systems, leather seats and safety gadgets.
It's a buying pattern that began around two years ago with low interest rates that let buyers choose pricier cars while keeping monthly payments in check. And automakers have also offered cheap lease deals that include fancy options.
Add in booming sales of expensive pickup trucks, and you get record high prices.
But those conditions could soon change. Although sales are expected to keep rising, automakers say the next wave of buyers who replace older cars will be more cost-conscious, shunning expensive radios and cushy seats to reduce payments. Ford is starting to see that trend in pickup trucks, and is adding a lower-priced model to its top-selling F-Series line.
Most car buyers shop based on expectations for a monthly payment, with the average running around $450, said Jesse Toprak, senior analyst with the TrueCar.com auto pricing website. Since bank interest rates run as low as 2 percent and automakers offer no-interest financing, buyers now have a choice between a lower payment or a nicer car. Unlike rising mortgage rates, shorter-term auto interest rates have remained fairly stable.
"If you can keep your payment the same and get more car, most consumers in the U.S. just get more car," said Toprak, who calculated the record average prices.
The average selling price, he said, went up about $1,400, or 4.5 percent, in the past two years, far faster than normal.
The result is a dream scenario for automakers and car dealers: People are paying record high prices just as demand returns to levels not seen since the Great Recession.
It's also a dream for people like Zachary Bier, a 26-year-old engineer and sales representative in New York City who just leased a $52,000 BMW 335i to replace a 3-Series with an expiring lease. He set out to match his old $650-per-month payment with hopes of getting more features.
For the same payment, he got metallic black paint, upgraded leather seats with red trim and stitching, Bluetooth technology to link his phone to the car, a heads-up display that projects his navigation system and other data onto the windshield, and electronic blind-spot detectors, he said.