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WEYMOUTH — At Fred Means’ used car dealership in Weymouth, there’s a problem: there are not enough used cars.
“It’s hard to buy cars,” he said. “I was only able to buy one at the auction today and it’s crazy, because usually there’s good inventory. I probably have six to seven cars on the lot, that’s it.”
His lot should have more than double that – 20 cars – on a normal day.
The same number of resellers are competing for fewer cars at the auctions where dealers buy inventory, driving up prices to the dealers and in turn, the consumers. Means sells cars in good condition that often have high mileage, his niche.
“Those are the hardest cars to buy, because it’s what other dealers want,” he said.
The heart of the problem is a decrease in the supply of new cars, a confluence of pandemic shutdowns and the loss of microchip supply for car manufacturers. Fewer new cars push buyers into the used market, which pushes up prices on both.
Some automakers, such as Toyota, have not been hit quite as hard by the shortages, Toyota of Braintree Sales and Inventory Manager George Saef said.
A trade group that represents automakers said in April that the semiconductor shortage could result in 1.28 million fewer cars built in the U.S. over the next year.
Others, like GM, which owns Cadillac and Chevrolet, had production problems before the pandemic started. A 40-day strike in fall of 2019 paused production, followed by shutdowns at the beginning of the pandemic.
Saef said his dealership only has 39 new cars on the lot as of Tuesday. Usually they have about 400. Another 57 cars are being shipped to the dealership, but those are selling before they even hit the showroom floor.
Normalcy will likely not return to the market until the first part of 2022, Saef said, as the market deals with a slight uptick in demand from people buying cars for the first time to avoid public transportation.
Means said he could buy more inventory at the current high prices, but there is no guarantee that used car prices are going to stay high for the next six months.
“I don’t want to overpay and be stuck with a bunch of cars and, who knows what, maybe the market drops and then I’m stuck with high-priced cars,” he said.
Tracy Chevrolet and Cadillac, in Plymouth, General Manager Paul Barton said, like Means, he fears buying too many used cars at too high a price and end up being stuck with them if manufacturing ramps up.
Kevin Clark, owner of Clark Auto Sales, in Weymouth, said he competes in the same price points as Means and has the same problems.
“The market is definitely upside down,” he said.
There is such little supply that cars at auction are often being sold for their retail price, Clark said.
“Why should I pay retail for something that I can’t even get retail for when I try to sell it,” Clark said.
Sticker shock: Lack of supply, high auction fees shut down negotiations
Many used car dealers said the recent increase in auction fees is cutting into the meager margins they already make when reselling vehicles.
Means said the auction fees have always been high, but auctioneers tacked on surcharges and extra fees during the pandemic, including holding auctions online instead of in person, driving up prices.
“We’re making less and less money and we’re having to charge the consumer more and more,” he said.
A car that sells at auction for $7,500 gets at least an extra $500 tacked on in auction fees. Then Means often has to make repairs to be sure the car is safe, such as brakes or tires, which will push up the price and push down his profit.
“Most people come in and they try to beat me up on the price,” he said. “It used to be there was some wiggle room, but not anymore. I’ve got people coming in, offering me ridiculous things.”
Means said he is making the minimum he can on the cars, but he needs a cashflow in the business to pay for his overhead.
“It kind of sucks because, I have people coming in, looking to buy cars, and they get sticker shock, at something with 146,000 miles, and I go, ‘That’s just how the prices are right now.’ And they shop around and come back and buy a car from me.”
Means said he tells customers to shop around to make sure he isn’t inflating the prices and, most of the time, they come back after realizing that prices are up everywhere.
Clark said the high auction fees hurt the cheap vehicle market, especially for consumers who can’t afford much but need transportation their jobs.
“There’s no money there to do that, to haggle anymore,” Clark said. “With new cars, it’s the same situation, people see the sticker, and that’s what they have to pay because there are no cars.”
At Tracy Chevrolet and Cadillac, in Plymouth, pricing has become more transparent as they stick to the manufacturer suggested retail price, or MSRP. Chevrolet has also dropped its “maze” of manufacturer rebates, often as high as $10,000, making it a lot easier to calculate what the consumer actually pays, Barton said.
“It’s pretty basic right now, as GM has sort of gone down to fixed pricing,” he said.
Saef said supply and demand is dictating the price of new and used cars, which means the sticker price is the real price.
Off-lease and lightly used trucks, SUVs selling for above original cost
Barton said trades are worth a lot more than they used to be as dealers look to increase their used car inventory. Large SUVs and trucks are in especially high demand.
“For a while there, we were acquiring 2018 Silverados for the same price some of them were sold new in 2018, and the fear is, you go to buy them, something shifts, and you’re beat to the punch and now own this car for $10,000 too much,” Barton said.
According to U.S. News and World Report, the original manufacturer price for 2018 Silverados was between $28,300 to $55,600 and the average price range for used models today is $28,000 to $54,700.
Many of the vehicles are being bought by dealers after they come in for service, offering prices for used cars that the owners will likely never see again, Barton said.
One person brought in a truck he thought was worth just $7,000, but was pleasantly surprised to find out its current market value was more than twice that at $15,000, he said.
“Heavy duty trucks, that’s hot. Getting your hands on a 2015 utility body truck or van, that’s like gold,” Barton said.
“We run ads too, for people to sell us cars off the street,” Barton said. “You can’t be afraid to pay for it.”
Tim Good, owner of Good Brothers Dodge Ram in Weymouth, said he has been relying on returning leases for his used-car stock. People returning leased cars now have equity in the vehicles because the used market is so hot.
Barton said he has three pieces of advice for car buyers.
First, if you like a car, then don’t sleep on it. Buy it, because chances are it will be gone tomorrow.
“You’ll be happier with the car you want in your driveway than if it’s in somebody else’s,” he said.
That means if a dealer asks for a deposit, it’s because the car will otherwise be sold to someone else.
Second, don’t expect to negotiate on the price of a new car, as dealers have priced them competitively based on the low supply in the market. However, you do have room to negotiate on trade-ins.
“We aren’t always right in the trade so I’ll ask, ‘What am I missing if we’re $5,000 apart? Did you just do the brakes?'” Barton said.
Finally, if the end of a lease is coming up, don’t wait to reach out to your dealer, especially if you want to get back into a new car.