NEW YORK: That sticker shock you got the last time you compared prices on a new BMW or Mercedes-Benz sedan? You’re not alone.
Cars today are getting way more expensive. The average transaction price for a new vehicle hit US$49,740 (RM219,000) in December, up 1.3% year over year, according to Kelley Blue Book.
It was the fourth consecutive month car prices had risen and near the all-time high of US$49,958 (RM220,000) reached in December 2022.
From 2020 to 2024, new-car prices across all segments jumped more than 20%, according to a Jan 2 report released by Jerry, an app that allows consumers to cross-shop car insurance.
But the most expensive vehicles have gained the most ground. In the fourth quarter of 2024, a record-high 18.9% of consumers took out loans for new vehicles with monthly payments of at least US$1,000 (RM4,400), according to Edmunds, an auto industry data firm.
And sales of cars that cost at least US$80,000 increased 37% in December compared to the previous year, according to KBB. Within that group, the average price of a vehicle was US$102,000 (RM448,000).
Erin Keating, the executive analyst for Cox Automotive, which owns KBB, says high consumer confidence, a dip in interest rates and generous discounts all helped increase sales of those higher-priced vehicles.
As for the high prices themselves, consumers have themselves to blame — at least a little bit. “It’s an interesting dichotomy. Consumers are looking at the prices and being like, ‘these are outrageous,’” she says.
“But on the flip side, consumers are the ones driving the price tags higher because of the number of variants and trends that manufacturers have to consider making in order to assuage the American consumer,” Keating continues.
“That’s a really complex thing for OEMs to have to do.”
The costs of implementing exciting options and technologies into ever more versions of the same model — you can choose from 25 distinct variants of the latest Porsche 911, for example — gets passed straight to the consumer.
“This isn’t the automakers kind of just blowing in the wind on pricing or on product. This is strategy,” says Kevin Tynan, director of research at the Presidio Group.
“Pricing structures are not a mistake, (they are) thought out by a hundred people, including the board. They understand the consequences of higher pricing, so the idea, when something is priced where it is, is absolutely studied and mulled over by a lot of smart people.”
With an average of US$115,407, Porsche AG has the highest average sale price of any carmaker, excluding exotics and low-production makers such as Rolls-Royce and Bugatti.
Land Rover averages US$102,703 per vehicle sold; then come Lucid, at US$81,763, and Cadillac, averaging US$79,594, boosted largely by its US$87,595 Escalade SUV.
Mercedes and BMW are further behind at US$77,643 and US$76,881, respectively, and Audi has a transaction price around US$62,000.
Automakers generally decline to specify how exactly they arrive at a price for any given vehicle, citing proprietary information and concerns about losing their competitive edge.
But there are some general rules of thumb: They carefully balance pricing based on where the vehicle sits in the larger automotive market.
Luxury brands in particular must ensure they price cars so they’re differentiated enough from the non-luxury brands. And they set pricing relative to other vehicles in the lineup.
A Porsche 911 Turbo, for instance, will always cost more than the 911 Carrera.
An automaker also evaluates the rising costs of materials, labour, logistics and basic overhead.
And it considers potential and realised expenses for not meeting emissions and other federal regulations; current and future tariffs and other geopolitical issues; and the inflation that’s lately affected supply chains, consumers and the automaker itself.
It even has to navigate relationships with its own dealers, who, since the Covid-19 pandemic, have seen record years of profits and sales and expect that to continue.
“Most automakers say, ‘Get me to the profitable price points, and then we’ll figure out a way to justify (the pricing),’” Tynan says. “Even if it means selling fewer units (for higher profits), they’re fine with that.”
Part of the increased pricing comes from auto companies bankrolling against the certain future expenses of inventing new powertrain and entertainment technologies; developing fresh style and design options; and creating swoon-worthy creature comforts to attract and delight buyers, Keating says.
“Some of the added costs to consumers might be coming from (automakers) hedging their bets,” she explains.
“If I’m an OEM, I’m looking at my three- to five-year outlook, and I’m thinking my costs are going to increase over time. Innovation (in general) is going to become more necessary and expensive.”
Luxury cars like Mercedes-AMG’s US$147,550 EQS and US$182,250 S 63 E Performance sedans are prestige markers just like an Audemars Piguet watch or a Celine handbag.
Executive-calibre sedans place at the top end of Mercedes’ offerings — the price of these cars and the position they confer go hand in hand.
One almost justifies the other. “Almost all of it is status,” Tynan says. “Most of the (upgrades) are not mechanical. They don’t require different tooling or stamping or anything like that.”
Still, such cars are complex to build in their own right, even if you can’t easily discern the difference from the outside between a US$77,000 and a US$150,000 Mercedes sedan.
In this rare air, when only the close observer will spot the subtle styling cues that distinguish the entry level from the top-end version of a model, that becomes part of the allure — those who do note them earn the distinction of being true insiders.
A decade ago, hybrid- and pure-electric drivetrains, extensive cabin settings (air filtration and 64 modes of ambient mood lighting, anyone?), and elaborate drive systems like torque vectoring and rear-wheel-steering were far less prevalent.
Today the Mercedes EQS, for instance, offers a cornucopia of options, including laminated glass for thermal and audio insulation, carbon ceramic brakes, air purification and filtration systems and a “Manufaktur Signature Interior Package.” (Napa leather upholstery and steering wheel, rear-cabin pillows, door sills with engraved stars and animated projectors on all doors, in case you were wondering.)
Such accoutrements quickly push the price of the car to US$177,000.
Meanwhile, the S 63 E Performance offers even more status-conferring add-ons, such as “China blue” upholstery, which jumps its price to US$209,900.
That brings up another point. Car buyers want trim options. Lots of them.
“Customers in the US, we’re a picky bunch,” Keating says. “We want what we want. We want 17 million options, and we want to choose which variant, and we want it now.”
Specific colourways for seats and doorsills, carbon-fibre details, black-out packages for highly-tuned rigs and special-edition variants are all about telegraphing a certain “if you know you know” rank or bank account.
Those upgrades allow consumers to feel the vehicle reflects their own personal style and personality.
In a car-heavy town like Los Angeles, Las Vegas or Miami, such things are a four-wheeled short-hand to inform others who you are and what you value—or to keep you incognito altogether.
“The (sales reps) got me into the Q3 with the Black Optic package, because they knew I wanted the black grill and logo, no shiny chrome,” says Ashley Glasson, an Angelino who recently swapped her now-discontinued Audi A4 for an Audi Q3.
After seeing the Q3, which was bigger and had a better sound system, going with a smaller car like an A3 “felt like a downgrade,” she says, even though the A3 on offer was cheaper: “It might as well have been a Jetta.”
Automakers offering elevated customisation programs report bumps in their average car prices, too.
In 2016, Rolls-Royce unveiled its edgy “Black Badge” program, which allows clients to option vehicles in multiple shades of black.
In 2023, Black Badge vehicles commanded a premium of roughly US$45,000 over standard models, according to Rolls-Royce.
That same year, Mercedes-Maybach launched a similar program it called the “Night Series.”
At the time of the launch, Gorden Wagener, the chief design officer of Mercedes-Benz Group AG, characterised the program as offering new options for customers who wanted to convey “a playful sense of rebellion” compared to their peers.
In 2024, the company saw increased demand for the package, a spokesperson said, but they declined to provide specific numbers or transaction prices.
Even automakers catering to the world’s wealthiest are finding clients are willing to pay more for options and exclusivity.
Last year the average price of a commissioned Rolls-Royce was more than US$500,000, nearly double the 2010 average of US$262,000. Rolls-Royce says buyers’ appetites for bespoke content are up 10% from 2023. Pricing on its vehicles starts at more than US$400,000; pricing on its Phantom sedan starts at more than US$600,000.
Meanwhile, one-off coach-built commissions, such as the US$13 million Sweptail and the US$30 million Droptail, are experiencing unprecedented demand, Rolls-Royce CEO Chris Brownridge said during an earnings call on Jan 7.
The company will invest US$370 million to expand its manufacturing facility at Goodwood, England, to be able to produce even more of its most expensive saloons.
“Clients are seeing these bespoke projects, and it’s giving them more of an appetite for it,” Brownridge said. “It’s growing faster than it ever has before.”
That reflects what is happening at every price point. Average transaction prices are up — and they’re not going down anytime soon.
“Back in the day, for Rolls-Royce to manufacture at US$262,000 per unit was good,” Tynan says.
“But (as conditions have changed) you can’t sell US$262,000 vehicles anymore. You have to move up pricing to cover your costs. You have move up market, because everything has become more expensive — and it’s like that for every single manufacturer.”
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