U.S. consumers are willingly paying more than ever for new vehicles, enticed by low interest rates, cheap leases and ubiquitous six-year loans that keep monthly payments affordable while the total price tag rises by thousands of dollars.
Transaction prices are setting records at the same time that sales volumes are crossing thresholds not seen in nearly a decade. One analyst calculated the industry's performance in August, when adjusted for transaction prices, as equivalent to a seasonally adjusted, annualized selling rate of about 20 million vehicles.
Through August of this year, transaction prices are up 2 percent from the same period in 2013, to $31,341, according to TrueCar. The industry is likely to post another year-over-year increase for September when automakers report sales on Wednesday, Oct. 1.
That's a recipe for big-time profits, especially for the Detroit 3, whose truck-heavy lineups were an albatross during the recession. Now, trucks are paying off as consumers gravitate toward crossovers and SUVs over sedans.
General Motors, Ford Motor Co. and Chrysler Group, whose transaction prices trail only Volkswagen Group of America's among the eight largest automakers, are each offering no-interest, 72-month loans to drive sales higher. Dealers and analysts say that incentive leads many customers to spend more than they would otherwise.
A 72-month, no-interest loan gives buyers who want to keep their payment at $500 a month the ability to spend $6,000 more than with a 60-month loan. It allows spending $4,800 more for those who think they can afford $400 a month.
"I can't tell you the last time I saw something less than 72 [months]," said Pete Munson, general manager of Great Lakes Chevrolet in Jefferson, Ohio. "They just want the most car for the least amount of monthly payment. They don't look at the overall price of the car."
Munson said he doesn't push 72-month loans, but that's what customers request so they can stay within their monthly budget.
"If you can get a base Cruze LS at 48 months or you could potentially get into a much nicer Malibu at 72 for about the same amount of money monthly, most people are going to take the nicer car," Munson said.