Buying a car can be a daunting process, even in the best of times. You have to navigate confusing “asterisk” advertisements, where things like prices, trade values, interest rates, monthly payments, and availability are all disclaimed. And then there’s the long, stressful negotiation at dealerships (“Let me talk to my manager”). It’s no wonder that many people compare car shopping to getting a root canal!
Like any other industry, there are always ups and downs. We’ve had 9/11, Y2K, the gas crisis, recessions, and other challenges to deal with. Today we are faced with a double challenge that’s greatly affecting the auto industry and, subsequently, car buyers across the country.
The first part of this double challenge resulted from the critical worldwide pandemic. Last Spring, Covid-19 shut down auto production facilities in our country as well as in Europe and Asia. At that point, it wasn’t hard to foresee that closed factories would mean less cars, trucks, and SUV’s being delivered to the dealerships. But, with the existing inventory, many car-buyers quarantining at home, and dealership closures, the inventory of available cars didn’t seem to be so much of a problem.
Then came news of a “chip shortage.” People speculated that new production facilities would open and add to chip supply, but it hasn’t been that simple. In fact, the shortage isn’t just the microchips that control the safety and tech features in the cars. There’s also a shortage of the chips that control production and assembly at the auto plants as well as at the suppliers to the plants, like those producing audio systems, backup cameras, touch screens and even seats and seat belts.
Fast-forward to today, and take a drive by any dealer’s lot. Instead of seeing the usual 400 new vehicles and 200 used vehicles, there’s only about 20-100 cars total on the lot! Why is there a shortage of used cars, which are already built? First, the less new cars that are sold to consumers, the less trade-ins are available for resale.
Second, the majority of late-model used cars usually seen at dealership lots are former rental cars. Companies like Enterprise, Hertz and Avis buy hundreds of thousands of cars a year and normally turn them over to dealers (in 9-12 months, with 10-15,000 miles) to sell as used cars. However, because these rental companies can’t purchase the number of new cars they need right now, they’re holding onto their rental fleets for an average of 18 months (with 25-30,000 miles). So there are less former rental cars available for sale to dealers.
Of course, like in any other industry, as inventory falls, prices rise. So, we are seeing a spike in the prices of new cars, with less discounts and rebate offers. And this trickles down to also drive up the prices of used cars. In fact, some members who we helped buy used cars 2 years ago are trading those cars in now for close to the price they originally paid. Some late-model used cars are actually selling at prices above their original price!
Dealers are reacting to the inventory shortage in several different ways. They are demanding higher prices since they have less new cars to sell and are paying more to get used cars on their lots. However, some of the price increases are unconscionable. We’ve seen dealers asking $10-$15,000 over sticker price for vehicles. If you find yourself faced with a situation like this...consider buying something else, or just hold off longer if you can.
Some dealers are taking advantage of the inventory situation by requiring customers to finance in-house. This is great for them (they usually make more money this way), but stinks for consumers. With dealer-conrolled financing, you’ll normally end up spending more money in the long run.
See Car Shopping With Confidence: What You Must Know BEFORE Visiting a Dealership for more information about why the party controlling the financing controls the outcome of the deal).
In response to the current car shopping challenges, our Auto Advisors are working hard to hunt down the right vehicles, prepare our members to be flexible and to act fast, and keep great relations with our dealer contacts. It is a juggling act for sure!
Even with the current shortages, there are still new vehicles being produced and delivered, and trade-in vehicles taken in every single day.
Our Auto Advisors are here to help members save time and money on the purchase of new and used cars, while taking advantage of competitive MVCU rates. They work in a safe, efficient, hassle-free manner and they are not car salespeople. They are experts in the car business, who take the time to help members find the right car at the right price with the right financing.
Contact an Auto Advisor today!
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