Automakers are raising prices and scaling back incentives amid an ongoing shortage of semiconductor chips that has put car dealerships firmly in the driving seat.
The typical new vehicle sold in December cost over $47,000, according to industry data, up about $12,000 since the beginning of the pandemic. And dealers have barely 1 million vehicles in inventory right now, down from the 3 million they would normally expect to have this time of year, according to industry data.
“Inventory is low, demand is high, so prices are high,” said Michelle Krebs, senior analyst with Cox Automotive. “Consumers should expect to pay MSRP [the Manufacturer’s Suggested Retail Price] or higher.”
Automakers warn it will take the rest of 2022 to get back to anything near normal, making it hard for shoppers to find the vehicle they want — especially if it is one of the more popular products.
Dealers normally keep enough vehicles in stock to last 60 days at normal sales levels. However, Toyota said its stores are averaging under a 10-day supply.
Dealerships typically make more money on financing than they do on the actual vehicle sale.
“There are customers waiting to drive off with almost every vehicle as soon as a (car-hauler) arrives at the dealership,” said Bob Carter, executive vice president of sales for Toyota North America.
That said, there are still ways for car shoppers to ensure they get the best possible deal.
“There are still ways to negotiate,” said AAA’s David Bennett. “But the first thing a consumer needs to do is their research.”
The first step is to decide whether you want a new car or need a new car, Bennett said. “If you want one, but don’t need it, now may be a good time to pause and wait” until dealers build back inventories and are more willing to negotiate.
If you actually need something new, figure out your budget, then start narrowing down your choices.
“It can pay to look at alternative models and to be flexible on things like colors and options,” said Consumer Reports analyst Benjamin Preston.
Even with today’s inventory shortages, automakers are still offering incentives on some products in highly competitive segments and on models that haven’t been selling well, Preston said.
The experts also suggest you expand your search. If you don’t find what you like near home — or get hit with a markup — consider checking out what dealers a little further away have to offer.
Shopper Mike Dushane drove from his home in Tampa, Florida, to Orlando and cut in half the $10,000 premium his local dealer demanded for a new Kia Telluride.
Before you go into a showroom, the experts agree, do as much research as you can online.
Check out the websites most automakers now have launched. While state franchise laws don’t allow manufacturers to sell directly to customers, some brands let you completely spec out a vehicle, then place an order that is handled by a dealer of your choice. You might have to wait a month or two, but many customers have found dealers demanding lower premiums or no mark-up at all.
Before visiting a dealer, talk to your bank or other lenders to see how much they’re willing to finance — and at what interest rate, emphasized Carlos Medina, senior vice president of business operations for ScoreSense, a consumer credit information service.
“Make sure you’ve done your pre-approval work and then take it to the dealer,” Medina said, noting that auto retailers typically make more money on financing than they do on the actual vehicle sale. As a result, many retailers try to push customers to use the finance company that is the most profitable for them, rather than the most affordable. And there are growing reports about “forced financing,” where dealers won’t work with a customer who wants to line up their own lender.
“Take your best offer to the dealer and be prepared to walk away,” Medina said. The same goes for insurance, another dealer profit center.
While new car prices have hit record levels, so have costs for “previously owned” models. AAA’s Bennett tells shoppers not to discuss a trade-in until after they’ve worked out the price for their new vehicle and then locked down financing. If it’s part of the deal-making up front, a salesperson could offer you a good trade-in, but then boost the price for the new vehicle.
As part of your initial research, Bennett said, go online to see what your old car is worth before you set foot in the showroom. If the trade-in you’re offered isn’t good enough, consider selling your old model privately or selling it to one of the national used car chains. They are also struggling to find vehicles and may offer you a better price.