By on June 29, 2021

With just about every resource trading at unappealing premiums, now may not be the time to make any major purchases unless you’re a financial masochist or so wealthy that the normal rules of living no longer apply. But it remains a seller’s market for just about everyone, including the plebian masses. Giant, unaccountable financial institutions will happily purchase your home and there’s a sea of disenfranchised people who will give you their last dollar if you can help them make sense of an increasingly hectic world. In the automotive sphere, we’ve seen dealerships and rental agencies hungrily scooping up secondhand automobiles for unheard-of prices just so they’ll have something on the lot.

The end result is a lot of overpriced merchandise that larger businesses are desperate to buy so they can pass on their elevated expenses to the customer. We’ve already covered the stupidly high prices surveyed consumers claimed they’d be willing to spend on a new vehicle. But there have been numerous reports claiming those days are coming to an end, with just as many suggesting we’re still in the thick of it. Yours truly has been wondering just how close to reality those assertions happen to be. 

One thing that’s certain is how production shortfalls have yet to be rectified. Just about every automaker has already confirmed that 2021 output will be less than anticipated, with many continuing to announce plant closures through the summer months due to the ongoing semiconductor shortage. With ongoing geopolitical strife in Asia (specifically China repeatedly signaling its desire to invade Taiwan) it’s hard to envision a near-term future where new vehicle prices decline and chips are available in abundance. However, Bloomberg recently suggested that used automotive prices are starting to level off.

They’re still hysterically expensive, with even some of the oldest and least desirable automobiles seeing sizable upticks in their Blue Book values. But Cox Automotive has confirmed that the wholesale auction fees of secondhand cars appear to have plateaued, with one of its analysts stating that this is indicative of price declines arriving in the coming weeks.

“Wholesale prices as of right now are at their peak and should start to come down,” said Zo Rahim. “We are seeing a decelerating pace of price increases in the first two weeks of June, compared to what has been just an absolute surge [through 2021].”

From Bloomberg:

Manheim’s wholesale index of used-vehicle value was 36 [percent] higher than a year earlier as of mid-June — down from an annual rate above 50 [percent] in April. One effect of higher prices has been to push the average age of vehicles on U.S. roads up to a record 12.1 years in January.

The volatile U.S. auto market was cited by Fed Chair Jerome Powell in a House hearing on Tuesday to help explain the outlook for consumer prices.

“A pretty substantial part, or perhaps all of the overshoot in inflation comes from categories that are directly affected by the re-opening of the economy, such as used cars and trucks,” Powell said. “Those are things that we would look to stop going up, and ultimately to start to decline.”

He added a cautionary note: “These effects have been larger than we expected and they may turn out to be more persistent than we expected.”

Car dealers expect the strong demand to persist. CarMax Inc., which sells about 1.2 million vehicles a year from 220 locations, says it’s hiring an additional 5,000 auto professionals this summer, and will offer training programs to entice workers from other industries.

The Wall Street Journal released a report supporting that last paragraph, claiming that dealerships around the country are now demanding fees well over MSRP. There were even claims that some stores were mandating that customers purchase supplemental products on certain models. While some of that was likely due to factory shortages limiting available options, it’s not really the fault of the customer that the dealership doesn’t have what they want in stock. But some of those accusations revolved around wholly unnecessary items like protective coatings and accessories installed at the dealership.

By June, J.D. Power estimated that about 75 percent of all vehicles sold in the United States went for at least the sticker price. Before the pandemic, that number was comfortably sitting around 36 percent. While vehicle prices were suppressed throughout 2020, they snapped up sharply in 2021 with preliminary surveys indicating customers might be willing to pay thousands above MSRP.

“That percentage of people paying above sticker for a vehicle has been going up and up and up,” Ivan Drury, an automotive analyst for Edmunds, told the outlet. “There’s no end in sight because there’s fewer and fewer cars on dealer lots.”

From WSJ:

Sam Pack, a Texas dealer with six stores in the Dallas area, said he is selling most of his inventory at MSRP, and in very few cases above sticker for certain limited-run, specialized models.

“We’re not negotiating like we used to,” Mr. Pack said. “There’s no room to budge when you don’t know what is coming in.”

A dealer charging above MSRP isn’t anything new. But for the most part it would happen with hard-to-find models, such as specialized sports cars or newly redesigned vehicles that are in high-demand upon their debut, dealers and analysts say.

Because dealers own the vehicles — purchasing them directly from the factory — they determine the final price. Generally, the manufacturer’s suggested retail price is intended as a starting point for negotiations, with buyers in the end paying less than sticker.

Even without spreadsheets of pre-pandemic vehicle pricing at your disposal, you can call around asking for quotes and remain struck by the above-average asking prices dealers are willing to float. We sampled several stores from the rural Midwest and urban East Coast earlier today, learning that it’s practically impossible to avoid taking a bath on a vehicle purchase without truly superb negotiation skills. While you can soften the blow by purchasing from segments that aren’t necessarily the most popular (e.g. something that isn’t a pickup or crossover), you’re still likely to confront elevated pricing and a salesperson that’s willing to dig in their heels.

The Wall Street Journal piece actually has several examples of just that, including a woman who wanted to purchase a new Kia Telluride but was told she needed to pay $10,000 over sticker. Disgruntled, she managed to find a Toyota Highlander and convinced the sales staff to let her have it for the listed MSRP — a truly hollow victory.

In addition to supply chain problems, most industries saw suppressed demand during pandemic-related lockdowns. People were saving more and buying less, with 2021 assumed to be the period where businesses recoup those losses. Unfortunately, that lost year resulted in there being insufficient product volumes across the board. When January arrived, inflation was apparent and people’s purchasing power continued to wane. This continued, with the largest pricing increases (and generalized inflation) taking place within the last six months.

With all the above in mind, we’re inclined to agree that there’s a potential for prices to drop in the coming months. But there’s really no reason to plan your life around that being a certainty. There’s precious little to suggest new vehicle prices are going to return to pre-pandemic values before 2022. Realistically speaking, our best-case scenario involves secondhand vehicle pricing coming back down at the very end of the summer. But there’s almost no way to imagine new vehicle transactions to swing anywhere near normal until supply chains have been thoroughly repaired and we’ve got a bead on securing reliable access to all the components that go into modern automobiles.

[Image: Gretchen Gunda Enger/Shutterstock]

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45 Comments on “How Long Are Vehicle Prices Going To Remain Insane?...”


  • avatar
    Fred

    Do these high prices go across all models? I would think a dealer would be more anxious to move a slow moving model. Of course this would only help us who like unpopular cars ie sedans, hatchbacks with manuals and on the smaller side.

    • 0 avatar
      Matt Posky

      EV prices don’t seem to have gone up all that much. Unpopular models have likewise seen less monumental pricing increases, with sedans being the one of the only segments you might still be able to explore without assuming you’ll have to take a second mortgage out on your house or sell plasma for the foreseeable future. Even then, finding a good/fair deal will be largely dependent upon fortune and knowing you’ll need to shop around.

      • 0 avatar
        dal20402

        KBB believes my low-mile 2019 Bolt has gained about 10% in the last four months, from roughly $19K to roughly $21K.

        • 0 avatar
          28-Cars-Later

          That’s interesting given how we’ve seen Volt/Leaf resale plummet in the past.

          • 0 avatar
            dal20402

            You can actually count on a Bolt battery to last a reasonable vehicle life, and the charging infrastructure is slowly getting better. (Although a Bolt is just not a long-trip car because its L3 charging is so slow.)

            My car also happens to be a late-build 2019 that was not subject to the battery recall, although I don’t know if KBB has data that granular.

          • 0 avatar
            28-Cars-Later

            I followed Volt to some degree but not Bolt so I didn’t know that. Volt’s near hybrid concept I thought was much better and I’ve read good things about them used.

          • 0 avatar
            dal20402

            Volts have done reasonably well in the battery department; that comment was mostly directed at Leafs.

            I think Volts have two issues in resale: one is that they are sedans and the other is the packaging. The first-gen version being a four-seater is a nonstarter for a lot of people. The second gen, with a fifth seat, has much better resale value. But the Bolt is roomier than either despite being significantly smaller outside.

          • 0 avatar
            tomLU86

            @dal20402

            How long has the Bolt been in production?

            I hope the battery lasts the “life of the car”. Even a 1970s car, which was 10 years. A 20xx car should go for 20.

            We will see–not 5 year old Bolts running around at this time.

          • 0 avatar
            dal20402

            The first 2017 Bolts will reach 5 years old in a few months. So far, most owners seem to be reporting fairly low levels of degradation, while those experiencing more are the ones who deep cycle often. The Bolt has a fairly effective battery conditioning system and the coolant is a maintenance item–I expect in a few more years we may see some failures relating to less effective battery conditioning from aged coolant.

            My own 2019 Bolt with 10k miles reports the same numbers it did when new, but I baby it (battery almost always stays in the 50%-85% range, and no L3 charging).

  • avatar
    Kendahl

    Prices will remain high until supply catches up with demand. The best way to encourage that, and avoid overpaying, is to hang onto what you own as long as it’s reasonably repairable. Even a two or three thousand dollar repair would be preferable to dumping that amount into a dealer’s pocket.

    There are two big worries. The first is Taiwan. Because the rest of the world let them become the leading source of semiconductors, instead of competing with them, they are a juicy target for China. It has nothing to do with politics. Taking over Taiwan would give the Chinese a strangle hold over the rest of the world.

    The other big worry, at least here in Arizona, is residential real estate. Prices are rising rapidly because more people are moving into the state than there are homes being built for them. Even in the mountains of eastern Arizona, the realtor who helped us buy our home a year and a half ago says he could sell it for 40% more than we paid.

    • 0 avatar
      Art Vandelay

      But semiconducters and Taiwan are not like say, oil and the middle east. You can build them anywhere and one can certainly argue given benchmarks of popular silicon vs Chinese and Russian designs that the expertise for designing those products lies in the West.

      It would be a painful time while the west spun up production, but they would and afterwards China would become a pariah in the world.

      Bottom line is we build that stuff in Taiwan because it is cheaper. Not because they have some special skillset or raw material the west lacks.

      • 0 avatar
        Kendahl

        Art: From what I hear, it’s more than price and production capacity. Taiwan makes semiconductors that the we cannot. They invested the money and effort to develop that capability. We bought from them because it was cheaper and easier than doing the R&D ourselves. Certainly, we can catch up but it won’t be cheap and it will take a few years.

    • 0 avatar
      28-Cars-Later

      “Taking over Taiwan would give the Chinese a strangle hold over the rest of the world.”

      I agree but they pretty much already have a stranglehold on the world. Taking Taiwan through military force has WW IV written all over it (the Cold War is now considered WW III by many historians). If Beijing is cunning, they will attempt to annex it after a “democratic” referendum in their favor. How they could achieve such political action that I can’t say.

  • avatar
    Dave M.

    So hold off unnecessary vehicle purchases until 2023 is what you’re telling me….

  • avatar
    Jeff S

    Good question. I would say the dealers are going to hold on to any inventory they have including unpopular ones and ask at least MSRP and require a trade in figuring that the market is so tight that someone will buy even an unpopular model out of desperation. I doubt many dealers have manuals in stock and if so maybe 1 or 2 and for sedans Ford dealers have a few Fusions in stock and Chevy dealers a few Malibu but not many. As for hatchbacks some like the Civic there are not many and those would sell. If you are interested check cars.com to see what dealers around you have in stock.

  • avatar
    SCE to AUX

    Q: How Long Are Vehicle Prices Going To Remain Insane?

    A: As long as people keep paying. (Same for the salaries of sports figures.)

    Only a drop in demand – via people delaying purchase – will bring prices down. Most people don’t *have* to buy a car, unless theirs was totaled or something.

    • 0 avatar
      thegamper

      I am buying a used car for my 16 year old in the next month or two. Buying sub $10K vehicle because insurance is so bonkers here in Michigan. Something cheap enough that I wont carry collision coverage on. Not that I would buy new if insurance prices were better, but insurance rates for a 16 year old boy here are roughly $3000-3500 per year for full coverage.

      Anyway, I havent shopped for a used car since I was his age and it is a painful experience. The quality of the vehicle you get for under 10K at most dealerships is worse than I expected and prices are higher than I expected for the vehicles I wanted to buy him. Not sure how much of this is price increase due to pandemic, but its sort of a sad state to see beat up cars selling for close to ten grand. The few private seller cars I have looked at are also pie in the sky prices. Generally people who think their vehicles are worth WAY more than a dealer would pay or simply cannot let it go for less than a certain amount. I will probably buy from a dealer, you can usually get some sort of limited warranty and you dont have to worry about title issues if you stay with reputable businesses.

      The lease on My Accord is up in just over a year, I think I would buy it out vs shop at MSRP or higher in this type of market.

  • avatar
    JMII

    Prices have started to level off or are at least (in my observation) not climbing as rapidly as the last 3 months. I believe buyers have finally come to their senses. Prices are still 20-30% above “normal” so its still a sellers market.

  • avatar
    28-Cars-Later

    That’s the beauty of MSRP and its something GM has excelled at for years (GM’s historic MSRPs were the stuff of comedy legend). Prices have gone up significantly but as an industry they get to say, “no they haven’t look here at the MSRP we put on it” and John Q. Public goes back to sleep.

    I’m not sure when Ford came up with its reasonable MSRP for the Maverick but I’m sure they are kicking themselves for not making it higher. I predict dealers will feast on ADM this fall unless things start to calm down.

  • avatar
    MoDo

    I have a Fiat 500 Abarth, 3 years ago I was only getting trade offers of $12,000. Retail around $14,500. This is a mint, garage queen, 1 owner car, low kms. I could sell it right now for $20,000 if thats any indication on current prices. I also have a souped up V8 4runner I could make a huge profit on too.

    • 0 avatar
      Yankee

      Sell. It. Now. I say this as long-time mechanic who has kept up with new cars and new tech. I really WANTED to like the 500 (and it’s Abarth version), as the former proud owner of a 1981 X1/9 that I barely fit in and used to use for SCCA solo events in addition to being my daily driver in my 20s. But after working on many 500s, the build quality and is just awful, and the reliability non-existent. Get rid of it now and make some cash that you can spend next year when prices hopefully return to normal on something really good.

  • avatar

    I think there are going to be a LOT of cars come onto lots next year as new 2021s, once they get the microchips in order. They’ll be new cars obviously, but surely they’ll command lower prices because they’re old stuff?

    OR will demand be so great it won’t matter, and people will be willing to pay full price for something that’s from last year?

    Either way, this should help subside the pent up demand in 2022.

    • 0 avatar
      theflyersfan

      Ford builds Super Duties, Escapes, Expeditions, and the Lincoln equivalents in Louisville. I have seen two malls with fenced off areas in the parking lot crammed with vehicles waiting for chips. Same with an old ammo testing area just across the river in Indiana. I understand Kentucky Speedway and lots near Florence Mall are filled with Louisville-built vehicles as well.
      I think the Escape plant is idled for another 2 or so weeks, but the Super Duty plant is still building trucks. Once chips become available, one would expect a flood of vehicles on lots.
      This is just one region. One can only imagine what empty fields and mall lots look like all over Michigan, Kansas City, etc.

  • avatar
    Bill Wade

    I was truly lucky. Carvana offered what I paid new for a base 2018 VW Sportwagen. It’s now gone.

    How many people ever sold a VW and broke even after three years?

  • avatar
    Crosley

    I don’t buy into the idea that this inflation that seems to be effecting nearly everything is “transitory”. Somehow housing, lumber, cars and food are exploding in price, (despite having nothing to do with each other) and the people in charge say it’s all about supply chain.

    Inflation will keep going up until some policy changes are enacted.

    • 0 avatar
      dal20402

      Lumber is already coming back down. Housing and cars are both high due to undersupply; the undersupply of cars is temporary, while with housing it’s more structural. We’ve built less housing over the past decade than in any other decade in recent American history, but population growth wasn’t slower. Food isn’t really higher overall, just certain specific items.

      • 0 avatar
        Crosley

        Lots and lots of excuses when nobody wants to point out that Central Banks and the Federal Government are constantly creating “stimulus” and then trying to say the stimulus isn’t actually doing exactly what it was designed to do.

    • 0 avatar
      Scoutdude

      Housing, lumber and cars, well trucks are all related. Rising lumber prices increase the price of new homes and existing homes follow suit. Pickup truck sales track new housing starts. Increasing house prices cause an increase in new housing starts.

      Increasing housing prices also affect demand for cars. As house prices increase existing homeowners feel wealthier and spend more.

      Low interest rates also affect both housing and autos. Lower interest rates mean buyers can afford more for the same payment. For existing homeowners lower interest rates mean refinancing can free up extra cash that can go to other major purchases like cars.

    • 0 avatar
      stuki

      Of course it’s not “transitory.”

      As long as central banks keep redistributing wealth; from productive people, to their favored clique of negative-value-add leeches; by he trillions, in exchange for the latter being too incompetent to produce one whit of anything at all, prices will continue to rise. That’s just basic supply and demand.

      Eventually, prices will come down, since you cannot delay the inevitable forever. Now that pure redistribution is all there is, you will, at some point, as a matter of arithmetic, run out of other people’s money to redistribute to idiots. Hence, demand will eventually fall to “zero”, once supply has been stuck there long enough.

      But only once we have a complete collapse in faith the current monetary redistribution rackets. Until then, simply printing more money, hence redistributing whatever dwindling amount of real wealth is still being created by the hopelessly naive, will keep prices rising in lockstep with the ever rising debt that never has to be paid.

  • avatar
    87 Morgan

    Been a minute since I posted…

    Used values are at or very near their irrational peak, most believe. I also tend to think that the value crash will be reminiscent of the real estate crash in 2008. It will be fast, harsh, and end in tears for many (dealers).

    The repercussions of the past year will be felt for years in retail auto, all of those folks who paid 10k ADMs on Kia’s will learn an expensive lesson. They would have been better off buying a Lexus for the same dollars.

    I walked from a deal on my 05′ C6 that would have paid me more than I paid for the car 3 years ago. I can’t replace it with anything nicer. What a strange long strange trip this past year has been in the automotive market!

    • 0 avatar
      tomLU86

      87 Morgan

      That’s a big “perhaps” they will learn an expensive lesson.

      If you look at car prices in the late 1970s, early 1980s, when I was looking at “cool” used cars for my teen self, the coolest ones, 240Z and 2002 typically sold for close to what they cost new.

      Even lesser car skyrocketed. That $5500-6000 76 Trans Am was a $8000-10,000 by 1979.

      We will be having inflation because there are too many dollars chasing the available goods and services–and the supply of those goods and services seems to be strained, be it chips for various products, or wait staff for restaurants, which will constrain supply.

      It’s a new world now. We hope, I certainly do, that it gets ‘better’ than 2020, but it will be different–on many levels, for several reasons, COVID being the biggest.

      We won’t be going back to Dec 2019.

      We may be going back to 1979 though.

  • avatar
    plee

    I just sold a 2017 VW Jetta se with 28k to Carvana for about $400 less than I paid for it 3 years ago. I did not need it anymore so I jumped at their offer. My son just bought a 2022 Odyssey Elite for sticker even though it required a dealer trade to get color he wanted. I felt that was ok deal considering the tight supply.

  • avatar
    Tirpitz

    I have an almost 7 year old BMW with low miles on it. Before the pandemic Carvana was offering me roughly $10K for it. Then at peak of crazy a month ago they offered $16K. Now here in June they are down to $13K.

    The $16K was tempting but I have to have something to drive and I was going to get taken to the cleaners buying something else. Plus my family likes the car.

    At any rate it seems like things are cooling off at least a little bit on the used car side. I’m sure if you have a late model SUV or truck with low mileage you probably can still get bank but they are no longer handing out crazy money for marginal vehicles.

  • avatar

    We bought the ace of base Jetta S at the end of the lease. The shortage convinced my millenial to learn to drive (gasp) manual. Now he loves it, and the facelift Jetta has IRS as well as the modern 1.4 transaxle, so we are in the process of upgrading to GLI spec where possible. The brakes are on the way, we got some neat red calipers for the drilled discs at a recycler, and he’s going to learn the basic brake job. Next up a set of Bilsteins, and a mild tune 140 hp – 180 hp.

    I’m glad I’m out of the market right now. Drove the VW ID4 and would seriously consider it as a next car, but again, don’t actually need one.

  • avatar
    22_RE_Speedwagon

    Sold one to carvana 2 weeks ago. Looks like they just flipped it for $3700 more than they paid me — they did a nice job cleaning it up though, new bumper covers, refinished the wheels. I must say they were really pleasant to deal with.

    I’m hoping the market cools down again by November when I need a winter car again, that’s the gamble.

  • avatar
    Rover

    The manufacturers have to make cars (and sell them) to make money, so this cannot go on forever. Right now they aren’t making enough to meet demand. They may toy with the idea of keeping production low (and prices high) but then the competition will start producing more to meet the demand…

    All of that is good. I have a 2017 Jeep GC that may have a good trade (or independent sale) value with 50K miles on it, but 2021 Jeep GCs are hard to find. And production of them is phasing out while the “new” GCs start production… my strategy of buying the “last of the old” when the new ones come in has been stymied.

    There are other macro factors to be considered. Gasoline is going up and seems like it always does when that one partys is in power. And interest rates for loans may go up, too. And inflation is starting to take off, which will raise the cost of cars along with everything else. And there is the looming impact of mandatory electric car ownership… The one thing for sure is that the return of higher levels of production will cause used car prices to drop off…

  • avatar
    pb35

    I decided to sell my CTS-V to a broker last week for $4k less than I paid for it new 3 years ago. The broker then auctioned it off at Manheim for $7500 more than they paid me for the car. I can’t imagine what the dealer that purchased it is going to list it for. Crazy times.

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