Tips for Buying a Car in 2022
Over the past couple of years, supply chain issues have caused car prices to rise to ridiculous heights. If you haven't kept up with the market, you'll be in for a shock. Average new car prices have increased 30% while used cars have shot up 40%. Buying a new car at MSRP is now considered "getting a good deal".
In this article, I'll give you an overview of the current state of car buying in 2022, what to expect in the future, and how you can maximize savings even if you're forced to buy now.
The Good News and Bad News
Good News: The negotiation strategies I teach on my site still work. However, the bad news is the price floor on cars has gone up several thousand dollars. Before the supply chain crises, most new cars could be negotiated well below MSRP, whereas most cars today sell at or above MSRP.
What hasn't changed is the discrepancies that different dealers charge for the same vehicles. If anything, it's even more important to use my negotiation strategies now because so many dealers have a care-free attitude with consumers today, they don't care if you don't buy from them because they know the next guy will.
For the most popular vehicles such as the Ford Bronco, some dealers are charging $30,000 above MSRP, while others are willing to sell them at $4,000 above MSRP, that's a $26,000 difference depending on which dealer you purchase from. We have no control over the price floor of cars, but we do have control over which dealers we choose to work with.
What to Expect When Buying a New Car Today
First of all, expect lots of frustration. Many dealers are making record profits right now, a lot of sales people have gotten lazy, won't return calls or emails, and will laugh at you if you try to negotiate below MSRP.
You will be seeing excessive addons and dealer markups on just about every vehicle. Online pricing information is a joke right now, it's difficult to get a straight answer or find accurate information. Case in point, I did a search on a popular model - Kia Telluride, on CarGurus. Here's the type of frustrating information you will run into:
When you click on this classifieds listing and go to the dealer's web site, the dealer shows a "List Price" of $42,720. This is meant to confuse buyers by making them think it's the MSRP when in fact it's just a made up number by the dealer. This is where CarGurus gets the wrong MSRP from. Finally, as if that's not bad enough, there's a disclaimer on the dealer site saying their price includes rebates you likely do not qualify for. In this particular case, there's a $400 Military rebate that is factored into the "discount price" When I called this dealer to find out the real price, they said the car was already sold.
The inventory numbers you will find online for the more popular vehicles are pretty much all wrong, most of the vehicles are already sold or have a buyer lined up already. Basically, when you see vehicles listed on a dealer site, that doesn't mean it's actually available for sale. Most dealers use software that automatically populate their web site whenever they get a vehicle from the manufacturer, but this software doesn't know if the vehicle has already been purchased, which leads to a lot of "false" advertising in my opinion.
Another frustrating thing you will run into is that hardly any dealers are participating in special manufacturer advertised lease deals and other promotions. You may see a fantastic lease deal being advertised, but when you call a dealer to see if you can get the deal, they either don't have any of the vehicles or they are not participating in the manufacturer promotion.
Should I do a Custom Factory Order to Get the Best Deal?
A common question right now is whether you can get a better deal if you do a custom order and wait a few months. It's true you can probably get a slightly better deal this way, but don't expect to pay less than MSRP for any popular vehicle, and expect waits of around 3 to 9 months. Custom ordering is more about getting the colors/options you prefer rather than a stellar deal.
First thing to realize: Most manufacturers don't do custom factory orders. Instead, you have to find a dealer that will get a vehicle allocated that meets your specifications. It depends on whether the dealer you're working with can snag it from either another dealer (unlikely in this environment) or get it allocated into their inventory when it becomes available in their region.
It helps to work with a high volume dealer as allocations are determined by the number of vehicles dealers sell, and it matters if they sell a lot of the particular model you're interested in. The complexity of allocations varies by manufacturer, but basically each dealer is allocated a certain number of vehicles each month, and dealers can try to influence the options/colors of the vehicles they're allocated. However, for more popular vehicles, dealers are just happy with whatever they can get, and right now dealers are not being allocated enough vehicles to meet their local demand. It's a big balancing act for each dealer.
Expect to wait 3 to 6 months for an exact trim/color combination and to pay around MSRP for most popular vehicles at this time. Also keep in mind you will get whatever incentives or rebates are at the time of delivery, not when you order.
Some manufacturers such as Ford, Chrysler, GM allow factory orders. The process has become more complex in the last couple of years due to the increased demand in custom orders. Manufacturers can penalize dealerships when the customer doesn't end up purchasing the car when delivered, so for this reason expect to fill out detailed agreements and pay sizable down payments for custom factory orders.
Manufacturers have all kinds of supply chain issues right now, and your custom factory order can be delayed if you have options on your order that are restricted. If you don't remove these options, your order may take many more months than expected. Ask your salesperson if any of the options you choose are on a restricted list.
I Have a Lease Ending Soon, How Do I Take Advantage of the Equity?
If you leased a car 3 years ago and it's time to turn it back in, you're in a lucky situation since the car is likely worth more than the buyout price on the lease agreement. Many people in this situation are finding they can pocket a few thousand dollars this way.
The easiest thing to do would be to have the leasing company sell the car directly to a 3rd party such as Carvana, CarMax, or a dealer, eliminating any tax consequences and problems that may come up if you were to buy the car, then turn around and sell it yourself. The 3rd party in this case would either issue you a check for the price difference or give you a credit on a vehicle if you buy through them.
Right now, Chrysler, Mazda, Mercedes, Mitsubishi, Toyota and Volkswagen don't have any significant restrictions on 3rd party off-lease buybacks. Unfortunately, a lot of the other manufacturers are trying to prevent you from profiting using this method. Here are the manufacturers that DO NOT allow you sell directly to a 3rd party:
If you are not allowed to sell to a 3rd party directly, your other option is to buy the vehicle and sell it yourself to a private party or dealer. Some states such as California have 7-10 day exemptions on taxes if you buy and sell the car within this timeframe. It's risky if you don't have a trusted buyer lined up already. In some cases, the equity in the lease is so large that it's even worth paying taxes.
One last thing you need to be aware of. Dealers have started taking advantage of lease buyouts by charging ridiculous inspection fees. Read my article on this topic for more information and to be aware of these potentially high fees.
When Will Things Go Back to "Normal"?
Nobody really knows. However one thing is for sure: used car prices will start coming back down before new car prices will go down.
If you aks new car dealers, they're saying they see no end in sight right now. However, if you look at the used car market, there are signs that inventory is starting to increase on dealer lots and at auctions, and prices have at least stabilized and even started to head back down in some regions. Banks have started increasing the interest rate they charge dealers and limiting the amount of loans they give dealers, which puts pressure on them to sell inventory quicker. These are all good signs for used car buyers.
I would say best case, we will see a noticable decrease in new car prices by this fall. Worst case, this market will go on for another 2 to 3 years which is about the time it's going to take for new chip fabrication plants to reach volume production.
General TipsHere are the main things you need to do if you are going to buy a new car in this 2022:
- Try to work with High Volume Dealers
- Be extremely flexible with options, packages and colors
- Online listings and pricing information has become nearly worthless, realize that many vehicles are not in stock or already accounted for
- Watch out for fine print and price disclaimers. Dealers are trying to get away with all kinds of things now.
- Advertised lease deals have very limited availability and many won't be honored.
- Your Phone is going to be your best friend. Expect to make lots of calls and talk to many different dealers to get a deal.
Each week, I'll keep you up-to-date on the latest car deals and news that might affect your purchase. This includes...
- Best Rebates, Incentives, and Lease Deals
- Latest Car Buying Scams and Tricks
- The Best & Worst Time to Buy a Car
- Which Cars You Should Avoid