This Week in Car Buying: Transaction prices, incentives on the rise; No haggle Lexus pricing faces headwinds; Reservations about Tesla reservations; Ally leases used vehicles
Along with strong March sales, automakers also saw average transaction prices continue to climb, however, that number is being undercut slightly by rising incentive costs. The average cost of new car was $33,666 during the month, a 2-percent bump over a year earlier, but flat from the previous month.
“March average transaction prices reveal continued increases for nearly every manufacturer, with the industry average up 2-percent year-over-year,” said Kelley Blue Book analyst Tim Fleming. “While this may seem like good news for automakers and dealers, incentive spending continues to rise within the industry and offset part of this strength. Also, to afford growing monthly payments, more consumers are financing these vehicles for 72 and 84 months, which will likely delay the purchase cycle for their next vehicle.” Most of the growth in transaction prices ranged from 1.4 percent for Hyundai-Kia up to 3.3 percent for Fiat Chrysler Automobiles. The only major maker to see transaction prices fall was the Volkswagen Group, which logged a 4.6-percent drop.
“The Volkswagen brand fell the most, down 7 percent, as each model in the line was down from last year,” according to Fleming. “The Jetta and Passat, two models affected by the brand’s diesel crisis, both were down 9 percent.”
On the upside, FCA saw gains in transaction prices at Dodge and Ram, while Toyota was up 4.7 percent as a brand with the revamped Tacoma leading the way on an 11-percent gain in average transaction prices. Lexus was up 2.7 percent led by the redesigned RX, which saw its prices climb 6 percent to an average of $50,713.
Lexus dealers push back on no haggle pricing
Perhaps encouraged by rising transaction prices for its RX crossover SUV, Lexus dealers are pushing back a bit at the division’s plan to introduce no-haggle pricing, according to Bloomberg. The program, which is slated to be tested at 11 dealerships who volunteered, is expected to be rolled out within a month. However, the news agency also reported that dealers who attended the recent National Automobile Dealer Association convention expressed reluctance to go along with adopting the philosophy.
“Many of our dealers, philosophically, are opposed,” Jeff Bracken, group vice president and general manager, said during the convention. “They’re saying, ‘You’re wholesale. We’re retail. Stay out of our business.” However, that no-haggle pricing could end up playing a role in parts of the division’s network of 236 dealers. The program is one element of Lexus Plus, a wider effort to boost customer relations by having just one point of contact for sales and service and using new technologies like tablets to shorten the time it takes to complete a transaction and to increase deal transparency.
Lexus is looking to reach out to younger buyers and is experimenting with no-haggle pricing because these buyers feel that negotiating shouldn’t be part of the buying process. A survey by Autotrader, a sister site of KBB.com, showed that haggling is a top frustration among car buyers and 44 percent believe it shouldn’t be part of the process. Still, a majority (56 percent) believes that dickering over the sticker is the only way to get a fair price.
Reservations about Tesla reservations
The auto industry was all abuzz over the introduction of the Tesla Model 3, where long lines formed at the EV maker’s showrooms for people to have a chance of plunking down $1,000 to reserve the right to buy the next vehicle in the pipeline. As last count, more than 276,000 refundable deposits were received, allowing the alternative vehicle maker to bank over a cool quarter of a billion.
Still, as impressive as those numbers are all that it signifies is there are 276,000 people interested in buying the Model 3. These are not sold orders, a bank on which Tesla draws from when it begins to produce the Model 3 by the end of 2017. Left to be seen is how long it will take between Mr. First order getting his car and Mr. 276,000 taking delivery. As successful as Tesla has been in building smaller production runs of the Model S and to a lesser extent, the Model X, which was delayed by several years, getting the mass market Model 3 out the door is a monumental challenge. And if the ramp up is slow, it will be interesting to see what steps Tesla will take to keep these potential customers engaged without having them drift off to some other product. The Model 3 looks to be pretty cool, but is it cool enough to hold enough interest 3 to 5 years from now when buyers will have other alternatives to choose from, including maybe even an Apple car?
Exit question: What becomes of the quarter billion in deposits collected so far? Do they go into an escrow account or a lockbox? Or will the money be consumed in the current cash burn as Tesla spends to ramp up the Fremont assembly plant and the battery-producing Nevada Gigafactory?
Ally looks to lease used vehicles
Auto lending giant Ally Financial is looking to gear up used vehicle leasing products in anticipation of a wave of off-lease vehicles that will hit the market during 2016, according to Automotive News. Earlier this year the bank tested the Ally Pre-Owned SmartLease program and is now rolling it out to more than 17,500 dealers nationally.
“There are really not many providers out there [doing this], Tim Russi, Ally’s president of auto finance, told the trade paper. “We’re going to go across brands.” The program will tap into the used vehicle leasing marketplace to meet both the needs of dealers and their customers, he indicated.
Used vehicle leasing offered by Ally covers 15 brands with pre-owned leases on as many as 35 models including the Audi A4, BMW 3 Series, GMC Sierra and even the Honda Civic. More vehicles will be added as the program expands. Manheim Auctions predicts that some 3.1 million off-lease vehicles are slated to return to the market in 2016, an increase of 20 percent over a year earlier.
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