The average transaction price for a new vehicle in January is $48,759, a more than $10,000 spike from just five years ago, according to Cox Automotive.

Surprisingly, luxury vehicle prices have dropped 7.4% compared with a year ago, an anomaly driven by Tesla, which has lowered its prices approximately 20% in the last 16 months as the brand pushes for higher sales volumes and tries to remain in good graces with Wall Street investors.

Nevertheless, rising prices are placing vehicles out of reach for most consumers.

Market Watch in October reported that common budget guidelines indicate Americans need a combined household income of at least $100,000 to afford the average new car. Using a formula that financial experts often recommend, which is consumers should spend no more than 10%-20% of their monthly income on car-related expenses, including the loan payment, insurance and maintenance, Market Watch calculates “60 percent of households and 82 percent of individuals in the U.S. are currently unable to afford a new car.”

Factors for Buyers

There are various factors contributing to soaring vehicle prices, including pandemic-related delays, supply chain challenges and the rising cost of raw materials. Elevated interest rates, not to mention a spike in insurance premiums, further increase the cost of ownership.

High-tech content within the vehicle is also affecting prices. Today’s vehicles feature the latest in technologies focused on safety or providing a more enjoyable and entertaining experience.

That is not a new phenomenon; automakers have long strived to stay ahead of the competition by continually adding technology to vehicles to attract new buyers. Yet the pace at which automakers are adding – or upgrading –technology in vehicles continues to accelerate.

Influence of Technology

At CES 24 in early January, automakers, suppliers and tech giants like Google showcased their latest innovations that may shape the future of mobility. Technologies such as artificial intelligence, which at least two automakers are planning to integrate into infotainment systems in the next generation of vehicles, to flying vehicles, which likely are a bit further in the future before becoming a reality, garnered plenty of attention in Las Vegas.

Technology is great, especially if it makes the vehicle safer for occupants, surrounding vehicles or pedestrians. I’m not going to deny that I also appreciate eye-catching and ear-pleasing infotainment technology, as well. But technology comes at a price, which inevitably is passed on to the consumer.

With vehicle prices already approaching record highs, it may be time for automakers to consider boosting their co-op advertising programs to whet consumer’s appetites for the latest in-vehicle technologies.

Consumers are more likely to pay for technologies if they know what they’re getting. For example, if they understand a technology helps them avoid a front-end collision by stopping their vehicle before impact, they may be more willing to accept the higher sticker price.

Co-op Advertising Campaign

A well-orchestrated co-op advertising campaign, a collaborate effort between the vehicle brand and the dealer, can help build deeper understanding of the technology’s features and benefits, and build demand for the vehicle.

While advertising can help create awareness, the onus is also on the salesperson to educate the buyer about the technologies. Oftentimes, owners, if they’re even aware of all the “bells and whistles” in their new vehicle, don’t know what they do or how to use them. They shouldn’t have to pull out the owners’ manual from the glove compartment to try to decipher the icons on the infotainment screen.

Automakers should utilize co-op funds to incentivize their retailers to train their sales staff on the technologies so they in turn to help their customers get familiar with the array of capabilities and benefits of the technologies within the vehicle. Explaining to customers what is in the vehicle and helping them better understand the value may help them not only avoid sticker shock, but it could also actually help them sell more vehicles.

While not the intent of co-op advertising, but something for the automakers to consider, is utilizing funding to boost customer incentives. Average incentive spending per unit in January is forecast to reach $2,346, up from $1,346 in January 2023, according to J.D. Power.

Adding a bit more from the co-op fund to help further off-set the vehicle’s price may help make new vehicles more affordable for a larger percentage of consumers.