Shock sticker: 80% of car buyers now pay more than the suggested retail price

In 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, or MSRP, according to data from Edmunds, the online site that tracks car rankings and prices. This is commonly referred to as the sticker price.
It’s the latest manifestation that a shortage of parts, especially computer chips, has caused automakers to temporarily halt production at various plants. This has left dealerships with fewer vehicles than they need to meet customer demand.

This caused the average transaction price to hit $45,717 in January, or $728 above MSRP.

It was up nearly $6,000, or 15%, from January a year ago, and about $7,500 more than the average price paid in January 2020, just before the pandemic started to rock the ‘automobile industry.

Only 2% of buyers paid above MSRP a year ago, with buyers paying an average of around $2,150 less than the sticker at that time.

“Demand is at an all-time high and supplies are historically tight,” said Ivan Drury, chief information officer at Edmunds. He said if a buyer is unwilling to pay above the list price, the dealership can be sure there will soon be another buyer who will.

“We only speak a 10 to 11 days on average for the time the vehicles are in the field,” he said. “We have never seen this.

Part of the price increase is explained by the fact that consumers are increasingly buy more SUVs and pickup trucks and fewer sedans, which are generally less expensive. They also choose more expensive options, such as automatic braking and lane departure warnings designed to make cars safer.

But the main factor behind the price increases is the shortage of cars.

The only good news for car buyers is that used car prices are rising even faster than new car prices, due to an even tighter supply of vehicles in this market. The average value of a trade has increased by $8,000 over the past year, according to Edmunds.

The dealers are the big winners

The biggest winners of today’s awards: auto dealers, not automakers. Until Tesla came along with its company-owned stores and direct-to-consumer sales, all automakers used a network of independent companies to sell cars to American buyers. Dealers would buy cars in bulk at fixed prices from car manufacturers. The price paid by consumers was then negotiated with the dealer.

So while automakers are benefiting from not having to offer some of the cashback offers or other incentives to drive demand, auto dealerships are seeing booming profits that come from higher prices.

AutoNation (A)the nation’s largest auto dealer, just posted record quarterly and annual profits on Thursday, even though it only sold 2% of new cars above MSRP in 2021. It did so by selling cars at or near list price much more often than in the past. .

But many car buyers resent paying more than the list price. And their worries worry the some of the automakers themselves.

Both General Motors (GM) and Ford (F) have sent letters to their dealerships telling them they could have their new-vehicle allocation reduced and redirected to other dealerships if it is determined they are engaging in what the automakers consider abusive practices.
In particular, GM and Ford are concerned that customers who put down a deposit for a reservation for upcoming models, especially electric vehicle models like the Ford F-150 Lightning, will be told they have to pay thousands of dollars above the list price they expected to pay. . Nearly 200,000 Ford customers have made deposits for a Lightning, for example, and GM has a similar reservation list for some of its recent and upcoming electric vehicles, such as the GMC Hummer EV pickup and the Cadillac Lyriq.

“It has come to our attention that in connection with some of these announcements and launches, a small number of dealerships have engaged in practices that do not promote a positive sales experience for our customers,” reads a letter that Steve Carlisle, president of GM North America, sent to dealers. “Specifically, it has come to our attention that some dealerships have attempted to demand money beyond the reservation amounts set out in GM’s program rules and/or have asked customers to pay amounts well above MSRP to purchase or lease a vehicle.

Ford spokesman Said Deep said Ford has informed dealers of similar concerns about the Lightning, which is expected to begin production in the spring; customers with reservations could start completing their orders from January 4. He added that the company was also considering the big bounties for other flagship models, including the Mustang Mach-E and the gasoline-powered Bronco.

But neither automaker has said it outright prohibits the widespread use of pricing against list price by dealers, only when the price is “well above” that benchmark.

AutoNation CEO Michael Manley, who was formerly CEO of Fiat Chrysler before it merged with French group PSA to form Stellantis, said he doesn’t think sticker pricing is a problem for the company. industry reputation. He says prices should be close to MSRP, and he hopes and expects prices to be closer to that level even once vehicle supply is no longer limited.

“The levels of profitability of the two [automaker] and dealerships clearly show the benefits of selling vehicles at MSRP. And what a concept, right? Sell ​​at MSRP,” he said. told investors. “I think it’s equally clear that deep discounts and high incentives can also hurt a brand, which is another reason for our industry to appropriately balance supply and demand.”

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

Paying MSRP isn’t going away anytime soon, according to Edmunds’ Drury. With projections that vehicle supply could remain tight in the second half of this year, it could be 2023 before paying the list price becomes scarce again.