Due to new-car supply constraints, the average slightly used model now costs more than its new model counterpart. Used car prices are at record highs in the wake of the microchip shortage. According to the latest study by car search engine iSeeCars.com, the average one-year-old used car costs 1.3 percent more than its new version. However, some lightly-used vehicles have price increases far greater than this average.
Trouble is revving up for potential car buyers, for the cost of used cars surging more than 40% this year. The price of some 3-year-old vehicles is up more than 50%. So what should you keep in mind before heading to the car lot?
The used vehicles that are commanding the highest increases over their new versions include a mix of two extremes: expensive gas-guzzling SUVs and more economical small cars and hybrids, which shows that even practical and budget-minded consumers are being forced to spend more for their vehicles.
New cars offer minimal to no incentives as the supply is limited. Many dealers are charging ADM (additional dealer markup) or a market adjustment price that can be add $1,000 to $100,000 for more premium cars
Manufacturers are not happy about the price adjustment and have threatened dealers with limiting their supply. Dealers are franchises, so therefore they don’t have to comply with the price that the manufacturer demands. So what can you do?
American car buyers are getting ripped off. New data from Edmunds shows that 82% of new car buyers in the U.S. in January paid above the sticker price. That’s a staggering increase from a year ago when only 3% paid above the manufacturer’s suggested retail price. On average, new car buyers paid $728 above MSRP, and that is also a massive jump from a year ago when consumers paid about $2,100 below MSRP.
Used car prices are not seeing the dramatic drop they have historically seen due to a unique market condition we are experiencing related to new car shortages. Used car shoppers can still save money buying a lightly-used car versus a new car, but expect to pay more than expected. The list of cars that offer the greatest savings when purchased used over new includes a mix of vehicles led by SUVs.
The COVID pandemic has radically altered the car buying landscape. Production shutdowns directly caused by the pandemic have been compounded by a severe shortage of semiconductor chips and a rubber shortage. U.S. dealers have had barely 1 million new vehicles in inventory, down from the more than 3 million cars, trucks and crossovers considered normal.
On the good news front, there are a few automakers who are still averaging below MSRP transaction prices. The best deals appear to be at Alfa Romeo, which is averaging the lowest transaction price versus MSRP of any automaker at $3,421 under. Nobody else is close, but Volvo, Lincoln, Ram, BMW and Mini are all going for under MSRP on average.
How long this trend will continue is uncertain but there are clearly factors working against consumers hoping to score a good deal. The semiconductor shortage continues to plague manufacturers, Toyota and Ford among those who have had to curb production in recent weeks.
Mitigating Action Steps:
- Be flexible and consider alternative vehicle types, brands and colors and be willing to compromise on features.
- Expanding your search to a wider geographic search for more selection if you're in a market with lower inventory. Make sure lock down as much of the deal as possible before you travel to get the vehicle.
- Reevaluate before jumping straight into another lease. Lease incentives are becoming increasingly difficult to find, but APR specials are still available. If you prefer leasing, make sure it is going to provide you the value you're looking for.
- If you're facing markups above MSRP, try to negotiate the adjustment to include add-ons such as warranties, service contracts, protection packages or dealer-installed accessories.
- Leveraging your current vehicle can be a smart move. Your car's value is one of your biggest negotiating tools in offsetting the purchase price of your next vehicle. Use it wisely and shop around for appraisals.
- If you find a vehicle that meets all your needs, don't wait to immediately reach out and communicate your interest to your local dealer to maximize your chances of driving it home.
- If you are buying a used car, be careful of some of the scams, especially an escrow deal. Make sure to have an independent inspector or an ASE mechanic look at the car before making an offer or placing a deposit. Don’t just trust online reviews.
- Don’t get tricked by the you have to turn the vehicle in at the end of your lease to the dealer, or adding an additional fees for you to end your lease. Everything in your contract from “edge to edge“ is the buyout amount. This is a legal binding contract.
Lauren Fix, The Car Coach® is a nationally recognized automotive expert, media guest, journalist, author, keynote speaker and television host. A trusted car expert, Lauren provides an insider’s perspective on a wide range of automotive topics and safety issues for both the auto industry and consumers. Her analysis is honest and straightforward.
Lauren is the National Automotive Correspondent for Newsmax TV, a conservative news net carried in 23 countries and in over 35 million U.S. cable/satellite homes. She is also The Weather Channel and Inside Edition’s auto expert. Lauren Fix serves as a juror for the esteemed North American Car & Truck of the Year Awards (NACTOY).
Lauren is The Car Coach columnist for Parade Magazine and eBay Motors and writes a weekly column. She also appears weekly on USA Radio’s DayBreak USA.
Lauren is the president and founder of Automotive Aspects, Inc., a consulting firm with a wide range of multi-media services, including media consulting, broadcast messaging strategy, public relations and television production.
Lauren is the author of three books: most recently, Lauren Fix’s Guide To Loving Your Car with St. Martins Press, Driving Ambitions: A Complete Guide to Amateur Auto Racing, and The Performance Tire and Wheel Handbook.
Lauren’s broadcast experience includes Oprah, Live! With Regis and Kelly, The View, TODAY, 20/20, The Early Show, CNN, FOX News, FOX Business, MSNBC, HLN, TBS Makeover and a Movie, Inside Edition, ESPN, TBS, Discovery, Speed and NPR, to name a few. Lauren previously hosted four seasons of Talk 2 DIY Automotive on the Do-It-Yourself Network (DIY), was the National Automotive Correspondent for Time Warner Cable and hosted Female Driven on Lifetime TV.
Lauren’s articles and advice have appeared in USA Today, Good Housekeeping, Redbook, eBay, Woman’s World, Esquire, First for Women, InTouch and Self. She has also contributed content to Motor Trend, Truck Trend, Hot Rod, Car Craft and many other automotive publications.
Lauren is a member of the Society of Automotive Engineers (SAE), the Society of Automotive Analysts (SAA) and is an ASE (Automotive Service Excellence) certified technician. She inherited her love of all things automotive from her father, who owned a brake remanufacturing business and worked for many U.S. manufacturers. Lauren has been fixing, restoring and racing cars since the age of ten. She has been advising drivers almost all her life.
In addition to being a leader in positive consumer awareness and the automotive industry, Lauren is often asked to speak to groups around the world about her success in marketing, motivation, entrepreneurship, parenting and other lifestyle topics.
Lauren was named the 2015 WIN Award, 2013 SEMA Business Network “Mentor of The Year”; SEMA Business Network 2012 Woman of the Year; and awarded various Car Care Council “Automotive Communications Awards” in 2012, 2013 and 2014. Past awards include 2008 Automotive Woman Of The Year and 2010 Woman of Distinction – Entrepreneur winner. Lauren Fix was inducted into the National Women and Transportation Hall of Fame in 2009 – a very high honor for a hard working automotive professional.
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