By Mike DuBose
The COVID-19 pandemic has had dramatic and wide-ranging impacts on the United States and the world as a whole. Most people are traveling, going to events, and eating out at restaurants less, and these choices have rippled throughout the entertainment, travel, and service industries. COVID has also caused dramatic changes to less predictable sectors, however…notably, the automotive industry!
In 2021, news outlets began reporting on a growing shortage of new cars available to U.S. consumers. This vacuum was caused by a lack of semiconductors, the computer chips used in countless products in our increasingly tech-dependent and “connected” world. Vehicles are no exception: today’s gas-powered automobiles need about 1,000 computer chips to function, and electric-powered cars use about 2,000!
Part of the reason that the automotive industry has suffered so much from the semiconductor shortage is that automakers reduced their chip purchases in the early days of the pandemic, banking on consumers reducing vehicle purchases. In response, semiconductor manufacturers—of which there are a limited number worldwide—pivoted to produce chips for other industries like consumer technology and medical devices. However, consumer demand for vehicles bounced back quicker than automakers expected. Without the necessary semiconductor chips (and in light of staffing and other challenges related to the pandemic), the auto industry found itself unable to produce vehicles in the quantities and configurations consumers desired.
Every major car company—including Toyota, Volvo, General Motors, Volkswagen, Ford, Subaru, and Nissan, to name a few—has been forced to slow production of their vehicles (or temporarily halt production of some models) due to the chip shortage. Researchers estimate that nearly 8 million fewer cars were produced in 2021 than were expected. The automotive industry’s losses are expected to be in the billions, with some of this pain being passed on to consumers!
Due to the vehicle shortage, demand outstripped supply in 2021. Many new car buyers were forced to pay more than they would have considered years ago (no negotiating lower than MSRP here!) and sometimes to choose colors and other vehicle options that were not their preference. Used cars also demanded higher prices than they have historically, as many people held onto their existing cars rather than buying new ones, keeping the supply of used cars lower than normal.
Unfortunately for consumers, the global semiconductor shortage shows signs of continuing as we enter a new year. In a recent Newsweek article by Zoe Strowzewski, market analyst Phil Amsrud predicted that semiconductor supplies wouldn’t improve immediately in 2022, but are likely increase in the second half of the year. Until the supply of available vehicles goes up, sellers will remain at an advantage and will have little motivation to cut deals with new car buyers. With that in mind, most experts, such as Jake Fisher, senior director of Consumer Reports’ Auto Test Center, recommend “holding off until the market has shifted in the buyer’s favor” before purchasing a new car, if at all possible.
However, in some cases, that is not an option. So, what should you do if you need to buy a new car sooner rather than later? Read on for tips and strategies that will help you get the best possible deal in this tough market!
Brace yourself for sticker shock. Because the vehicle shortage of 2021 has continued into this year, demand for new cars is still higher than supply. With their inventory limited and a steady stream of potential buyers, dealerships simply aren’t making the same kinds of deals they did in days past. Incentives are few and far between (although some are still being offered to military servicemembers and recent college graduates), and buyers are unlikely to successfully negotiate down from the sticker price.
An estimated 89% of auto shoppers are actually paying more than sticker price (or within 5% of it), according to Sarah O’Brien of CNBC! Citing recent data from Edmunds, O’Brien noted, “The average transaction price for a new car is now higher than the manufacturer’s suggested retail price, or MSRP: $45,872 versus $45,209.” This is partly due to vehicle manufacturers utilizing their limited supplies of semiconductor chips to produce their more expensive models. Therefore, there are more of these higher-priced vehicles (such as SUVs and pickup trucks) available than the cheaper models (like sedans) that buyers might otherwise choose. In fact, SUVs and pickup trucks accounted for a record 80 percent of new vehicle sales in December 2021, according to J.D. Power.
Research your needs. Once you have a specific model in mind, evaluate it on Consumer Reports (it’s worth paying for a subscription!) and other online sources. Using Consumer Reports will also expose you to comparable models that you might not have considered yet…and these may be available if your first preference is not. Of course, you’ll also want to ensure that the new options have acceptable safety, reliability, and performance ratings.
Be flexible. To find the best deals, you’ll want to maintain some flexibility on the features you want in your new car. If they will work for you and your family, consider models that are in lower demand (versus high-demand models like all-wheel-drive SUVs and pickup trucks), per advice from Fisher. If your research has yielded any models you haven’t previously considered that might be an option, look into those as well.
When exploring different models you might consider, visit car lots on Sundays. Although salespeople may not be using as many “high pressure” tactics now as they did when there were plenty of cars to go around, it is still helpful to be able to look at vehicles on your own first without pressure to buy.
Be prepared to travel. If specific features are non-negotiable to you, be aware that you may need to expand your geographic search area…or prepare to wait a while! Today’s limited inventories may mean that there are none of your desired vehicles available to test drive at local dealerships. You may have to go to the next major city—or even out of state—to see your desired car in person. If you’re searching dealers’ websites for new inventory, beware that some may list cars that are still in transit. Call ahead to make sure that they are actually there and available for test driving before you make the trip!
Estimate the cost of your new vehicle. After you have decided which models you will consider purchasing, visit the manufacturers’ websites. “Build” a car with your desired options to get an estimate of the MSRP. Assume that you will need to pay $2,000-$3,000 above this price when determining if the purchase fits into your budget. Note: many manufacturers will offer the option to alert dealers if you’re seeking a certain car, but if you don’t want to be flooded with sales calls, avoid this or only allow contact via e-mail.
Secure your financing. Unless you are certain that you can obtain a low-interest loan through the manufacturer, obtain the amount of bank credit you will need for your vehicle purchase in advance. It’s likely that you can get a better rate through your own bank than through dealer financing. (However, don’t mention it if you plan to pay cash or have already arranged financing during negotiations, as that might impact how good of a price you can get.) Also, if you have temporarily frozen your credit bureau accounts (as some people do to protect against identity theft), lift the freezes so that dealers can run credit checks.
Contact the dealership. Most dealers have a specific person who is assigned to online sales. You’ll want to reach out to this person when you find your potential new vehicle on a dealership’s website. Ask him or her for the “out-the-door” price (retail price plus sales tax, fees, tags, markups, etc.) to buy the car so that you are sure the full cost is within your budget. Request that he or she email you pictures of the manufacturer’s sticker from the car’s window so that you are fully informed about the specific amenities it offers.
Take a test drive. Don’t rush. Dedicate an hour or so to driving the vehicle around without a salesperson, taking it on back roads as well as the interstate and trying out all the options. If the vehicle you like is still in transit, coordinate with the internet salesperson to test drive a comparable one.
Negotiate (within reason). With vehicles leaving the dealership in record time—an estimated 57% of cars sold within 10 days of delivery in December 2021, according to data from J.D. Power—be prepared to act if you find the model and options you desire. While it’s smart to shop around for the best deal, if the price is fair and the vehicle meets your criteria, go in ready to make the purchase! However, if the vehicle is not what you expected or they’re asking far too much, don’t be afraid to walk away. Despite the car shortage, there are still other options!
The Bottom Line: Although many products that were nearly impossible to obtain during the first days of the pandemic, such as toilet paper and bleach spray, are now generally available, the global automobile shortage is unfortunately still going strong. That means that vehicles of all types, new and used, are in short supply, and sellers can demand higher prices. If you are able to delay buying a car until the shortage lets up, it’s a good idea to wait, but if not, don’t despair! With some research and preparation, you can get a fair deal on the vehicle you want! Visit my non-profit website www.mikedubose.com for more information and other helpful articles.
Mike DuBose has been a staff member for USC’s graduate school since 1985, when he began his family of companies, and is the author of The Art of Building a Great Business. Visit his nonprofit website www.mikedubose.com for a free copy of his books and additional published business, travel, and personal articles, as well as health articles written with Surb Guram, MD.