Four Strategies To Help OEMs Overcome Consumer Sticker Shock

Help! Average New Vehicle Marketed Prices Jump More Than $12K in Five Years

Most everyone is familiar with the story of Rip Van Winkle, which tells the tale of a villager in colonial America who drinks a potion that renders him asleep for 20 years. He awakes to discover a completely different world, having entirely missed the American Revolution.​

Car shoppers who have been out of the market for the past five years might feel similarly disoriented when they research their next purchase and review their finances. The chart below provides a long-term view of average marketed prices spanning four eras, from pre-Covid to early Covid and related supply chain disruptions, and now in the current inventory recovery period.​​

It is plain to see from the trends in the first two panels that prices were very stable until early 2021, and consumers could therefore have a reasonably good idea of what was relevant for them to shop and what they could afford.​

Starting in April 2021, however, average marketed prices rocketed up, often jumping by more than $1,000 in a single month. In just seven months—from March to October 2021—prices rose by $9,000. OEMs drastically reduced their incentive spending and dealers were pricing their vehicles above MSRP as supply chain disruptions resounded through the marketplace. Over the course of that period, marketed prices vaulted up by 33.2%--a stunning rise for sure, but one that exemplified the basic economic laws of supply and demand.​

But here’s the most interesting era of all. Since inventory has progressed through its recovery, average prices originally ticked down slightly but have since stabilized at right around $50,000 and have fallen only 2.7% from their peak in July 2023. There are reasons for that—low end model discontinuations, more highly contented trim mixes, and the introduction of higher priced EVs, for example—but the bottom-line reality to consumers is that buying a car is a much more expensive endeavor than it was not that long ago.

In the past year, supply has risen by 47%, going from 2.08MM to 3.04MM. Vehicle movement, however, has risen only 8% to 1.10M. While other factors are also at play, the persistent price increases—coupled with equally stubborn high interest rates—are certainly playing a role in consumer actions (or inactions) and timing.

Let’s put this in practical terms. A modern-day Rip Van Winkle who was asleep for the past five years would wake up to some pretty mind-blowing increases at the model level. Consider these examples:​

In September 2019, a car costing $30,000 at a 4.61% interest rate had a payment of $560 a month for five years. Fast forward to today, and that same model would cost approximately $40,000 with a 7.75% interest rate, or $806 a month. Quite a leap.​

With all that in mind, OEMs need to take these financial factors into account when marketing to today’s automotive shopper.

Here are four strategies that can help appeal to consumers in an effective way in this environment:​

1. It goes without saying that incentives are a key element in helping consumers to overcome pricing concerns. Ensuring that cash back, financing, and bonus offers are prominent and clearly understood across the entire marketing mix (TV ads, online, on dealer sites (especially the VDP), and other tactics) can tip the scales in an OEM’s favor.​
2. Communicating the advancements of the current model year-–technology, convenience, safety, fuel economy, etc.—can help to overcome the sticker shock of consumers by providing additional rationale for price increases.​
3. At the same time, OEMs should focus more attention on the affordability of lower end or base model trims in consumer communications in order to appeal to more economy-oriented consumers. A shopper may be willing to sacrifice a bell here or a whistle there to get the vehicle size and functionality that he or she is seeking.​
4. Lease plans and extended loan periods should be prioritized to help make monthly payments more manageable.​

While any one of these strategies may not be enough to mitigate the concerns of all the modern-day car shopping Rip Van Winkles out there, pursuing a mix of approaches has a greater likelihood of tipping the scales from a “maybe” to a ”yes”. ​

Or at least give someone a reason to sleep on that decision…