Soaring US car prices compel buyers to travel thousands of miles for deals | Inflation

After a car dealer demanded $10,000 more than the list price for a new hybrid vehicle, car buyer Michael Rathjen of Kirkland, Washington, decided not to pay more than the suggested retail price. manufacturer (MSRP) for the vehicle of his choice. He never imagined his quest would take him eight months and 3,000 miles from home.

“I call all over the country. I don’t think that will be possible. I won’t find a dealer selling at MSRP,” recalls Technical Writer Rathjen. “I kept calling further and further until I reached Vermont.”

In early May, Rathjen flew to Burlington, Vermont to pick up his new Toyota RAV4 Prime, paid $51,000 for the fully-equipped top model, then immediately turned around and drove it to across the country to bring him home. The journey took eight days, with a few stops to see sites and friends.

Near-record inventory levels, supply chain backups and production delays don’t fully capture the monumental challenge faced by consumers looking to buy a popular new car, light truck or SUV without worrying. ripped off by profiteering dealers. Determined buyers who want to pay the posted price in today’s market must rely on a reservoir of perseverance and patience and, in some cases, drive hundreds or even thousands of miles. Even so, buyers like Rathjen are happy to do so. “I felt very lucky to get exactly what I wanted, and at MSRP,” he said.

That’s the state of today’s auto market.

man with car
Ryan Denecker, Director of Sales at Heritage Automotive Group. Photography: Ryan Denecker

“Right now, if it’s the right vehicle, there’s no limit to how far people will go,” said Ryan Denecker, sales manager at Heritage Automotive Group, which operates Toyota and Ford dealerships. in Burlington and sticks to its policy of selling vehicles at or below sticker price. His dealer sold to buyers from across the country.

Heritage Automotive normally has 500 to 700 vehicles available for sale, with its lots filled with cars, SUVs and light trucks, according to Denecker. Today, the lots are almost empty and buyers must deposit a deposit and wait between 2 and 12 months for the arrival of their vehicle.

“I’ve been doing this since the late 90s,” Denecker said. “It’s a landscape like I’ve never seen before.”

It’s a landscape battered by a perfect storm that compresses supply at a time of high demand.

Covid-19 shutdowns two years ago dampened the automotive supply chain, a downturn the industry has been unable to recover from. Demand for semiconductor chips for today’s highly digitized vehicles continues to far outstrip supply, a situation exacerbated by Russia’s invasion of Ukraine. The beleaguered nation is a major supplier of neon gas required for lasers that carve tiny bits of silicon to create semiconductor chips, and is also a major manufacturer of wire harnesses needed to bundle cables together in vehicles . Labor shortages at factories and ports across the United States have compounded problems in the auto industry.

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

These price increases have been driving consumer inflation for four decades. Last week, the US Department of Labor announced that the annual inflation rate for the basket of goods and services measured in its consumer price index (CPI) reached 8.6% in May. Prices for new vehicles increased by 12.6% over the year and used vehicles by 16.1% compared to May 2021.

Two-line graph representing the evolution of car prices, used and new. Both are on the rise, with used car costs rising further.

Contributing to the price increase is manufacturers allocating their precious semiconductor supplies to their higher-profit vehicles, said Michelle Krebs, executive analyst at Kelley Blue Book’s parent company, Cox Automotive. “Automakers are selling their top-of-the-line models,” she said.

Buyers have been paying above the list price since last August as average transaction prices for new vehicles have steadily increased, according to Edmunds. The automotive market research firm says vehicles that now regularly sell for more than $3,000 above MSRP include the Kia Telluride SUV, the Lexus NX450H hybrid and the GMC Hummer electric vehicle.

Chicago’s Kevin Ratz was stunned when his local Toyota dealer demanded a $21,000 markup on the only RAV4 Prime in stock. This prompted him to start looking for the hybrid SUV, which sold at the list price. Ratz’s quest involved contacting more than 60 dealers, several of whom marked up the price by $10,000, before finally finding his price 900 miles from home.

“It became a challenge to find the car where I wasn’t going to pay a single dollar on the window sticker,” said Ratz, a commercial airline pilot. “The feeling I got when I got that deposit – I couldn’t believe it just happened.”

Flying to reasonably priced dealerships makes sense for high-demand vehicles, argued Ian Drury, chief information officer for Edmunds. “These are extreme measures that people are taking because they’re gutted by what’s going on in the industry,” he said. “The fact that people are proud to say ‘I paid the MSRP’ is completely different from any time in history.”

Before the pandemic, dealerships fought over how much they were selling a car, light truck or SUV below list price. But it’s no longer a buyer’s market; dealers now have the upper hand, and those willing to sell popular models, especially hybrid and electric vehicles, at list price are the rare exception.

“We’re inundated with orders that we can’t fill,” said the sales manager of a Toyota and Volkswagen dealership in New Jersey that doesn’t price vehicles above their list price. He asked not to be identified as he is no longer accepting orders for popular models, including the Toyota RAV4 Prime and Highlander Hybrid, and has a list of 160 customers who have deposited deposits and are waiting months for their vehicles. .

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