This Week in Car Buying: Prices up; Longer loans; Cheap Leases; Buy a car, get some shoes
Strong sales have also translated into higher transaction prices, Kelley Blue Book data reveals. Fueled by booming truck and SUV demand, average transaction prices have climbed by 4.3 percent or $1,363 from year ago levels to $33,363. Month-over-month, the figure actually dipped a bit by $130.
"With the national average price of gasoline down nearly a dollar per gallon on average from one year ago, truck and SUV demand remains strong, elevating average transaction prices, especially for domestic automakers in May," said Karl Brauer, senior analyst for Kelley Blue book. "We also saw incentive spending remain nearly flat in May, which shows the strength of the overall new-car market."
Among those with the biggest increases in average transaction prices were Ford, General Motors and Hyundai-Kia, all of which saw growth of 4 percent or more. "Relatively easy credit available is helping drive transaction prices up, but it will be interesting to see if this trend continues if the long anticipated interest rate hikes materialize," said Brauer.
Longer term loans on the rise
One way that consumers can cope with high interest rates is to take out longer term loans to keep down monthly car payments. It's a trend that's already accelerating, according to Experian Automotive, which reports that the average car loan has reached a record 67 months.
"While longer term loans are growing, they do not necessarily represent an ominous sign for the market," said Melinda Zabritski, Experian's senior director of automotive finance. "Most longer-term loans help consumers keep monthly payments manageable, while allowing them to purchase the vehicles they need without having to break the bank."
Still, the percent of loans with terms of between 73 and 84 months climbed to a new high of 29.5 percent in the first quarter of 2015, up 4.6 percent from year ago levels. Long-term used vehicle loans also reached new heights, with 73- to 84-month contracts accounting for 16 percent in the first quarter, up from 12.94 percent.
The average amount financed also hit a record high of $28,711, up by $99, while the average monthly payment climbed to $485 from $474 last year. Leasing continues to grow as well, accounting for a record 31.5 percent of all new vehicle transactions, up from 30.2 percent.
Lease a Jetta for $89
The increase in leasing can be attributed in part to some of the hot deals offered by manufacturers to move the iron. A case in point is Volkswagen which is offering an $89 per month lease on Jettas in select markets. The three-year deal is available with an upfront payment of $2,500 on a $17,235 base model.
Bloomberg, in reporting on the lease deal, says that the amount is as cheap as an iPhone plan and underscores the German automaker's struggles in the U.S. market. KBB's Jack Nerad told the news service that "This market isn't particularly in VW's favor. They sell mostly small, fuel-efficient kind of stuff and gas prices have not favored that. A lot of their dealers are subsidized. That's why they put cars on sale."
VW's lease rate has been about 45 percent in recent months and reached a high of 49 percent in 2013. Still, Kevin Tynan, an auto analyst at Bloomberg Intelligence said "Subsidizing leasing lets you discount without pushing the cash across the table for everyone to see. That protects your brand image a little bit and gets you the first shot at that person when they return the lease vehicle."
Buy a car, get shoes
Volkswagen's sister luxury division, Audi, is offering limited-edition Alpargata shoes from TOMS with the brand's four-ring logo for customers who purchase or lease a new or certified-preowned Audi vehicle from June 3 to August 4. In addition to offering the shoes, the program will also make a donation to TOMS to help give away 55,000 pairs of shoes to needy children.
"Through TOMS One for One giving program, Audi will help change the lives of thousands of children in the United States and empower new customers to be part of this movement," said Loren Angelo, Audi's director of marketing.
The limited-edition TOMS classic slip-on is made of ash gray coated canvas and features red stitching with the Audi rings appearing on the inner lining and outer side tag. The limited edition shoe is available in both adult and children's sizes during the Summer of Audi Sales Event.
In addition to giving away TOMS shoes, Audi also announced pricing on its updated 2016 Q3 crossover SUV which will start at $33,700 for the Premium Plus, front-drive model, $35,800 for Premium Plus Quattro AWD, $38,600 for the Prestige front-drive and $40,700 for the Prestige Quattro. All prices exclude the $925 destination charges. The new model has been facelifted with new front lights, grille and fascia, while front and rear parking sensors with a review camera is now standard equipment on all models. The Prestige model will have full LED lighting as standard equipment.
Mitsubishi Motors has reduced the price of its 2016 Outlander with a starting MSRP of $22,995, a reduction of $200 from the previous generation. The all-new design is complemented by over 100 engineering and feature improvements. Base models are equipped with such features as LED running lights, 18-inch alloy wheels, improved second row seating and a redesigned steering wheel. Advanced safety features like lane departure warning, forward collision mitigation and adaptive cruise control are also available at lower prices versus the previous model.