The Consumer's Perspective: Year End Market Update — Buying or Leasing a New or Used Vehicle
by Michael Klyde and Charles Sena - click here to read bios
Life continued to change dramatically in 2021 and that included buying or leasing a new or used vehicle. The COVID pandemic wreaked havoc on many industries and — second to housing prices — obtaining the vehicle you want at a price near what you paid just two or three years ago (or at all) has often been almost impossible.
The new vehicle shortage — from commuter to luxury / performance vehicles and trucks — caused price spiking across anything on 4 wheels - new or used.
For example, many California FORD dealers offered new F-150 or SuperDuty trucks at “market premiums” of $10 - 15k over the MSRP (window sticker). This is unprecedented. For Ford’s Raptor, it can be up to $30k on the 37” performance package. Even on more basic “commuter cars,” there have been market premiums of $2 - 5k.
With the shortage of new vehicles, prices jumped 20 - 40% on used vehicles within the past 12 months. It is still common to see 2- or 3-year-old vehicles with 40k miles selling at or close to the original window sticker when new. This phenomenon should start to ease as production and delivery of new vehicles continues to ramp up in the coming months.
Let’s recap how the COVID era hit the auto industry hard.
When COVID first hit in Q1 2020, everyone was home for 8 - 12 weeks. The auto companies thought the recovery would be very slow, so they planned for a slow ramp up to bring production back on-line. Manufacturers scaled back parts orders for computer chips, steel, aluminum, and other components.
Most oil companies had shut down wells as there was nowhere to store or send their product during the lockdown. Fuel prices fell to under $2 a gallon in certain parts of the country as there was low demand.
Then, bam!…. things opened up summer 2020 as people wanted to use their own transportation (versus Uber or Lyft), slowly getting back to work as well as taking driving-based vacations. This spiked fuel prices — which accelerated much further in 2021 — as demand ramped up faster than supply could keep up, since so many wells had been offline.
Car dealers who were stuck with all these vehicles during the Spring 2020 lock down and the summer that followed ran out of vehicles to sell. The production side was hampered by shortages of everything, even seat foam, which is made from natural gas and oil-based products in short supply.
The biggest issue became computer processing and memory chips. Chip makers quickly diverted canceled orders from auto manufacturing plants to cell phone, game console and personal computer manufacturers. Working, learning, and entertaining at home spiked demand for those products and there has, so far, not been a fall-off in demand.
There are only so many companies that can manufacture computer chips, a complex and time intensive process. Adding to the problem, a COVID spike in Southeast Asian locations like Taiwan shut down plants that produce chips. New chip plants cannot be built overnight.
Some auto manufacturers were boasting that they had plenty of chips and there would be no issue with vehicle deliveries to dealers, as they had not canceled much in the order pipeline for parts. However, earlier this year even Toyota, Honda and others who had most plants running at capacity cut for a while almost all production as their supplies were shut down due to COVID outbreaks.
Car makers like GM and FORD have recently announced joint ventures to manufacture their own chips, often at factories in the USA. But this will take time.
This market condition of the past 12+ months is not going to clear up for at least another 6 months to 2 years, some in the industry speculate. The days of near empty vehicle dealer lots is “the new normal.”
What does that mean for those in the market to buy a new vehicle? The days of visiting several new car dealers for the “best deal” are pretty much gone for now. But with hard work and “shoe leather,” you can find something, at the retail sticker price or often with an added dealer mark-up.
So how do you get the Car, SUV or Truck you want?
Dealers are selling either what they have on the lot with a mark-up or selling vehicles that they have ordered and are in transit or have a VIN (Vehicle Identification Number) assigned as they are about to be assembled. But even these inbound units may have an added buyer premium attached.
Many consumers are now simply “ordering” a new vehicle, then waiting 4 - 8 months for its arrival. Somewhat of a “retro” approach to the 1950’s and 1960’s, when many if not most consumers ordered their own cars.
It is still a seller’s market. The dealers are also upping the sale price of maintenance contracts, extended warranties, gap insurance, paint protection, alarms (even though almost every vehicle has a sophisticated alarm and coded key now) and more. One dealer brazenly listed the cost of “Nitrogen” at $315 on a window sticker!
This is where vehicle car-buying services such as CARtegrity — consumer advocates — are very useful. These teams know the industry and how to find you the vehicle you want. They can negotiate the price that is better for you while also fair for the selling dealer.
Out there across the USA, the vehicle you desire may be sitting on a lot or is in transit from the factory. Services like CARtegrity find it. Beyond just negotiating price, they work with you during the seat time in what is called Finance and Insurance (F&I). This is that critical time when you are presented with a menu barrage of (often very overpriced and unnecessary) items that add to the purchase price and of course, the dealer’s bottom line.
Car-buying services like CARtegrity ensure that you get the vehicle you want at the best price out there, with no “gotcha” moments at the end of the deal. If ever there was a time to have a team of experts on your side to get you the vehicle you want, this time is now.