Car Prices - Hocus Pocus

Car manufacturers are like magicians when it comes to vehicle prices -- now you see it, now you don't.

Earlier this year, many manufacturers were going to "value pricing", which we've discussed on this forum. In their way of thinking, if they dropped vehicle prices instead of using rebates and "employee pricing," customers would be just as happy. It hasn't worked out that way.

So now it's back to the old ways. However, they can't keep losing money on incentive programs.

So, how do you give away money and not lose money?

You raise prices. Most customers don't really notice price increases because they aren't keeping track.

Here's how it works. New-years' models are introduced with moderate price increases even though the new models are essentially the same as last years models. Customers don't notice. Part-way through the year, there's another moderate price increase. Customers don't notice. Then there's a rebate or discount program that gives back some or all of the price increases. Customers are happy with the great deals.

Hocus-pocus.

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Leasing Rates Are Growing

As you know, my site LeaseGuide.com is about car leasing and helping consumers understand how leasing works. Because of my attention on leasing, I monitor key business indicators to see how automotive customers are acting regarding leasing.

The number of leased vehicles has been growing over the last year or so. This year about 3.4 million new leases will be written. Earlier, however, leasing had dropped off a bit due to car manufacturers' focus on 0% loans and other non-lease incentives. Now, manufacturers have gone back to less agressive sales techniques and interest in leasing has been revived.

Leasing has always been popular with "payment buyers" who are looking for low payments and low entry cost. Surprisingly, however, it is luxury and near-luxury vehicles that have the highest lease rates. Many people who lease luxury vehicles can easily afford to pay cash but prefer to conserve their cash for more productive purposes. Of course, there are other people who may not be wealthy but simply want to drive a luxury car with non-luxury payments.

Nearly half of all luxury vehicles are leased. Some brands such as Saab, Volvo, BMW, Mercedes, and Jaguar have lease rates as high as 70%.

Micro-Cars are Coming

It's going to be interesting to see how new micro-cars affect the hybrid market.

There is the Toyota Yaris, the Honda Fit, the Nissan Versa, and the new Smart ForTwo from DaimlerChrysler. These vehicles are small in size and power but are agile, cute, and get outstanding gas mileage.

Many hybrid buyers are noticing that gas mileage doesn't quite live up to EPA estimates. This makes the higher price of hybrids harder to justify. However, the micro-cars, although lower in performance, have lower prices and achieve better gas mileage than most hybrids, such as the Toyota Camry Hybrid.

Micro-cars have been popular for many years in Europe's crowded cities where traffic is maddening and fuel prices are higher than in the U.S. It will be interesting to see how they catch on here.

I suspect that young drivers will adopt the new micros quickly, particularly those who live in large metro areas. I also believe the bloom will soon be off the hybrid rose as micros, alternative fuels, and alternative engine technologies begin to have an impact.

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