Having Sticker Shock From Car Prices? You’re Not Alone

Top Class Actions’s website and social media posts use affiliate links. If you make a purchase using such links, we may receive a commission, but it will not result in any additional charges to you. Please review our Affiliate Link Disclosure for more information.

Nelson Navidad walked into the Lexus dealership in Van Nuys with his eyes on a specific car, a gray Lexus IS 300. 

He was hopeful he would be able to walk out with the vehicle, only to be surprised that the color he wanted was out of stock.

Then he found out other dealerships all had the same issue — no inventory. He considered getting it in a different color, white or red, but couldn’t commit. 

“The price was too much for me,” Navidad said. “I know luxury cars are expensive, but I couldn’t justify paying that much for a car that I didn’t love. I didn’t want to have to settle and don’t need another car right now.”

Navidad walked out without his dream car. But many consumers in the United States are choosing to carry on with their purchases even though auto prices, for new or used cars, are at a record high. 

“Our inventory is starting to fill up again but a few weeks ago, our enormous lot that is usually covered with cars was just really empty,” said Raul, a salesman at a Los Angeles Mazda dealership who asked Top Class Actions not to use his full name for fear of causing problems at work. “Being in this business for so long I’m used to seeing it covered with cars and it was just a wasteland. But we’re starting to get back on our feet.”

Even though vehicles are starting to trickle back in, Raul, who has been a car salesman for nearly two decades, said he has never experienced something like the inventory crunch he has seen in recent months.

“​​Obviously, in terms of inventory, fluctuating incentives and trade-in values, the decisions that customers have either been forced to make or were chosen to make were kind of alternative decisions to what they thought they wanted,” he said. “It’s been something I haven’t seen in 18 years and I don’t think anyone has seen something like this ever.”

Whether it’s because they don’t have the car you want or prices are too high, getting a new or used car isn’t as easy or affordable as it used to be.

The problem

Auto prices dramatically increased in 2021. 

According to Kelley Blue Book, December marked a record high for new vehicles, with the average price for a new car going for $47,077. This is up 13% from 2020 and is the ninth consecutive month that the average price of a new vehicle went up. Just in 2021 alone, Americans paid, on average, $6,220 more for a new car. 

Edmunds.com estimated that used cars are going for an average of $29,011, which is 39% more than a year ago. 

In 2021, the price increase of used cars contributed about 1% to the nation’s overall inflation according to the U.S. Bureau of Labor Statistics. Historically, the price of used cars didn’t impact inflation at all. 

White House economic advisor Jared Bernstein tweeted that he finds the impact on headline inflation “remarkable and revealing.”

For one, it's a reminder of how extremely unusual this current inflation is. The world has not forgotten how to produce new (and thus used) cars and we should expect this series to revert once the underlying supply constraint eases.

— Jared Bernstein (@econjared46) January 12, 2022

“​​For one, it’s a reminder of how extremely unusual this current inflation is. The world has not forgotten how to produce new (and thus used) cars and we should expect this series to revert once the underlying supply constraint eases,” he tweeted.

COVID-19 and the computer chip shortage

Car prices go up every year. Certain charges can cause the prices to fluctuate like transportation or delivery fees but in 2021 something changed — there was no inventory. 

Coronavirus factory shutdowns and the computer chip shortage are in part to blame for this. 

“The beginning of the pandemic was the worst time because that’s when everything started with the chips. The factories didn’t order enough chips because they thought they wouldn’t need them but then they saw that business was still okay. People were still interested in buying a vehicle even though it’s more money,” said John, a Pasadena luxury salesman who has also been in the industry for 18 years and asked Top Class Actions not to use his real name.

Unfortunately, computer chips take time to make and the worldwide chip shortage restricts how many cars automakers can build. 

“They don’t have enough computer chips to make the computers, to make the keys,” John said. “Until this computer chip shortage is fixed, we won’t have many cars available. They are making as many cars as possible, but there is not enough.” 

The effects on consumers

Prices for anything goes up according to supply and demand, and because of the low inventory cars being marked up over the sticker value. Raul said he started noticing vehicle prices increase in the first quarter of 2021 around March. 

“Here the Ford (dealership) started selling their cars $5,000 over sticker price,” he said. “When I first heard of that I thought that was ridiculous because I’ve kind of always thought like a consumer in this business. When I see a selling price that’s $5,000 above sticker price I would turn around and go somewhere else. I never thought it was going to work and to my surprise people were still buying cars.”

The issue was every dealership in the country started raising their prices too. The supply chain shortage also led dealerships to start buying more used cars. 

“We’re trying to buy more used cars right now to have some inventory but with the price skyrocketing on used cars too it is very hard to buy used cars because they are asking for too much,” John said. 

Because of the vehicle shortage, customers have more leverage and are able to sell their used car for more. They’re also able to sell them to companies like CarMax and Carvana, which compete with dealerships. 

“About the same time that the price adjustment started people were slowly but surely finding out that if they were to sell their car it would be a lot more than what they could get in trade-in,” Raul said. “Now, that’s always been the case but this change had rapidly and drastically changed that amount, that difference. Normally they could ask for let’s say $20,000 now they could get $24,000 so it was a huge difference.”

The issue is, after a customer sells their car and makes a lot of money, they now have to buy a new car. 

“All the money you made is going to offset the price adjustment on the new one,” Raul said. 

Because of how the auto industry has changed since the start of the coronavirus pandemic in 2020, the way people shop for cars has shifted. 

“The main change has been the acceptance of the price,” Raul said. “In my time the first question out of the customers mouth was ‘how much under sticker can I get it for?’ Now a lot of the customers are asking ‘well how much off a mark-up is it?’”

John agrees — people know they will be paying more for the vehicle than it may be worth. 

Unfortunately, there is no getting around price markups in the current market. 

“They may not like it, but they know there’s no avoiding it. They know they can’t get a discount. They know in certain cases they might not get their first or second choice in terms of color or options. So either they’re going to wait and not make a decision or take what’s available,” Raul said. 

He also admitted he didn’t think raising the prices would work initially, but over a year later people are still buying cars. 

For the full year of 2021, U.S. new auto sales hit just over 15 million vehicles, up 3.5% from 2020, according to Cox Automotive. Automakers typically sell more than 16 million vehicles a year.

In 2021 used vehicle sales were 40.9 million, an increase of 10% when compared to 2020. 

And in a preliminary forecast, Cox Automotive said it predicts 39 million used cars will be sold in 2022. It also expects 16 million new car sales in 2022, which would be an increase of 7% from 2021. 

So even with the vehicle shortage spilling into the new year, car sales are far from slowing down.

[getsocial app=”sharing_bar”]

---