Buying cars in 2022: Paying more stickers is the new normal

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Five out of six cars are selling for more than list price at the start of 2022. Covid-19 and chip shortages have been blamed. Today, the war in Ukraine is shutting down spare parts suppliers who deliver components to factories in Europe. Some of these cars, including Volkswagen’s electric vehicles, were to be shipped to the United States Bill Howard

The high demand for rare new cars has shifted the scenario from “Nobody pays the sticker price” to “Everyone pays the sticker price”. Or more.”

What can consumers do to avoid high prices, which auto industry analysts say are now set to last through this year and into 2023?

How Buyers Can Avoid Paying Sticker

Here’s how buyers can cope. First, the only sure bet is to postpone the purchase of a new vehicle.

Lease customers may be able to extend their current leases instead of recalculating rent versus purchase. And many new-vehicle buyers are turning to cheaper used vehicles, although in terms of percentages, used-vehicle prices are still higher than new-vehicle prices.

Certified used cars are relatively abundant in 2022. The most common CPO cars are models built and sold in 2019 before Covid-19 halted production. Walk into a dealership’s showroom and many of the new cars on the floor are really 2019 CPO cars. Click here for a backgrounder on buying CPO.

For someone who can’t wait a year or more to buy a new vehicle, the best advice is to shop online in a wider territory than usual, be prepared to compromise on features and options and be prepared to act quickly.

Check with dealers frequently. Sometimes a buyer backs out of a delivery and a car you want, in a color you can live with, is available for a day or two.

If stock car selection is an issue, consider a built-to-order (BTO) car, optioned exactly the way you want. Delivery time is as short as four weeks for a car built in North America to 8-12 weeks for a car from Europe or Asia.

A final option: buy an electric car from Tesla, which has no dealer network and no extra markups. Tesla has raised prices over the past year, but the listed price is exactly what the buyer is paying. The Tesla Model Y crossover and Tesla Model 3 sedan are the best-selling electric vehicles in the United States. Some other EV startups are following Tesla’s lead and will sell directly to customers.

List of five out of six new car sales

Today’s new vehicle buyers should be aware that they are entering a circular saw of marketing. In January, 82.2% of all new vehicle purchases were above the manufacturer’s suggested retail price, and the average purchase was $728 above MSRP, according to researchers at Edmunds, the site of automotive purchases and advice.

What types of cars command more than the list price? “It’s almost everything,” both cars and trucks, said Ivan Drury, chief information officer for Edmunds. “Body styles we thought were dead,” like minivans and subcompact sedans, are selling above list price.

“People think they can avoid it, buying the minivan instead of the SUV, but other people have the same idea, and the price goes up,” he said.

Drury said customers might have to grit their teeth and pay above the list price, but he encouraged buyers to try to negotiate some kind of sweetener, like maybe asking the dealer to add accessories or accessories. complementary products such as an extended service contract.

“You should definitely ask them to do it,” he said. “You may end up paying more, but you may say, ‘Okay, but can you give me something extra?’ They are still in the lead, but at least you get something,” he said.

Volkswagen ID.3 Dresden
Volkswagen ID.3 EV at the factory in Dresden, Germany. VW is suspending production this week at its plants in Dresden and Zwickau in eastern Germany. The reason: unavailability of electrical harnesses manufactured for VW in Ukraine following the Russian invasion. This will add to the car shortage in the United States and around the world. volkswagen

Latest threat to automotive supplies: war in Ukraine

What has since changed, of course, is the Covid-19 pandemic followed by the shortage of semiconductors (chips). Through December 2021, the chip shortage has cost North American auto factories more than 2.3 million production units, according to AutoForecast Solutions. Some analysts say the chip shortage will ease later this year. Others say it will run until 2023.

Now the Russian invasion has shut down auto parts factories in Ukraine. They supply factories in Ukraine and Eastern Europe. VW said the lack of Ukrainian-sourced wiring harnesses would slow or halt car production in Dresden and Zwickau, Germany. Zwickau is home to Europe’s largest electric vehicle factory. Some of these electric vehicles are destined for US dealerships.

Individual buyers and fleet customers are now competing for new cars, says David Hult, president and CEO of Asbury Automotive Group, a chain of dealerships in Duluth, Ga. “To me, the demand seems so high right now, even when they’re able to start catching up on inventory, between rental car companies and fleet companies and everything else, I just don’t see demand stabilizing before 23,” he said.

As for profit margins, “it’s on everything,” said Gary Ackerman, Ford and Porsche dealer in Las Vegas, Gaudin Motor Co.’s master dealer. “It’s a classic case of supply and demand; it’s not something any of us expected,” he said.

For some high-demand versions of the Ford Bronco, Ackerman said he recently went to collector car auctions, where customers resold vehicles they had just bought new. Like the dealers they bought from, collectors sell cars well above what they paid for.

Cadillac NJ Dealership
In the past, a dealership had more than two months of vehicles on the lot. It can be halved. Dealers must pay interest (“floor-planning”) on unsold cars in the field, although they sometimes got help from the factory. While floor planning assistance is down, according to industry data, it’s up per car. In the past, when it didn’t cost them to have more cars on the lot, dealers were fine with higher inventory levels. Bill Howard

Are high prices here to stay?

Dealers encourage manufacturers to make falling inventory and rising prices a permanent feature. To be fair, dealers argue that margins on new vehicles were too low before the pandemic. Historically, dealerships derive most of their profits from used cars, service and parts, financing and insurance, while margins on new vehicles have been slim. On individual sales, dealers can charge $500 to $1,000 in paperwork, processing, and IT fees in states that don’t cap these fees. Dealers say costs are quoted on documentation; clients say they are not mentioned until they see the documents.

“We are pressing very hard for them [factories] not to bring inventory levels back to pre-pandemic levels. And so the margins are going to stay high. Margins before the pandemic are low. We should be selling cars at MSRP,” said Jeff Dyke, president of another dealership chain, Sonic Automotive, Charlotte, North Carolina.

Sonic Automotive CEO David Smith said customers are less surprised to pay more than the list price now “For most people, it’s common knowledge [now] we have supply issues with vehicles,” Smith said. “People have to wait to get what they want, for many different products.”

From Factory to Dealer: Don’t Overload or… We’ll Blow and Blow?

Publicly and privately, several automakers have asked their dealers not to overcharge customers, but ultimately the automakers are bound by contracts that allow dealers to set the final price. But there is a limit to what factories can do.

“Hyundai dealerships are independent businesses that ultimately decide the final price of the vehicle with customers. However, Hyundai constantly reminds its dealers of the need for complete transparency with our customers,” Hyundai Motor America said in a statement.

“We strongly insist that prices displayed on websites must match in-store prices, and we strongly discourage our resellers from charging prices above MSRP as this can negatively impact the customer experience. and brand loyalty,” the company said.

In an internal memo that was later shared widely online, General Motors warned its dealers against overloading high-demand vehicles not yet on sale, for which consumers can make reservations online, such as the Chevrolet. Silverado EV, GMC Hummer EV, GMC Sierra EV and Cadillac Lyriq. (Ford sent similar warnings to its dealers.)

“For the small minority of bad actors who engage in the conduct identified above, this letter serves as notice that GM reserves the right to redirect our vehicle allocation or take any other remedy prescribed by the sales agreement. and dealer service,” said the memo, which was signed by Steve Carlisle, president of GM North America.

Whether automakers can put some teeth into their dealer warnings remains to be seen.

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