Rising US car prices force buyers to travel thousands of miles to get deals | inflation

After a car dealer ordered $10,000 above the label price for a new hybrid, auto shopper Michael Rathgen of Kirkland, Washington, decided to pay no more than the manufacturer’s suggested retail price (MSRP) for the vehicle of his choice. He never dreamed that his quest would take eight months and 3,000 miles from home.

“I’m calling across the country. I guess that wouldn’t be possible. I wouldn’t find a dealer selling at MSRP,” recalls Rathjen, a technical writer. “I kept calling more and more until I got to Vermont.”

In early May, Rathjen flew to Burlington, Vermont, to pick up his new Toyota RAV4 Prime, paid $51,000 for the fully-equipped premium model, then immediately turned around and drove cross-country to take it home. The trip took eight days, with some stops to see sights and friends.

Low inventory levels, supply chain backups and production delays do not come close to the formidable challenge facing consumers seeking to buy a popular new car, light truck or SUV without being swayed by exploited dealers. Designer shoppers willing to pay the sticker price in today’s market must rely on a tank of persistence, patience, and in some cases, travel hundreds, even thousands of miles. However, shoppers like Rathjen are happy to do so. “I felt very lucky to have gotten exactly what I wanted, and on MSRP,” he said.

This is the state of the car market today.

Ryan Denecker, Director of Sales, Heritage Automotive Group. Photography: Ryan Deniker

Ryan Denecker, director of sales for Heritage Automotive Group, which operates Toyota and Ford dealerships in Burlington and sticks to its policy of selling vehicles at or below the sticker price. His agency was sold to buyers from all over the country.

Heritage Automotive usually has 500 to 700 cars for sale, with plenty more cars, SUVs, and light trucks, according to Deneker. Today, the lots are almost empty, and buyers must make a deposit and wait two to 12 months for their car to arrive.

“I’ve been doing this since the late ’90s,” Deniker said. “This is a landscape I’ve never seen before.”

It’s a landscape hit by a perfect storm that is squeezing supply at a time of soaring demand.

Covid-19 shutdowns two years ago crippled the auto supply chain, a slowdown from which the industry has not been able to recover. The demand for semiconductor chips for highly digitized vehicles today still far outstrips supply, a situation exacerbated by the Russian invasion of Ukraine. The country under siege is a major supplier of neon gas needed for lasers that carve tiny pieces of silicon to produce semiconductor wafers, and it’s also a leading maker of wires necessary for assembling cables throughout vehicles. Labor shortages in factories and ports in the United States have added to the auto industry’s troubles.

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With more demand than supply, prices for new cars have gone up. The average deal price for a new car in May was $47,148, up more than 13% from May 2021, according to Kelley Blue Book. Electric car prices are up 15% year over year, and hybrid car prices are up 18%.

These price jumps are helping push consumer inflation to its highest level in four decades. The US Labor Department announced last week that the annual rate of inflation for the basket of goods and services measured in the Consumer Price Index (CPI) rose to 8.6% in May. New car prices are up 12.6% over the year, while used car prices are up 16.1% from May 2021.

A two-line graph representing the change in prices for used and new cars. Both are trending higher, with used car costs increasing even more.

Contributing to the price increase is the fact that manufacturers are allocating their supplies of precious semiconductors to their higher-profit vehicles, said Michael Krebs, executive analyst at Cox Automotive, the parent company of Kelley Blue Book. “The automakers are selling their best models,” she said.

Buyers have paid an off-label price since last August, as average transaction prices for new cars have risen steadily, according to Edmunds. The auto market research firm says vehicles that now routinely sell for more than $3,000 above their MSRP include the Kia Telluride SUV, the Lexus NX450H hybrid and the GMC Hummer electric vehicle.

Kevin Ratz of Chicago was shocked when his local Toyota dealer asked him for a $21,000 raise over the only RAV4 Prime in stock. This prompted him to start researching a hybrid SUV, selling it at the sticker price. Ratz’s job involved contacting more than 60 dealers, many of whom raised the price by $10,000, before he finally found his prize 900 miles from home.

“It’s getting hard to find a car where I wouldn’t pay a single dollar over a window sticker,” said Ratz, a commercial airline pilot. “The feeling I got when I got that deposit – I couldn’t believe it just happened.”

Traveling to affordable dealerships makes sense for vehicles in high demand, said Ian Drury, Edmonds’ senior director of Insights. “These are extreme measures that people are taking because they are confused by what is happening in the industry,” he said. “The fact that people take pride in saying, ‘I paid for MSRP,’ is completely different than at any point in history.”

Before the pandemic, dealers were competing for how far below the sticker price they would sell a car, pickup truck or SUV. But it is no longer a buyer’s market; Dealers now have the upper hand, the rare exception being those who want to sell popular models, especially hybrids and electric cars, at the sticker price.

“We are overwhelmed with orders we can’t fulfill,” said the director of sales at the New Jersey Toyota and Volkswagen dealership. He requested anonymity because he no longer accepts orders for popular models, including the Toyota RAV4 Prime and Highlander Hybrid, and has a list of 160 customers who have paid deposits and are waiting months for their vehicles.

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