If you were unfortunate enough to be in the market to buy a new or used car this year, you likely faced a level of frustration and sticker shock never before experienced. Here is a roundup of the major trends that made the 2022 car market the worst in our lifetime.
Automakers are dependent upon a global supply chain for parts and components. The primary pinch-point was that the car manufacturers could not get enough semiconductors (microchips) to complete the production process. Modern cars are complicated and various systems run on a substantial amount of computing power. Without those chips, you can’t make a car.
This created a situation where some brands either throttled back production or, in some cases, shut down factories altogether until they had enough components to make cars. Local dealer lots start looking like ghost towns when the factories can’t make enough vehicles. Shoppers looking for their preferred model would often find listings that claimed that car was available, only to find out later that most of those advertised units are pre-sold.
When there is not enough supply, but still plenty of demand, this creates a situation that becomes really unfavorable to consumers.
Markups Across the Board
When it comes to limited-production sports cars or a hot new model like the Bronco, dealer markups over MSRP are expected to a certain extent. But buyers looking for “regular” cars like Honda Civics and Toyota RAV4s were finding that a deal at “MSRP” is rare and paying a premium was often expected. According to data from Edmunds, 82 percent of new car buyers paid over the sticker price.
It wasn’t just popular cars that got the markup treatment. Even budget models like Nissan Versas were subjected to addenda upwards of 30 percent over MSRP. Automakers are noticing that buyers are getting sour on certain brands when faced with premiums and are going elsewhere. But other than some internal memos sent to dealerships, the manufacturers don’t really want to take any steps to solve the problem.
Of course, those buyers that are looking for a new car and have the luxury of time to wait on an order or dealer allocation can often avoid the premiums, but they better be real patient.
Missing Options and Delivery Delays
Once the cars eventually got made, some brands removed options because they couldn’t get the components for them. There was a time when if you wanted a BMW with a heads-up display or upgraded audio system, you were out of luck. Mazda is still building higher-trim cars without a power rear tailgate. So not only were consumers paying more, they were getting less.
If you ordered your car, you probably didn’t get it when you thought you would. Dealers and automakers had a backlog of orders. I had a number of my own clients who were quoted 4-6 months for an order and ended up waiting a year or more to finally get their car. For those buyers, the long wait was worth it to avoid the market premiums, but many buyers don’t have that kind of lead time and need something now. That often meant the minefield of the used-car market.
Record High Used-Car Prices
With new-car inventory slashed, that meant that buyers looking for an immediate purchase often had to pivot to the used-car market. What buyers found is that lightly-used popular models were retailing for almost the original list price and that anyone shopping on the low end of the market saw huge jumps in cost.
There were some segments where used car deals could be scored, but that usually meant spending some significant cash on a depreciated luxury car or a funky five-door fastback.
The key for folks shopping in the pre-owned segment was to be flexible, examine comparable listings, and act fast. While there are some indicators that the used-car market is cooling, until new-car inventory gets closer to “normal” levels, don’t expect a big drop in pre-owned prices.
Now, you might be thinking that a short-term option could be the way to go given the difficulties of the current market, but that approach is not the best one.
Some buyers were looking at the car market the same way they were looking at the housing market. With sky-high purchase prices, many folks were finding that renting a living space was the better path. But this doesn’t translate to the auto sector where leasing (essentially renting) often didn’t offer the monthly savings that it normally does.
The combination of markups, high interest rates (money factors), and a lack of rebates all came together for a perfect storm of bonkers lease payments. In some cases, the lease payment was more expensive than the finance payment. Buyers looking to turn in their leases and even replicate the same payment on the same car were often quoted over $100 more per month. More often than not it’s smarter to buy than lease.
Of course, the big question is: Will buyers see lower prices in 2023? There are some signs that consumers are opting out of the market. Sales of giant bows for cars are down, for those maniacs that make a major holiday purchase without consulting their loved ones. And depending on how you view the economy, a recession is either looming or currently in place. We could see some relief next year, but I wouldn’t count on the days of “killer deals” coming back anytime soon.
Tom McParland is a contributing writer for Jalopnik and runs AutomatchConsulting.com. He takes the hassle out of buying or leasing a car. Got a car buying question? Send it to Tom@AutomatchConsulting.com