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Today the Associated Press reported that new vehicle prices in the U.S. are falling at the fastest rate ever recorded, squeezing profit margins… but also setting the stage for a sales rebound once the economy improves. 

In Canada we have seen Volvo giving huge cash incentives .. up to $13,000 for an XC90.  Wonder how their customers feel about how they were being gouged last year.   .

..given the recent weakness in the Canadian $$ you would expect the gap to narrow, but is it really the case? 

For the full article…

NEW YORK - New vehicle prices are falling at the fastest rate ever recorded, a team of analysts said yesterday, squeezing automakers’ profit margins at a time of slumping sales but setting the stage for a sales rebound once the economy improves.

JPMorgan auto analyst Himanshu Patel and economic analyst Marc Levinson said in a research report that the average price of a new vehicle in the second quarter fell 2.3 percent from a year earlier to $25,632, citing government data. That’s the steepest drop recorded in the bank’s 41-year-old survey, the analysts said.

The price drop comes as automakers are already coping with mounting losses, declining sales, and a shift away from high-margin trucks and sport utility vehicles toward lower-priced cars.

Although vehicle sales are expected to remain weak in the near term, the analysts said, the price decline is leading to better affordability and could translate into a big recovery for auto sales by the second half of 2009.

“If the labor market begins to improve in the second half of 2009 . . . buyers returning to the vehicle market may find the costs of owning a new vehicle to be unusually attractive,” Patel and Levinson wrote.

The analysts attributed the decline in average price to two factors.

First, truck-based vehicles like pickups, minivans, and SUVs accounted for less than half of all sales in the second quarter for the first time since 2001.

Second, consumers are trading down within both the car and light truck categories to cheaper, more fuel-efficient models overall.

The result is the average new vehicle now costs less than 40 percent of an average household’s median annual income, the analysts said, whereas from 1991 to 2007, it would cost more than half of the median income.