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Abu Dhabi, UAETuesday 19 June 2018

How car makers' wolves in sheep's clothing wring more cash from customers

Companies are getting people to spend luxury money on spineless vehicles - turning Ford and Chevy hamburgers into steak

The 2018 Dodge Challenger SRT Demon. This limited-edition variant boasts a maximum 840 horsepower - a beefcake with supercar ambitions. Julie Jacobson/AP
The 2018 Dodge Challenger SRT Demon. This limited-edition variant boasts a maximum 840 horsepower - a beefcake with supercar ambitions. Julie Jacobson/AP

In December, the sticker price on the average US automobile hit $38,616, a level not seen since Tesla evoked the image of an electrical engineer.

Come summer, car makers will probably break that price record again. It’s true, there are still plenty of cheap wheels to be had in the reasonably priced basement. It’s just that the top of the market is speeding away.

Perhaps the greatest engineering feat in the car industry this century isn’t mechanical but financial: getting people to spend luxury money on spineless vehicles - turning Ford and Chevy hamburgers into steak. The swankier brands have been torquing top prices quite a bit as well. Now Detroit wants a taste, too.

Consider the Dodge Challenger, known in some circles as the poor man’s Ferrari. At the moment, 15 Challengers are on offer, from the $27,200 base model to a mind-blowing $85,500 SRT Demon, a Mad Max fever dream at Porsche prices. It’s not alone: choose virtually any mainstream, mass-market vehicle and you can find similar, gold-plated price-tag tuning.

Of all the vehicles sold in the US at the moment, the least expensive iterations average $46,000, while the most expensive versions of the same models settle around $63,000, according to analysis from Edmunds.com. The gap between those two levels - the no-frills machines and the fully loaded ones - is more than double what it was in 2000.

Vehicles, by and large, aren’t getting more expensive, but some of them are - and drastically so. Because that’s where the profit is, according to Truecar.com Analyst Eric Lyman. The Ford Focus RS, in particular, gives him a chuckle. At $41,200, the starting sum for the souped-up hatchback is more than double the lowest, “get-in” price of a plain, baseline Focus.

Why the swelling prices? For one thing, there’s more stuff. Back in the 1990s, a car was an equation of fashion and power. Cloth seats or leather? V6 or V8? Perhaps you’d like to spring for velour, power windows or floor mats?

Today, there’s a third, more powerful variable: automobile as personal electronic device. Tyre-kickers can agonise over the size of the in-dash screen, the number and type of USB ports, Wi-Fi, wireless charging and - if they stray into Mercedes territory - what scent is “atomised” into the cockpit - an option that used to be outsourced to little trees hanging on the petrol station cashier’s rack.

Autonomous driving systems and active-safety features tack on a few more levers for dealers to pull in their price machinations - from blind-spot warnings and emergency braking to adaptive cruise control and a fleet of little robots to parallel-park on command.

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What’s more, all this gear can be had for a price, part of what car makers sacrificed when they outsourced huge chunks of their supply chain to third-party parts makers. In short, a spartan Chevy can be spiffed up as sweetly as an Audi - often with some of the exact same stuff. Mr Lyman says it democratises itself down into lower lineups becasue there’s a certain ubiquity to features and technology in the industry right now.

Buyers are on to all this parts-sharing, so individual brands have naturally lost some clout. A loaded Mazda, for example, looks pretty appealing, compared with a bare-bones Benz - even though it costs more.

Along the way, car makers refined pricing strategies to better grapple with the growing pile of extras and options. A la carte ordering was largely scrapped in favour of a range of vehicles with prescribed packages of goodies - or, in dealer-speak, “trims”. If car makers still packaged vehicles the way they did 30 years ago, buying a car, let alone comparing one to another, would be a nightmare, according Ivan Drury, senior manager of data strategy at Edmunds.com.

Trim packages make it far easier to manage a supply chain; assembly lines can simply bang together one of four or five packages, rather than diligently adding individual features like a tailor working up a bespoke suit. AS Mr Lyman notes, the more build complexity you have, the more you expose yourself to risk-of-quality issues.

Packages are also handy for grouping customers by willingness to pay. When he shopped for a new Honda CR-V recently, Scott Peterman was happy with the second-cheapest configuration, the so-called EV trim. But he really wanted a power lift-gate and leather seats, which pushed him up the ladder, by $2,400, to the next-highest trim.

He likened it to looking at a restaurant menu but not being able to order off-menu. The upside for the consumer: trim levels make it easier to price-shop among competing dealers. Ultimately, Mr Peterman paid $3,000 less than the sticker price for his car, because he knew exactly what he wanted - and even got a bevy of Pittsburgh dealers to bid on his business via email.

Although, it’s never been easier to blow a year’s salary on a vanilla sedan with a monster engine, once adjusted for inflation, window stickers have stayed remarkably stable, despite all the additional goodies. Mr Drury reckons these days customers get much more bang for their buck.

In fact, when income is considered - including both wage gains and stock market winnings - vehicles in the US have actually become slightly more affordable in recent years. Annual disposable income per person in the US passed the average vehicle sticker price in 2006 and has stayed in front. Of course, those are just average figures; that income pile isn’t evenly distributed.

Somebody has to buy that $85,000 Dodge.

Bloomberg