Most Car Buyers in January Paid Above the Suggested Retail Price
Americans are certainly familiar with the lasting effects of the coronavirus pandemic. With inventory shortages and sales over MSRP, the car market is no exception.
Not surprisingly, supply chain issues have been an ongoing struggle since the beginning of the pandemic. For the automotive industry, specifically, this means a lack of computer chips and factory workers. Meanwhile,
is on the rise, resulting in an economic dilemma of supply not meeting demand.
Vehicle inventory has dramatically reduced, giving dealerships the advantage of hiking their prices. Is the current state of the market sustainable over the long run? Experts are divided on their predictions for the future of car buying.
Car buying has never been pricier
January 2022 saw 80% of car buyers paying above the manufacturer’s suggested retail price (MSRP), as reported by
. This is shocking news after a long period of price reduction offers from dealerships. For context, only 2% of buyers paid above MSRP just a year ago.
The average transaction price on new vehicles is up 15% from January 2021, at $45,717. One significant reason for the difference is the popularity of SUV and pickup truck models, especially those with expensive safety features. These vehicles tend to be more costly than sedans, which currently are less in demand.
However, dealers are no longer incentivized to offer deals when vehicles are only on the lot for an average of 10 days. If a buyer walks away, there will be another one right behind them who’s willing to pay above the sticker price.
Car buying is even more challenging in the used sector. Prices are soaring even higher than we’ve seen with new cars, all due to inventory shortages. Trade-in values increased by $8,000 over 2021, but options are diminished.
Dealerships are the sole beneficiaries of these growing profit margins, since they buy their inventory from the automakers at a wholesale cost. Of course, customers are not pleased with the idea of paying more than the MSRP.
AutoNation’s CEO has a differing opinion. He believes that significant discounting is actually quite harmful to brands and that car buying should be reflective of the suggested pricing.
Meanwhile, Ford and General Motors have both come to the aid of concerned customers. Dealers have received letters warning against abusive practices that may result in a reduced allocation of new vehicles. Some customers with deposits on upcoming EV models have been told they need to pay thousands above the price they expected to pay. The exact limitations on pricing, however, remain unclear.
, analysts do not expect the situation to change before 2023. It’s in the best interest of dealers and automakers to keep inventory low, so as not to exceed car buying demand.
There were 17.1 million new vehicles sold in the U.S. in 2019. That number dropped to 14.9 million in 2021.
Other experts expect new car discounts to return post-pandemic, as buyers without a trade-in won’t be willing to pay more than the sticker price.
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