By Lauren Fix, The Car Coach
Due to new-car supply constraints, the average slightly used model now costs more than its new model counterpart.
Used car prices are at record highs in the wake of the microchip shortage.
According to the latest study by car search engine iSeeCars.com, the average one-year-old used car costs 1.3 percent more than its new version.
Eighty-two percent of car shoppers paid above sticker price for new vehicles and forty percent more for used cars. However, some lightly-used vehicles have price increases far greater than this average.
Trouble is revving up for potential car buyers, for the cost of used cars surging more than 40 percent this year. The price of some 3-year-old vehicles is up more than 50 percent. So what should you keep in mind before heading to the car lot?
The used vehicles that are commanding the highest increases over their new versions include a mix of two extremes: expensive gas-guzzling SUVs and more economical small cars and hybrids, which shows that even practical and budget-minded consumers are being forced to spend more for their vehicles.
New cars offer minimal to no incentives as the supply is limited. Many dealers are charging ADM (additional dealer markup) or a market adjustment price that can add $1,000 to $100,000 for more premium cars.
Manufacturers are not happy about the price adjustment and have threatened dealers with limiting their supply. Dealers are franchises, so therefore they don’t have to comply with the price that the manufacturer demands.
So what can you do?
American car buyers are getting ripped off.
New data from Edmunds shows that 82 percent of new car buyers in the U.S. in January paid above the sticker price. That’s a staggering increase from a year ago when only three percent paid above the manufacturer’s suggested retail price. On average, new car buyers paid $728 above MSRP, and that is also a massive jump from a year ago when consumers paid about $2,100 below MSRP.
Used car prices are not seeing the dramatic drop they have historically seen due to a unique market condition we are experiencing related to new car shortages. Used car shoppers can still save money buying a lightly-used car versus a new car, but expect to pay more than expected. The list of cars that offer the greatest savings when purchased used over new includes a mix of vehicles led by SUVs.
The COVID-19 crisis has radically altered the car buying landscape. Production shutdowns directly caused by the pandemic have been compounded by a severe shortage of semiconductor chips and a rubber shortage. US dealers have had barely one million new vehicles in inventory, down from the more than three million cars, trucks and crossovers considered normal.
On the good news front, there are a few automakers who are still averaging below MSRP transaction prices. The best deals appear to be at Alfa Romeo, which is averaging the lowest transaction price versus MSRP of any automaker at $3,421 under. Nobody else is close, but Volvo, Lincoln, Ram, BMW and Mini are all going for under MSRP on average.
How long this trend will continue is uncertain but there are clearly factors working against consumers hoping to score a good deal. The semiconductor shortage continues to plague manufacturers, Toyota and Ford among those who have had to curb production in recent weeks.
So What Should You Do?
- Be flexible and consider alternative vehicle types, brands and colors and be willing to compromise on features.
- Expand your search to a wider geographic area for more selection if you’re in a market with lower inventory. Make sure to lock down as much of the deal as possible before you travel to get the vehicle.
- Reevaluate before jumping straight into another lease. Lease incentives are becoming increasingly difficult to find, but APR specials are still available. If you prefer leasing, make sure it is going to provide you the value you’re looking for in a vehicle.
- If you’re facing markups above MSRP, try to negotiate the adjustment to include add-ons such as warranties, service contracts, protection packages or dealer-installed accessories.
- Leveraging your current vehicle can be a smart move. Your car’s value is one of your biggest negotiating tools in offsetting the purchase price of your next vehicle. Use it wisely and shop around for appraisals.
- If you find a vehicle that meets all your needs, don’t wait to immediately reach out and communicate your interest to your local dealer to maximize your chances of driving it home.
- If you are buying a used car, be careful of some of the scams, especially an escrow deal. Make sure to have an independent inspector or an ASE mechanic look at the car before making an offer or placing a deposit. Don’t just trust online reviews.
- Don’t get tricked by having to turn the vehicle in at the end of your lease to the dealer, or adding an additional fees for you to end your lease. Everything in your contract from “edge-to-edge“ is the buyout amount. This is a legal binding contract.
Lauren Fix, The Car Coach®, is a nationally recognized automotive expert, analyst, author, and television host. A trusted car expert, Lauren provides an insider’s perspective on a wide range of automotive topics and aspects, energy, industry, consumer news, and safety issues.
Lauren is the CEO of Automotive Aspects and the Editor-in-Chief of Car Coach Reports, a global automotive news outlet. She is an automotive contributor to national and local television news shows, including Fox News, Fox Business, CNN International, The Weather Channel, Inside Edition, Local Now News, Community Digital News, and more. Lauren also co-hosts a regular show on ABC.com with Paul Brian called “His Turn – Her Turn” and hosts regular radio segments on USA Radio – DayBreak.
Lauren is honored to be inducted into the Women’s Transportation Hall of Fame and a Board Member of the Buffalo Motorcar Museum and Juror / President for the North American Car, Utility & Truck of the Year Awards.
Check her out on Twitter and Instagram @LaurenFix.
