As Jalopnik’s resident car-buying expert and a professional car shopper, I get emails. Lots of emails. I’ve picked a few of your questions and will try to help out. This week we are discussing whether or not dealers have to pay more to buy cars from the factory and how long we can expect inflated used car prices.
“Just read an article regarding Ford’s recent surprise profit for the latest quarter, driven partially by “increased transaction prices”. I understand many new vehicles are flying off dealer lots at or above MSRP right now, but I assumed any profit during that transaction is going towards the dealer and not the manufacturer.
Do all dealers pay the same price from the manufacturer on a specific car? And if they do, have the manufacturers increased that price to the dealer given the current low inventory situation?”
I spoke with a few sales managers of various brands about this and the dealer invoice (or dealer cost) price that they pay the factory to get the car has not changed. Some dealers reported some additional fees but these were minor. The margin between invoice and MSRP has been pretty much the same. Of course, now that dealers are short on their inventory their willingness to go under MSRP and close to their invoice cost is a lot lower. For many popular cars, units sell at MSRP and sometimes above. This means that dealers are making more profit per unit. However, they are selling fewer cars than they normally do.
Automakers like Ford are making more money on the cars because they aren’t spending money on incentives and rebates to help move inventory. For example, if Ford typically has to put $2,000 in rebates on Explorers to get them off the lot, right now they aren’t.
I was wondering what your thoughts are on how long used car prices will remain inflated. I would think that the current buyers of used and new cars would want to recoup their losses when it comes time to sell. Although people tend to keep cars longer, I would guess that some of these buyers would tend to sell sooner than later. And with the average car ownership being over ten years (depending on your source), wouldn’t you think that inflated car prices could last up to that long? With that, I would think that resale prices would remain extraordinarily high in the next 3-4 years and gradually taper off as the years go by as you reach the ten year mark.
Inflated used car prices are directly relational to a lack of inventory in the new car sphere. IF buyers can’t find a new car they want, they pivot to used and that drives up demand, which drives up prices. Once the microchip shortage has been worked out, and new cars start flowing out of the factory faster, that should create a cooling effect on used car prices. Most analysts predict that by mid-late 2022 the supply chain issues should be worked out.
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