Some new cars are selling for more than their sticker price: ‘It’s a new paradigm’
Strong demand plus strained supplies equals higher prices
If you’re looking to buy a new car, you can forget about getting a bargain — at least for now.
With customers re-entering the market after last year’s pandemic shutdown and with a persistent shortage of computer chips that go into new vehicles, dealers don’t have enough cars and trucks on their lots to keep pace with demand.
As a result, sellers are asking for — and getting — top dollar. Popular vehicles such as the Toyota RAV4 Prime are sometimes going at prices higher than the manufacturer’s suggested retail price, or MSRP.
“Every single unit sold is selling for a price you have never seen before,” said Ivan Drury, senior manager of insights at Edmunds.com.
“It’s a paradigm shift in car shopping because there’s so few new vehicles for sale, people are willing to pay it. And that’s the amazing part. Back in the day, people would balk. They’d say, I’m not going to pay MRSP. Now, they say, I’m going to pay MRSP or even an extra $3,000, $5,000 $7,000 above ... because if you’re not going to pay, the guy right behind you is.”
Just a year ago as stay-at-home orders went into effect to try to curb COVID-19 infections, great deals could be had. Carmakers like General Motors offered zero-percent financing for 84 months (that’s seven years) to let buyers put off their first payments for up to 120 days.
With cars and trucks sitting on lots across the country, automakers reined in their factory orders for silicon chips that go into the brake sensors, power steering, and navigation and entertainment systems in modern-day vehicles. Semiconductor companies shifted focus to consumer electronics, which saw an uptick in demand for chips used in virtual learning, remote health care and working from home.
But as 2020 progressed, car sales rebounded faster than many had thought and chip manufacturers have struggled to supply carmakers’ orders. Now, a resurgence in COVID-19 cases in Southeast Asia — where workers in countries such as Malaysia assemble computer chips — is putting more strain on supply chains.
California’s best-selling vehicles
Through the first six months of 2021
1. Toyota Camry 34,305
2. Honda Civic 33,160
3. Toyota RAV4 32.093
4. Toyota Corolla 30,904
5. Tesla Model Y 27,398
6. Honda Accord 25,467
7. Chevy Silverado 25,165
8. Ford F Series 25,118
9. Ram Pickup 23,662
10. Honda CR-V 22,589
Source: CNCDA/AutoCount data from Experian
Just days ago, Toyota announced it is cutting North American vehicle production 40 to 60 percent in August. Ford and GM also announced similar reductions.
Analysts like Drury now expect inventory for new cars to stay low into 2022, even as customers clamor to buy.
“It’s like a rock has been definitely thrown into the water and you’re getting waves instead of ripples,” Drury said. “It’s more like a boulder being thrown into it. It’s not just going to resolve itself overnight.”
In California, sales have bounced back — up 96 percent in the second quarter compared to the same three-month period amid the nadir of the 2020 lockdown.
Through the first six months of 2021, registrations are up 32.2 percent compared to January through June of 2021. The California New Car Dealers Association anticipates 1.8 million in new vehicle sales for the year, not far off from the 2 million mark the state racked up each year between 2015 and 2019.
If not for the inventory squeeze, dealers say the numbers would be even more robust.
“If dealers can get (cars and trucks), customers will buy them,” said Brian Maas, the association’s president. “It’s a supply and demand question.”
The used car market is experiencing a similar dynamic.
The inventory constraints have led to another phenomenon the auto analysts can’t recall seeing — demand for 1- and 2-year-old vehicles reached the point where some sell for as much or more than their original purchase price.
“The rental agencies are so desperate that they too are looking for these (used) vehicles,” Drury said. “For the first time ever, we’re hearing about rental agencies buying used cars to put into their fleets.”
But while registrations for used cars in California for the first six months of the year came in at a robust 16 percent higher compared to 2020, that’s just half as high as the percentage increase in new vehicle sales — indicating that the fever in the used car market may be cooling, at least in the Golden State.
As for a return to equilibrium in the new car market, Drury said he hopes the supply shortage can work itself out in another six months.
“But I tell people if you really can wait a year, just do that because even in six months, this situation will not right itself to the point where you’ll get a discount,” Drury said. “You’re still going to be paying more than you’re accustomed to, especially if you haven’t bought a car in three to five years or whatever your replacement cycle is.”
The numbers for San Diego County showed a 35.2 percent increase in new vehicle registrations through the first six months — higher than the 32.9 percent seen in Los Angeles and Orange counties and 29.7 percent in the Bay Area.
The state’s top-selling vehicle through June was the Toyota Camry, followed by the Honda Civic. The Toyota RAV4 finished third, evidence of the long-running customer trend toward the light-duty truck segment that includes SUVs.
The combined percentage of sales for hybrid and electric vehicles reached 21 percent — 10 percent for hybrids, 3.2 percent for plug-in hybrids and 7.8 percent for electric vehicles — up from a combined 15 percent in 2020.
Hybrids with a gasoline engine “don’t require a change in driving behavior but you get the benefits of some electrification and better fuel economy,” Maas said. “So it’s the easiest car to transition to on the way to full-electric.”
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