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Car Shoppers Face Fewer Choices and Higher Prices

Vehicle inventory remains low and prices remain high as microchip manufacturers work to catch up from a pandemic-related slowdown. Herb Weisbaum and Consumers’ Checkbook describe what you can expect and offer tips if you need to shop now.

You may be in for an unpleasant surprise when you go car shopping these days. It could be more difficult to find the vehicle you want at a price you can afford.

For years, buyers were in the driver's seat as manufacturers and dealers tried to sell off a glut of new cars. Not anymore.

With demand up — in some cases, back to pre-pandemic levels — and inventories down because of global manufacturing problems, it's now a seller's market. That means fewer choices, higher prices, fewer incentives, and less motivation for dealers to negotiate.

Inventory of new cars was down by 48% at the end of April from a year earlier, according to data from Edmunds.

Much Less To Choose From

"Automakers don't have the production to keep up with how many people want to buy new cars," said Jessica Caldwell, executive director of insights at Edmunds. "That means buyers may not have the choices they did previously in terms of the trim levels, or even perhaps the vehicle they want."

At Heartland Toyota in Bremerton, Washington, 65 miles north of Seattle, customers are making deposits on vehicles that are not even built yet, general manager Mike Seney said.

"Demand is high and supply is the lowest I've ever seen, and I've been doing this for about 20 years," Seney said. "There's never been a time where I could tell a customer, honestly, if you leave here, there's a very good possibility this car is not going to be here when you come back. That's where we are right now."

At Sport Honda in Silver Spring, Maryland, sales manager Andrew Cort describes the shortage of vehicles as even "more severe" than anticipated.

You may be able to order what you want from the factory, "but there's no guarantee how long it will take, or if that vehicle will even be built," Cort said.

In normal times, new car dealers stock a 60-day supply of vehicles. Now, for popular models such as SUVs and pickups, dealers only have a 10-20 day supply, and in some cases, it's hard to find the vehicle you want on the lot.

Brad Brotherton, who owns Cadillac, Buick, and GMC dealerships in the greater Seattle area, is dealing with "a massive reduction" in inventory.

"As an example, we used to have 40 to 50 Escalades on the ground; today we don't have any," Brotherton said. "Everything that comes in is presold. As soon as we get a VIN (vehicle identification number) from the manufacturer, customers sign up and they wait three to six weeks to get delivery of their car."

"It does vary by models and region, so shortages may be more severe in some parts of the country than others," said Paul Eisenstein, publisher and editor-in-chief of TheDetroitBureau.com news service. "About the only vehicles where there are enough in showrooms right now, that a consumer can walk in and get pretty much what they want, is when you're talking about slow-selling sedans and coupes, and maybe sports cars."

How Long Will This Last?

Manufacturers are struggling to rebuild that inventory, but a pandemic-induced shortage of microprocessors (also called "semi-conductor chips" or simply "microchips"), which control many electronic functions in vehicles, has caused production delays. Today's cars are really computers on wheels. Each car requires dozens of microchips to manage engine performance, safety equipment, climate control, and the entertainment system.

"Virtually every single automaker has been affected by the microchip shortage," Eisenstein said. "As a result, we've seen temporary closures at a number of manufacturing plants that have impacted production of some high-demand vehicles such as the Ford F-Series pickup."

Jack Gillis, author of The Car Book, expects the computer chip shortage and other repercussions of the pandemic will ease-up by the end of the year or early 2022.

"Limited supply is a savvy shopper's biggest enemy," Gillis said.

Expect To Pay More

The average cost of a new car hit an all-time record high for May at $41,263, up $2,125 (5.4%) from the year before, according to Kelley Blue Book. That upward trend is likely to continue if supply doesn't start approaching demand.

Even now, there's little to no negotiation with most popular vehicles. If you want that vehicle, you may have to pay the full sticker price — or above the manufacturer suggested retail price (MSRP) in some cases.

"It's harder to score a really great bargain right now," The Detroit Bureau's Eisenstein said. "And at the same time, manufacturers have cut back on their popular models."

Good News if You're Trading in a Used Car

One bright note: Demand for used cars is so high right now, dealers are paying top dollar for trade-ins.

The average value for all used vehicles traded in during May hit another record high of $20,620, up from $17,080 in March 2021, and $14,160 in March 2020, according to Edmunds. Trucks have the highest trade-in prices of all consumer vehicles.

Tip: Before trading in your car, find out how much retail dealerships will pay for it so you'll know how much it's worth wholesale. You can get an appraisal online at Edmunds and various other sites. Simply type in your license plate or VIN and provide other pertinent info (mileage, condition, equipment) and you'll get an instant price quote that's good for seven days. You may be pleasantly surprised at how much your old vehicle can reduce the cost of your new one.

Wait if You Can

If you don't need a new set of wheels right now, consider waiting until manufacturers catch up with demand. For some models, that's your only choice.

If your only option is to choose a substitute vehicle or try a competing brand, consider leasing. That way, you're not making a long-term commitment, and your monthly payments will be lower.

Eight Shopping Tips if You Need To Buy Now

If your transportation needs are such that you must buy now, here are some tips to help you get the best deal.

Shop Carefully and Shop Around

You can find some deals and incentives, especially on less popular vehicles. Everybody is looking for SUVs, but if a sedan meets your needs, you can find some good prices.

Also, ask several dealerships in your area to provide competitive bids on the make and model of vehicle you want. Even if the car you want is in short supply, the only way to obtain the best price for it is to force dealers to compete with one another. Consumers' Checkbook provides instructions on how to collect bids.

Widen Your Search Area

If buying from a dealer 70 miles away will save you money, consider it. You can still take your car to your local dealer for service and warranty work.

Consider Whether You Need the Upgrades

Most manufacturers don't let you pick and choose your options; you have to buy them in packages. If you don't need all the bells and whistles, skipping the packages on a particular model can save you up to 20%.

Consider Holding Off on Extras

If you want floor mats, cargo containers or fabric treatments, you don't have to buy them right away. Do some comparison shopping when you're ready to buy.

Only Get the Warranty You Need

Today's new car warranties are very good, and extended service contracts can be costly. If you're not sure of your needs, consider opening a special savings account to draw on if you need after-warranty repairs. You can always buy an extended warranty or vehicle service contract later.

Consider Costs When Choosing Loan Terms

Dealers offer longer loans (72 or 84 months) to reduce your monthly payments. While those smaller payments may sound attractive, be aware that you will pay more in overall interest costs if you only make the minimum payments. 

Shop Around for Financing

Your interest charges are one of the most expensive aspects of car ownership. Knocking a point off the interest rate by shopping around will save you hundreds and lower your monthly payments. Check rates with your credit union or bank to see what they are offering, so you'll know if the dealer's offer is a good one. Warning: Very few people qualify for the heavily advertised 0% interest rates, so don't get your hopes up.

Consider Selling Your Used Car Yourself

The used car market is hot, and even when there isn't a supply problem, you can usually sell your vehicle for more than the dealer will pay you on a trade-in. Those extra dollars can help make up for the higher prices you'll see in the new car showroom.

About Consumers' Checkbook and CarBargains

Consumers' Checkbook contributing editor Herb Weisbaum ("The ConsumerMan") is an Emmy award-winning broadcaster and one of America's top consumer experts. He is also the consumer reporter for KOMO radio in Seattle.

Puget Sound Consumers' Checkbook and Checkbook.org are a nonprofit organization with a mission to educate and help consumers. Checkbook also evaluates local service providers — home improvement contractors, doctors, dentists, veterinarians, stores and more. It is supported by consumers and takes no money from the companies it evaluates. BECU members can try Consumers' Checkbook for 30 days for free and can get 50% off their annual subscription.

For more than 25 years, Consumers' Checkbook has offered its CarBargains service to consumers who want experts to collect pricing for them. CarBargains has helped more than 100,000 car buyers and guarantees it will obtain the best possible price.