Sticker shock: 80% of car buyers are now paying more than suggested

Perhaps the most important sign of a change in new car prices in January was 80% of new car buyers paying more than the manufacturer’s suggested retail price, or MSRP, in January, according to data from Edmunds, an online site that tracks car rankings and prices. This is commonly referred to as the sticker price.
This is the latest manifestation of the fact that shortage of parts, especially computer chips, has forced automakers to temporarily halt production at various plants. This has left the dealers with fewer vehicles to meet the demand of the customers.

This has resulted in an average transaction price of $45,717 in January, or $728 above the MSRP.

That’s about $6,000, or 15%, from January a year ago, and about $7,500 more than the average price paid in January 2020, before the pandemic broke out in the auto industry.

A year ago only 2% of buyers paid above the MSRP, with buyers paying an average of $2,150 less than the sticker at the time.

“Demand is through the roof, and supply has historically been tight,” said Evan Drury, senior manager of insights for Edmunds. He added that if a buyer is not willing to pay more than the sticker price, the dealer can be confident that soon there will be another buyer who will.

“We’re just talking a Vehicles for a 10- to 11-day average time are too many,” he said. “We’ve never seen anything like this.”

Part of the price increase is because consumers are increasingly Buying more SUVs and pickups and fewer sedans, which are generally less expensive. They are also opting for more expensive options, such as automatic braking and lane departure warnings designed to make cars safer.

But the biggest reason behind the increase in prices is the lack of cars.

The only good news for car buyers is that the prices of used cars are increasing faster than the prices of new cars, because the supply of vehicles in that market is also less. According to Edmunds, the average value of trade-ins has increased by $8,000 in the past year.

dealers are the big winners

The biggest winners from current prices: Auto dealers, not automakers. Until Tesla came out with its own company-owned stores and direct sales to consumers, all automakers used a network of independent businesses to sell cars to American buyers. Dealers will buy cars in bulk from automakers at fixed prices. The price paid by the consumers was negotiated with the dealer.

So while automakers benefit from not offering certain cash-back offers or other incentives to boost demand, auto dealers are reporting a jump in profits coming from higher prices.

autonation ,One,The country’s largest car dealership posted a record quarterly and annual profit on Thursday, even though it sold only 2% of new cars in 2021 above the MSRP. ,

But many car buyers are baffled by the idea of ​​paying more than the sticker price. And their worries are causing concern Some automakers themselves.

Both General Motors ,GM, And Wade ,F, has sent letters to its dealers asking them to reduce the allocation of new vehicles and redirect them to other dealers if it is determined those automakers are considering abusive practices.
In particular, GM and Ford are concerned that customers who have made a deposit to book reservations for upcoming models, particularly EV models like the Ford F-150 Lightning, are being told that That would be paying thousands more than the list price they expected to pay. , For example, about 200,000 Ford customers submitted for the Lightning, and GM has a similar reservation list for some recent and upcoming EVs, such as the GMC Hummer EV pickup and the Cadillac Lyric.

“It has come to our attention that in connection with some of these announcements and launches, a small number of dealers have engaged in practices that do not support a positive sales experience for our customers,” it said in a letter. That’s Steve Carlisle, GM’s president of North America, sent to the dealers. “In particular, it has come to our notice that some dealerships have attempted to demand money over and above the reservation amount prescribed in GM’s program rules and/or MSRP from customers for purchasing or leasing vehicles.” requested to pay an amount exceeding Rs.

Ford spokesman Saeed Deep said Ford has notified dealers of similar concerns about the Lightning, which is due to begin production in the spring; Customers with reservations can start fulfilling their orders from January 4. He added that the company is also looking at a bigger premium for other hot models including the Mustang Mach-E and the gasoline-powered car Bronco.

Why are car prices so high?

But neither automaker said they are prohibiting the widespread use of dealers charging the list price, only if the price is “much higher” than that benchmark.

AutoNation CEO Michael Manly, formerly the CEO of Fiat Chrysler, which merged with France’s PSA Group to form Stelantis, said he did not believe the pricing on stickers was a problem for the industry’s reputation. He says that the prices should be close to the MSRP, and he expects and expects the prices to be close to that level, even if the supply of vehicles is no longer disrupted.

“Levels of profitability for both [automaker] And the dealers clearly show the benefits of selling the vehicle at MSRP. And what a concept, isn’t it? Selling at MSRP,” he told investors. “I think it is equally clear that even significant discounts and high incentives can hurt a brand, which is yet another reason for our industry to balance supply and demand fairly.”

If he’s right, that means the days of paying thousands under stickers are over.

According to Drury at Edmunds, payments at MSRP aren’t going to expire anytime soon. With projections that the supply of vehicles may remain tight in the second half of this year, it may be 2023 before paying sticker price becomes scarce once again.

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