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On the radar: Quality adjustment for passenger cars relatively small for 2020 model year, light trucks about average

The BLS released its annual quality adjustment for motor vehicles data for 2020 on November 14.

For the 2020 model year, the adjustment for passenger cars in the PPI was relatively small at $73.39 compared to the average of prior years of $111.89. This is 36.1% of the change in manufacturers’ invoice price of $203.08 for the new model year, the BLS said. The retail equivalent – which is visible in the CPI data – is $77.28, or 44.0% of the $175.49 list price that autodealers display. About a third of the $77.28 retail price was for amenities, while the remainder was in performance and safety features.

The adjustment for light trucks was $197.74, in line with the average over the years of $191.98. The popularity of light trucks has encouraged manufacturers to make them more comfortable and appealing to consumers. Quality changed account for 33.7% of the average $587.52 increase in invoice prices. The retail equivalent increase was $210.93, our about 35.1% of the $600.28 increase in the retail price. About a quarter of that was in safety features, the remainder in performance and amenities.

There is no real consistency in the pattern of quality adjustment over the years. It can vary greatly depending on government regulations and the economy. For the 2020 model year, the adjustment likely won’t cause sticker shock.

The October Final Demand PPI for passenger car prices was down 1.5%, a fairly sharp decline from September that was likely related to the strike at GM and the lack of units being built for sale rather than any fundamental change in producers’ pricing. However, light truck prices were down only 0.1% in October from September. Overall motor vehicle prices havening changed much in the past year. Passenger car prices were up only 0.3% compared to October 2018. Light truck prices were down 1.1% since the year-ago month, but it may be an unfair comparison. At this time last year consumers were having to replace vehicles after a series of natural disasters and low inventories meant the units were getting premium prices and some consumers were trading up. That could occur again this year depending on the extent of damage from wildfires in California and the arrival of a large swath of bitter cold and wintry weather early in November.

Month-to-month wiggles in pricing aside, passenger car prices have generally risen only slightly in recent years. Those for light trucks have tended to increase more rapidly, although these seem to have reached a plateau in that regard.

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