Customers view a car for sale at a Ford Motor Co. dealership in Richmond, California, on July 1, 2021. Eighty percent of new car buyers in January paid more than the manufacturer’s suggested retail price, according to data from Edmunds. (David Paul Morris, Bloomberg, Getty Images via CNN)
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Atlanta – Only a year ago no one paid the full sticker price when buying a new car. You are now lucky if you can.
Perhaps the most striking sign of the change in new car prices, 80% of new car buyers in January paid more than the manufacturer’s suggested retail price, according to data from Edmunds, a website that tracks car ratings and prices. This is what is generally known as sticker price.
It is the latest manifestation of the fact that the shortage of parts in particular computer chips, caused automakers to temporarily stop production at various plants. This has left dealers with fewer vehicles than they need to meet customer demand.
This brought the average transaction price to $45,717 in January, or $728 above MSRP.
It’s up nearly $6,000, or 15%, from January last year, and about $7,500 above the average price paid in January 2020, before the pandemic began to disrupt the auto industry.
Only 2% of buyers paid more than the MSRP a year ago, with buyers on average paying about $2,150 less than the label at the time.
“Demand is pushing boundaries, and supplies are historically scarce,” said Evan Drury, senior director of insights for Edmunds. If a buyer is not willing to pay more than the sticker price, he said, the dealer can be confident that there will be another buyer soon who will.
“We’re only talking about an average of 10 to 11 days of time when vehicles are in a large area,” he said. “We haven’t seen that before.”
Part of the price increase is because consumers are increasingly buying more SUVs and vans and fewer sedans, which are usually less expensive. They are also choosing more expensive options, such as automatic braking and lane departure warnings designed to make cars safer.
But the biggest factor behind the price hike is the lack of cars.
The only good news for car buyers is that Used car prices Car prices are rising faster even than new car prices, due to the diminishing supply of cars in that market. The average transaction value has increased by $8,000 in the past year, according to Edmonds.
Traders are the big winners
The biggest winners from current prices: car dealers, not automakers. Until Tesla came along with company-owned stores and direct-to-consumer sales, all automakers used a network of independent companies to sell cars to American buyers. Dealers will buy cars in bulk at prices set by the automakers. Then the price paid by the consumers was negotiated with the merchant.
So while automakers benefit from not having to offer some cashback or other incentives to boost demand, auto dealers are reporting booming profits that come from higher prices.
AutoNation, the nation’s largest auto dealership, reported record quarterly and annual profits on Thursday, even though it sold just 2% of new cars above the manufacturer’s suggested retail price in 2021. It did so by selling cars at The label or near it much more often than in the past.
But many car buyers resent the idea of paying a price higher than the sticker. Their concerns are causing concern among some automakers themselves.
Both GM and Ford have sent letters to their dealers telling them that their allowances for new vehicles could be reduced and redirected to other dealers if they are determined to be engaging in what the automakers consider abusive practices.
In particular, both GM and Ford are concerned that customers who put down a deposit to reserve upcoming models, particularly EV models like the Ford F-150 Lightning, are being told they must pay thousands over the list price they expected to pay. Nearly 200,000 Ford customers have made deposits for Lightning vehicles, for example, and General Motors has a similar reservation list for some of its recent and upcoming electric vehicles, such as the GMC Hummer EV Pickup and Cadillac Lyriq.
Said Steve Carlisle, president of GM North America, and sent to dealers. “Specifically, we have learned that some dealerships have attempted to claim money in excess of reservation amounts specified in GM’s program rules and/or have required customers to pay amounts well in excess of the MSRP in order to purchase or lease a vehicle.”
Ford spokesman Saeed Deeb said Ford has notified dealers of similar concerns about lightning, which is due to start production in the spring. Customers with reservations can start completing their orders starting January 4th. He added that the company is also considering large premiums for other hot models, including the Mustang Mach-E and Bronco, a gasoline-powered car.
But none of the car manufacturers have said that they completely prohibit the widespread use of charging list prices by dealers, only when the price is “significantly greater” than this standard.
AutoNation CEO Michael Manley, who was previously the CEO of Fiat Chrysler before it merged with French group PSA to form Stellantis, said he doesn’t think on-label pricing is an issue for the industry’s reputation. He said that the prices should be close to the retail price suggested by the manufacturer, and he hoped and expected that the prices would be closer to this level even once the supply of cars is not restricted.
“Profitability levels for both (the automaker) and dealers clearly show the benefits of selling vehicles at MSRP. And what is the correct concept? Selling at MSRP,” he told investors. “I think it’s also clear that big discounts and high incentives can also damage the brand, which is another reason for our industry to balance supply and demand appropriately.”
If he’s right, that means the days of paying the thousands below the poster are over.
Paying on the manufacturer’s suggested retail price isn’t going away anytime soon, according to Drury, from Edmunds. With auto supply expected to remain tight in the second half of this year, it could be 2023 before additional price payments become scarce again.