New Car Prices Ended Year on High

The average transaction price paid for new cars rose $842 from December 2013 to December 2014 and ended last year at $34,367, according to Kelley Blue Book.

It rose by a record $556 in just one month between November and December. Will these big price increases continue this year?

KBB said that price increases were big in most vehicle categories – with the one big exception being the hybrid/alternative energy segment. Average transaction prices on those vehicles actually dropped by 1.2%, reflecting the big decline in gas prices.

Whether this continues to be a seller’s market depends, of course, on buyers’ willingness to pay these prices. If consumers shift to lower-priced vehicles – or more of them choose to buy used to save money – we could see the industry scale back on price increases.

Many experts are pointing out that average transaction prices of more than $30,000 are simply unsustainable. Many consumers are clearly buying more car than they can really afford. This phenomenon has been aided by low interest rates, and financing terms that in recent years have stretched out to seven years or more. There has also been an increase in subprime financing.

With 2014 vehicle sales totals reaching pre-recession levels, you can bet that auto makers are keen to keep the party going. Whether consumers, and lenders, are willing to play along remains to be seen.