Negotiating with car dealers is hard enough, after two years of shortages, it’s even worse, especially for shoppers looking for less expensive models. David Welch reports for Bloomberg on carmakers’ shift toward higher-priced models, and what that means for car buyers. He writes:
For decades, transactions in U.S. car dealerships went something like this: A couple walks into a showroom, expresses interest in buying a sedan, the sales rep says, great, our MSRP is $26,000, and the two sides sit down to negotiate the price lower until they settle on a level both can accept.
The MSRP, or sticker price, typically set the ceiling.
Today, in a sign of just how much leverage has shifted from buyers to the carmakers and dealerships, the MSRP sets the floor. Prices only go up from there. Paul Lemieux can attest to this. He searched high and low for a dealership near his home along the Mississippi coast that’d sell him a Hyundai Ioniq 5 electric car at the manufacturer’s suggested retail price of around $47,000. None would. The closest thing he found was one across the border in Louisiana that’d offer MSRP plus a $299 fee to etch the VIN number into the windshield, something he had no interest in. He took it anyways. “There is zero bargaining,” Lemieux says.
To make matters worse, the MSRPs themselves are going up. And by a lot. The average sticker price on a non-luxury car in the U.S. is now $41,500, according to Kelley Blue Book, an auto price researcher. Two years ago, it was almost $37,800. That’s a 9.8% increase — even before all the new dealer markups kick in.
Some of this is to offset higher costs for steel, parts and shipping. A lingering semiconductor shortage is also still crimping vehicle production, giving dealers and carmakers the upper hand in negotiating. But some of the increases are simply to pad profits in a booming economy. General Motors Co. sold fewer cars last year than it did in 2020 and yet its adjusted profit jumped 47% to $14.3 billion. Ford’s quadrupled to $10 billion.
Affordability
For the 45% of Americans earning over $75,000 a year who buy most of the new cars, this is manageable. They may complain about getting fleeced, but they’re largely cash flush and undaunted. For the rest of the country, though, owning a new car is becoming a thing of the past. It’s what makes the surge in car prices — which single-handedly accounted for one-fifth of February’s 7.9% annual jump in the U.S. consumer price index — so painful for the middle-class worker.Seasonal Peaks
Sticker prices tend to rise in December as luxury-car sales increase“Affordability is a real issue for transportation in this country,” says Charlie Chesbrough, a senior economist with researcher Cox Automotive Inc. “The new vehicle is not a product for the average American.”
Automakers’ shift toward manufacturing higher-priced models is sparking a lot of the pain. In 2012, 54% of vehicles sold had an MSRP below $30,000, and just 6% of vehicles were priced above $50,000, according to Cox. Compare that to last year, when only 19% were below $30,000 and 30% cost more than $50,000.
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