A couple browses the sticker price of a car.
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With demand for new cars still exceeding supply at many dealerships, buyers may be wondering whether they should pay the average manufacturer’s suggested retail price or the sticker price to get the car they want.
September set a record for the sixteenth straight month that average transaction prices for new vehicles, or what the buyer actually paid, was higher than the sticker price!according to Kelley Blue Book data.
Automakers have faced significant inventory shortages over the past year due to the impact of computer chip shortages and other supply chain issues, pushing prices paid higher as buyers compete for the few cars available on the lot. While the average price paid for a new vehicle in the US in September was 0.3% lower than in August, or about $146, that figure has still risen significantly over the past year. In September, the average price paid for a new car was $48,094, an increase of 6.1% or $2,775.
Automakers say demand remains steady, with Cox Automotive forecasting third-quarter new vehicle sales at 3.4 million, down 1% from last year. General engines said it is car sales up 24% in the third quarter compared to a year ago, while BMW and Hyundai also reported sales increases over the same period.
But there are signs that there are new cars back in stock and many consumers choose to spend less and save more because they have to deal with inflation and a recession may be looming. Does this mean new car buyers should stop paying above the suggested retail price?
Brian Moody, executive editor for Kelley Blue Book, said that while any potential new car buyer should remain comfortable paying at least the MSRP, consumers concerned about sticker shock at the car dealer should consider the next steps to find potential savings.
Look for price differences at local dealers
Moody said one of the best places to find out what you’re going to pay for the new car you want is to shop around and check prices at local dealerships.
If they all have the car you want, priced within $500 or close to the same, that’s probably around the price you’ll have to pay, he said. However, there may be instances where thousands of dollars separate those prices, a situation that Moody says should lead you to “call that cheap price and say, ‘What’s the story here, how can I get that price?'”
Moody said that even if you’re considering a car that’s consistently selling for more than the MSRP right now, it’s still worth checking the price with several dealers. For example, he said he recently visited a dealer in Los Angeles that sold Ford Broncos at MSRP, starting at about $31,300 for a 2022 model. From July 1 to September 7, a new Ford Bronco cost an average of 21.6% above the MSRP, or nearly $8700 more, according to iSeeCars data.
One of the main reasons for those high new car prices is because of the purchase of luxury vehicles. In September, luxury car buyers paid an average of $65,775, slightly less than a record $65,835 in August. In addition, luxury car buyers tend to pay more than the suggested retail price. For example, Mercedes-Benz buyers paid between 2% and 4% more than the sticker price.
Moody said it can save buyers money by being open to other automakers, even within the same vehicle category. For example, buyers of luxury cars from Audi and Lexus paid just under 1% below the suggested retail price in September.
That was also the case with the non-luxury manufacturers Ford, Honda and Toyota, which also sold on average about 1% below the recommended retail price in September.
“If you go model by model, car by car, you may have a way to save money,” Moody said.
If saving money is a top priority, potential car buyers may want to look to the used market, where the picture of supply and demand is very different from new cars.
Although there are about 1.2 million new cars in stock in the U.S., the used car inventory is more than double, Moody said.
In addition, the average price of used cars has been falling steadily, even though it came from a very high point. In August, the average used car sold for $28,061, down 4% year-on-year, but still nearly 40% higher than in December 2019 before the Covid-19 pandemic.
The recent drop is a result of the slowdown in used car sales, down 9% in August from a year earlier, increasing the chances of getting a good deal on a used car lot.
If you’re concerned that what the sticker on the window says and what the salesperson says are vastly different, you’re not alone.
Most buyers don’t like the negotiation process when buying a new car, Moody said, and some dealers have responded by going to a single-price model that’s more like buying a new television, with the listed price being what any buyer would pay.
“You wouldn’t go to Target and see a TV listed for $900 and bring it to the register and ask to pay $750,” Moody said. “We’re seeing more adoption of the one-price model as there are more buyers who prefer it or would even be willing to pay more to finish the negotiation process.”
Moody said if you’re into pricing, you can definitely still try it, but he noted that since supply is still relatively low and demand is still relatively high, many sellers “don’t have time to entertain.”
“They want to sell as many cars as possible, so maybe they’ll just move on to the next customer,” he said.
But if you’ve set your sights on a Jeep Wrangler or Ford Bronco, two of today’s best-selling car models, you may have to accept that you’ll have to pay the sticker price.
“If you want to buy the thing everyone wants, you’re going to pay more,” Moody said. “You can’t go asking for a price of $1,000 below MSRP; that’s not going to work because ten people are waiting to buy that car for a price above MSRP.”
Ultimately, the trick to finding a deal for a new car buyer now is “looking for the less popular stuff,” Moody said.