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TheStreet Open House

Average New Car Price Up $618, Dealer Incentives Down

Stocks in this article: F GM NSANY TM TRI

NEW YORK ( TheStreet) -- The economic upswing of 2013 continues with modest acceleration, but it's enough to create stronger consumer demand for new cars and trucks.

That's good news for the economy.

Stronger consumer demand is a bellwether for a solidifying U.S financial picture, showing that wallets and pocketbooks are filling up with cash and that Americans are looking to spend some of that cash on high-end consumer goods.

The University of Michigan and Thomson Reuters (TRI - Get Report) Index of Consumer Sentiment rose from 76 points in April to 84 points in May. Study researchers attribute that rise to a firm hand on the till from the Federal Reserve, a booming stock market and a rebounding U.S. housing market.

"The surge in consumer confidence is exactly the type of economic jump- start the Federal Reserve intended to result from its aggressive policies," says Richard Curtin, chief economist on the survey. "To be sure, consumers still expressed concerns with their financial prospects, especially about income gains over the longer term. It will take actual and repeated income increases rather than simply a renewed optimistic outlook for consumers to permanently revise their income expectations upward. This will occur as consumer spending gains encourage firms to end their hesitancy about hiring, and as higher tax revenues ease concerns over the Federal deficit putting any additional tax increases on hold."

In that context, a $618 rise in average vehicle prices this year, a 2% jump from last year, isn't necessarily a problem for the economy, but it might mean a slight headache for car buyers.

TrueCar a Santa Monica, Calif., auto analysis firm, says that the average transaction price for "light vehicles" in May was $30,978. That's not only up $618 from a year ago, it's also up $174 from April.

Firm analysts say that we're at a six-year high on consumer attitudes toward the car and truck market, and that's helping push prices higher.

" Consumer confidence is the highest it's been since 2007, helping keep demand for new vehicles very stable, and moving transaction prices upward overall," says Jesse Toprak, senior analyst for TrueCar. " Ford (F - Get Report) enjoyed a 4.5% gain in their average transaction price over last year, with the recovering housing market fueling the resurgence of demand for large trucks like the F-150. This, along with a 40% increase in Explorer sales, has moved their average transaction prices above $33,000, an all-time high ATP for the brand."

The fastest-moving price upticks measured by TrueCar include Ford Motor/Lincoln vehicles up 4.5% on a year-to-year basis, and Toyota/Lexus (TM - Get Report), up 4.3%. General Motors (GM - Get Report) prices remained the same for 2013, as did Nissan/Infiniti (NSANY).

Aside from moderately higher prices, consumers are also seeing a decline in manufacturer incentives on new vehicles, down on average by 1.7% from April to May. That means carmakers are confident you'll buy a vehicle even with reduced incentives -- not a good deal for consumers, but a profitable one for auto manufacturers.

Is that too steep a price to pay for an improving economy?

That's for auto consumers to decide. But rising car prices do show a slightly brighter economic picture, even if it means you'll have to dig deeper in your bank account for that new convertible this year.

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