Shopping for a new car? Prepare for little selection, no negotiation

If you need to buy or lease a new car this year, prepare for little selection and no negotiation on price.

If you can hold off until the end of summer, that might be beneficial, experts say. 

If you can hold off until 2023, that might be best.

Drivers of 3.9 million leased cars that are due this year in the U.S. could be in for a rude awakening as they find themselves looking at empty car lots, prices at or above sticker and lease deals that, in some cases, are much higher than what they're paying now.

Even used cars are in thin supply and priced high.

"Car-shopping consumers in 2022 will find much of the same as they did in 2021, at least early in the year," said Michelle Krebs, executive analyst at Cox Automotive. "The tight chip supply is still causing vehicle inventory shortages. On the plus side, it appears inventory has bottomed out, and supply is moving up, ever so slowly."

Even stalling on a new car carries its own risk. With the Federal Reserve promising to raise interest rates this year and inflation proliferating, the future has potential pitfalls.

Hannah Bullar is dealing with the pros and cons of what to do right now. Her lease on a 2019 Honda Civic is due in May. She and her husband, Jack, started discussing options late last year: Buy it, lease a new car or turn it in? 

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"My husband won’t buy a brand-new car. He works in finance and he views it as a bad investment," said Hannah Bullar, who lives in Cincinnati. 

But when they looked at certified pre-owned cars, the inventory was slim and prices were high, she said. 

The average transaction price for a used car in December was $29,969, a 29% jump from the year earlier period when it was $23,185, according to Edmunds. Even sticker prices on new cars are higher, reports Edmunds: In December, the average transaction price across the industry was $709 above the manufacturer's suggested retail price.

Add to that growing inflation and possible interest rate hikes this year and the Bullars are leaning away from buying a car.

"I don’t think we’re going to go for another lease, either," Hannah Bullar said. "We don’t love the idea of any type of debt. We spoke with our mortgage broker, and a lease is looked at as a debt."

The couple would rather buy a new house and share Jack's 2016 Ford Fusion sedan since he works from home and she has a short 12-minute commute to work.

"Our house has appreciated a lot in value, so we’re trying to hit on that fast and postpone a car purchase," Hannah Bullar said.

There is one other option the couple is considering: The resale price for Hannah's Civic is about $16,000, she said. It would cost her $12,000 to buy out the lease, allowing her to then sell it for a $4,000 profit. 

"And we’d have no car payments," she said.

But some drivers this year won't be able to put off getting another car, especially if they've already gone down to one car in their household or extended their leases to the max in the first two years of the pandemic. 

Their experience at the dealer this year may not be what they expect.

"We should see progress in inventory, but it's not a recovery by any means," said Ivan Drury, senior manager of insights at Edmunds. "For anyone thinking 'I need to go buy something and I want selection,' wait until the end of the year. Any sooner, you’ll find it’s harder to find exactly what you want. If you want a lease deal, wait even later.”

How we got here

The troubles for car buyers started around this time last year when a worldwide shortage of semiconductor chips took hold of the auto industry.

As people increasingly worked from home and kids were home-schooled because of the COVID-19 pandemic, the demand rose for the personal electronics that use the chips. The same chips are used by carmakers for a variety of parts such as heated seats, brakes and the electrical system.

Soon, chipmakers could not keep pace with overall demand, slowing car production worldwide. A forecast 7.7 million fewer vehicles were produced just last year, leading to $210 billion in lost revenue in the global auto industry, according to consulting firm AlixPartners. 

The chip shortage is expected to gradually improve through this year, providing some relief to vehicle production constraints. To help keep production going, some automakers may leave off features that require chips, such as heated seats or heated mirrors, or they will retrofit the car once the part is available, said Dan Hearsch, a managing director in the automotive and industrial practice at AlixPartners.

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"You’ll see some simplification of your options in order to keep the plants running because it’s better to make fewer types of vehicles than fewer vehicles," Hearsch said. 

Unlike last year, few automakers have announced planned shutdowns of production this year because of the lack of chips, so “it looks good right now," said Sam Fiorani, vice president of Global Vehicle Forecasting for AutoForecast Solutions. "The problem is that the inventory is so low at the moment, that it’ll take a long time to catch up and fill in the lots and provide enough inventory that buyers have a choice." 

Dealers today

At Matick Chevrolet in suburban Detroit, more cars are in stock today than there were late last year, when it had to fill the new-car showroom with used cars.

But the empty spaces in the new-car lot at the dealership does not deter shoppers because demand remains strong.

When the carrier arrives at Matick Chevrolet, many of the new cars on it have been sold in preorders, said Paul Zimmermann, partner in Matick Automotive.

Still, inventory challenges will continue through the middle of this year, Zimmermann said. He said he could sell more vehicles if he had more in stock. Matick does not charge over sticker price, and it honors corporate discount programs even as some dealers across the nation stopped accepting them last year. 

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A bright note in all this is that used car values in December were up dramatically compared with the year-ago period and “have never been higher," Zimmermann said. "So a customer that has equity in that trade-in, that would outweigh new-car pricing."

According to Edmunds, the average nationwide trade-in price in December was $23,763 compared with $16,216 in December 2020, a 47% boost. 

The best thing a car buyer can do is research what is available and plan ahead if a lease is coming due, Zimmermann said. Then, stay in constant communication with dealers.

“The market’s probably changed forever," Zimmermann said. "There’ll be more of a shift to thinking ahead and ordering a vehicle the way you want it and considering the transaction months ahead of time rather than days.”

That's exactly what sales staff at Golling Toyota in Warren, Michigan, have seen since its inventory started to dwindle last year, said Melissa Tomassi, new-car sales manager at Golling Toyota.

“More things are done now by appointment than by walk-in,” Tomassi said. "That allows us to set up the customer properly and set the expected day for delivery.”

Many car buyers now preorder and expect to not get everything they want.

“We’ve gotten away from asking for one specific color – we ask for a range,” Tomassi said. “So if someone wants a 2022 RAV4, we ask, 'What are your top three colors, and what are the key accessories you must have?' ”

The dealership can usually meet most of the customer's wish list. Still, Tomassi said, “I found our customers are a lot happier buying cars this way as opposed to buying what’s on the lot.” 

That’s because 60% of Golling Toyota’s customers are coming off leases and want to stay with the brand, she said. They already know what they like and don’t need to test-drive the next car they lease or buy; they just order.

In early January, she said, the dealership had 25 preorders from December that had not yet been matched to vehicles. She estimates it will be the end of the year before the industry has normal levels of inventory.

“I don’t know if I ever want to get back to the 90-day turn," Tomassi said. "If we get to maybe 40 cars on the ground – to have cars for those who need it – but there’s no need to have 120 units on the ground anymore.”

► Watch and learn: Toyota's chip management provides lessons for GM, Ford and others

Expert car-buy tips

Low inventory means car buyers will have to be flexible, creative and patient, experts say. In December, new vehicle inventory was about 1.5 million units behind inventory levels in 2020 and 2.5 million behind 2019, Cox's Krebs said.

Cox expects there will be 1 million more vehicles sold this year compared with 2021, when the industry sold approximately 14.9 million.

But with tight inventories and high prices, car buyers "will have to keep employing some of the same tactics they did in 2021 to nab a car in 2022," Krebs said. 

Here the tips Krebs offers car buyers:

• Consider timing: Can you wait until inventory improves?
• Be flexible and consider many makes/models, body styles and features.
• Prioritize what is a must-have.
• Expand your search across a wider geographic region.
• Be prepared to pay full sticker price or more.
• Check your credit score and shop around for the best interest rate before going to the dealership so you can compare it against the rate the dealer offers. 
• Consider ordering a vehicle and waiting if you want exact specifications.
• Put down a deposit so you can nab a new car off the car hauler.
• Consider used. Supply is improving faster in used vehicles than in new, but prices are still high.
• If you have a lease vehicle, your options are: Extend the lease with the approval of the lender and/or buy out at the lease price, which is a bargain in today’s used-vehicle price environment. You can keep it or sell at a profit.

The automakers do offer consumers some options, too.

In June 2021, GM adopted a policy requiring its leases be returned to GM dealers to ensure those dealerships have priority access to the vehicles, said GM spokesman Sabin Blake. He said this policy helps customers find certified pre-owned GM cars at their local dealerships. 

GM Financial offers a temporary lease extension program that allows customers to extend a vehicle lease up to six months automatically, with the option to extend an additional 12 months if they're waiting on delivery of a new GM vehicle.

Ford Motor also offers a lease extension for lessees while they wait for a new Ford or Lincoln vehicle, said Ford spokeswoman Margaret Mellott. Customers can keep their current vehicle until the one they ordered arrives or until they select a new one.

"Lessees who are registered in our Account Manager system can complete their lease extension online," Mellott said. But for customers who want to discuss lease options, they can call 1-800-727-7000.

Ford also has an incentive program available until April 4 that offers special financing rates or cash back on purchase or lease orders on the 2022 Ford Mustang, Bronco Sport, EcoSport, Escape, Edge, Explorer, Expedition, Ranger, Transit Connect and F-150 pickup, Mellott said.

Earlier this month, Ford also warned its dealers to not upsell customers reservations for the upcoming F-150 Lightning electric pickup.  

For those driving Chrysler, Dodge, Jeep or Ram vehicles, Stellantis has been in close contact throughout the pandemic and chip shortage with its key financial lenders that manage its lease portfolio, said U.S. head of sales Jeff Kommor. 

"Each of these lenders have processes in place to work with our customers whose leases are getting ready to mature, including the ability to extend lease agreements while the customer waits for a new vehicle to become available," Kommor said. "We have also initiated several customer communication efforts to deliver this message, including targeted incentive offers for our returning lessees."

And some analysts speculate that an interest rate hike from the Fed might prompt automakers' financial arms to offer low-to-0% financing deals to preserve customer loyalty or win new customers. 

'Sign of the times'

Car shopper Zun-Jay Hou is one of those buyers who has opted to accept some of the realities of car buying today ... and reject others.

About two weeks ago, Hou, who lives in Cameron Park, California, decided to buy a new car. His 2012 Honda Odyssey has 190,000 miles on it, and even though it could go another 100,000, it needs a couple thousand dollars in maintenance work. 

"So rather than abuse it, I’ll pay to fix it and give it to my mom," Hou said.

He has been shopping for a new Honda or a Subaru. He went to both brands' dealers, where he said the lots were nearly empty and the showrooms bare. 

"It was weird because I’m used to walking into a showroom and seeing everything new and shiny," Hou said. "Everything is outside and kind of grimy.”

After test-driving a few vehicles at each dealership, he said, he is going to order a Subaru Forester next month. He liked how it drove and liked that the Subaru dealer is not charging above sticker. 

"At Honda they wanted $5,000 over MSPR for the Ridgeline," Hou said, noting there were two Ridgelines on the lot and a "handful" of other cars. "That’s a nonstarter. I’m not going to pay $5,000 over for that car."

But he is prepared to wait for a Forester, hoping to get it in white or silver. And Hou has accepted paying sticker. 

“I’m OK with MSRP, partially because it’s the sign of the times," Hou said. 

Contact Jamie L. LaReau at 313-222-2149 or jlareau@freepress.com. Follow her on Twitter @jlareauan. Read more on General Motors and sign up for our autos newsletter. Become a subscriber.