By Jack Boggs/ New Mexico News Port
New Mexicans are paying more for new and used cars as dealers take advantage of high demand and low supply.
Santa Fean Noah Jones said it took him a year of searching to find the truck he wanted at a reasonable price. First, he tried looking for one used.
“People on Craigslist are charging $10,000 to $15,000 for a 5-year-old truck with 200,000 miles on it,” Jones said.
The only reason he considered buying from a dealership was because he knew a guy who worked as a salesman at one. In the end, Jones bought a 2022 four-cylinder Toyota Tacoma pickup for $28,000.
Jones was able to talk his buddy down from $31,000, but he still paid $1,000 over the manufacturer’s suggested retail price. Not every buyer is that lucky.
In February 2022, 82% of new car buyers paid over MSRP for a new car, according to data collected by Edmunds. That’s a big leap from 2021, when only 2.8% of buyers paid more than the manufacturer’s suggested retail price.
And it’s not just new cars. Used car prices have risen 45.5% compared to last year, according to the U.S. Bureau of Labor Statistics.
Now that demand is high but inventory remains low, dealers have found a new way to make money.
“An addendum can be the price of an accessory to the vehicle, or it can simply be additional profit to the dealership,” said Jason Bass, the owner of Honda/Subaru of Santa Fe.
The $1,000 Jones paid above MSRP was an addendum, an extra amount many people are paying just for the privilege of buying a new car.
Materials that go into making a car are scarce, and the demand for these limited materials are incredibly high, Bass said.
According to the United States Department of Commerce, the demand for microchips in 2021 was 17% higher than in 2019. The microchip shortage is just one knot of many in our supply chain still recovering from the pandemic.
The combination of labor shortages and low demand for new vehicles caused manufacturers to produce fewer cars. Now that the pandemic is easing, production has not been able to meet demand.
The unemployment rate rose to 3.7% in August of 2022 according to the Bureau of Labor Statistics, in August, 1.9 million persons reported that they had been unable to work because their employer closed or lost business due to the pandemic. “At every step of the way, it is way slower than it has ever been,” Bass said.
Car companies ship their new cars by train. Once the train arrives at the railyard, the BNSF workers are supposed to place the cars on trucks, and ship them to each dealership, but a shortage of railroad workers has limited shipping.
Manufacturers have to pay a heavy fee to get their cars off the train and to the dealership, Bass said. But that doesn’t mean profits are down.
In fact, dealer profits have risen 65% on new cars, and 36% on used cars, according to the National Automobile Dealer’s Association.
And customers may not find relief anytime soon.
“I don’t know if we are ever going to see, in the next three or four years, dealerships with 2,000 cars on the ground,” Bass said.
