A half-decade after plunging to its lowest levels in a half-century, the U.S. new car market is in the midst of a major boom. All told, U.S. buyers spent $52 billion for their new vehicles in May, as the price of the typical vehicle surged to $32,452, up 4 percent from May 2014, according to TrueCar.com.
May's sales numbers, if averaged out over the course of a full year, would come in at around 17.7 million, up roughly a million from 2014's total. And, in his annual "Car Wars" study, John Murphy, the senior auto analyst at Bank of America Merrill Lynch, predicted sales could reach 20 million by 2018.
"If anything, we might be a little on the low side," Murphy added during an appearance at the Detroit Automotive Press Association.
One major reason for booming sales is so-called pent-up demand. During the Great Recession, car sales slipped below 10 million, a good 40 percent below the normal trend. In turn, the age of the average vehicle reached record levels, and has continued to rise to more than 11 years. According to Murphy, motorists simply have to replace some of them as they fail by the side of the road.
With demand strong, automakers have been pushing up prices. But it's not just industry greed at work. Shoppers are loading up with more features than ever, from leather seats to 750-watt, 20-speaker audio systems.
Another trend is the shift from small, more affordable cars to costlier SUVs and pickups. Buyers also are migrating, in large numbers, from mainstream brands to luxury marques. And those high-line makers seem less reluctant to raise prices. According to TrueCar, the average transaction price of a BMW rose 6.5% in May, year-over-year, compared to just 2.3% for the typical Toyota.
The steady climb in new car prices might come as a surprise to those worried about relatively stagnant middle-class earnings. In reality, most new car buyers today register on the upper end of the middle-class spectrum. Even for relatively "affordable" models, industry research often shows household income levels approaching six figures.