New cars are still selling for over MSRP. Here's how to avoid sticker shock

3 months ago 17

A couple browses a car's sticker price.

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With demand for new cars still outpacing supply at many dealerships, buyers may be asking themselves if they need to pay over the average manufacturer's suggested retail price, or the sticker price, to get the car that they want.

September marked a record sixteenth straight month that new vehicle average transaction prices, or what the buyer actually paid, were higher than the sticker price, according to data from Kelley Blue Book.

Automakers have been dealing with a significant lack of inventory over the last year due to the impact of computer chip shortages and other supply chain issues, pushing prices paid higher as buyers competed for the few cars available on the lot. While the average price paid for a new vehicle in the U.S. in September was down 0.3% from August, or approximately $146, that figure is still up significantly in the past year. In September, the average price paid for a new car was $48,094, up 6.1% or $2,775.

Automakers say that demand is holding steady, with Cox Automotive predicting new vehicle sales for the third quarter at 3.4 million, down less than 1% from last year. General Motors said that its third-quarter vehicle sales increased by 24% compared to a year ago, while BMW and Hyundai also reported sales increases over that same period.

But there are signs that new cars are coming back in stock and many consumers are choosing to spend less and save more as they deal with inflation and a recession potentially looms. Does this mean new car buyers should stop paying above MSRP?

Brian Moody, executive editor for Kelley Blue Book, said that while any prospective new car buyer should continue to be comfortable with paying at least MSRP, consumers worried about sticker shock at the auto dealership should consider the following steps to find some potential savings.

Search for price gaps at local dealerships

Moody said that one of the best places to start figuring out what you're going to pay for the new car you want is to shop around and check the prices at local dealerships.

If all of them have the car you want priced within $500 or nearly the same, that is likely around the price you'll have to pay, he said. However, there could be cases where thousands of dollars separate those prices, a situation that Moody said should cause you to "call that inexpensive one and say, 'What's the story here, how can I get that price?'"

Moody said that even if you're considering a car that is consistently being sold for over MSRP right now, it is still worth price checking at a variety of dealerships. For example, he said, he recently visited a dealership in Los Angeles that was selling Ford Broncos at MSRP, starting at around $31,300 for a 2022 model. From July 1 to September 7, a new Ford Bronco cost on average 21.6% over MSRP, or nearly $8,700 more, according to data from iSeeCars.

Broaden your potential car choices

One of the main reasons for those high new car prices is because of luxury vehicle purchases. In September, buyers of luxury cars paid on average $65,775, down just slightly from a record-high August figure of $65,835. On top of that, buyers of luxury cars tend to pay more over MSRP. For example, Mercedes-Benz purchasers paid between 2% to 4% more than the sticker price.

Moody said that being open to other automakers even within the same vehicle category could save buyers money. Audi and Lexus luxury car purchasers, for example, paid just under 1% below MSRP in September.

That was also the case with non-luxury manufacturers Ford, Honda, and Toyota, which also on average were sold at about 1% below MSRP in September.

"If you go model by model, car by car, you might have a way of saving money," Moody said.

Consider a used car

If saving money is a top priority, prospective car buyers might want to look at the used market where the supply and demand picture is much different than for new cars.

While there are roughly 1.2 million new cars in inventory across the U.S., the used car market inventory is more than double that, Moody said.

On top of that, the average price of used cars has been steadily dropping, even if that was coming down from a very high point. In August, the average used car sold for $28,061, a 4% year-over-year decline but still up nearly 40% from December 2019 before the Covid-19 pandemic.

The recent decline is a function of used car sales slowing, down 9% in August from a year earlier, making it even more likely you might get a good deal on a used car lot.

Figure out if you want to haggle

If you have concerns that what the sticker on the window says and what the salesperson says wildly differ, you're not alone.

Most buyers dislike the negotiating process when buying a new car, Moody said, and some dealers have responded to that by going to a one-price model that is more akin to buying a new television where the price listed is what any buyer would pay.

"You wouldn't go to Target and see a TV listed for $900 and bring it up 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 that or would even be willing to pay more to have the negotiation process eliminated."

Moody said if you like to haggle prices, you can certainly still try, but he noted that given that supply is still relatively low and demand is still relatively high, many salespeople "don't have the time to entertain."

"They want to sell as many cars as possible, so they might just move on to the next customer," he said.

If you want a popular car, be prepared

But if you have your mind set on a Jeep Wrangler or Ford Bronco, two of the highest-selling car models right now, you might just have to accept you're going to have to pay over the sticker price.

"If you want to go out and buy the thing that everybody wants, you're going to pay more," Moody said. "You're not going to be able to go and ask for it to be priced $1,000 below the MSRP; that's not going to work because 10 people are waiting to buy that car for above MSRP."

Ultimately, the trick to finding a deal right now for a new car buyer is to "go looking for the less popular things," Moody said.

Auto dealers are growing profits as low vehicle supply has customers paying sticker-price

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