2021 Car Buying and Maintenance Advice

With 2022 just days away, consumers who are looking for a new car are probably wondering when the market will get back to normal, with an adequate selection and prices at or below the sticker price. Automotive experts say it won’t happen anytime soon.

“It’s impossible to know for sure, but just given the nature of the shortage of chips and the overall supply chain shortages that go beyond chips, it’s probably a safe bet to say that we would be lucky to get back to a satisfactory supply situation in six months, and it might take as long as 12 months,” said Karl Brauer, executive analyst at iseecars.com, in an interview with ConsumerAffairs.

The automotive experts at Edmunds concur. They say 2022 new car sales will probably fall to 15.2 million, not because of a lack of buyers but because of a lack of vehicles. Jessica Caldwell, Edmunds' executive director of insights, says every automaker is at the mercy of their suppliers, especially computer chip manufacturers.

"Sales have been depressed since the spring, but consumer appetite for new vehicles continues to run high, which will only serve to build up deferred demand next year and beyond,” Caldwell said. “In 2022 there won't be a question of how many new vehicles consumers will buy, but how many vehicles automakers can actually produce."

Expect to pay a premium price

All of this means that consumers who purchase a new car in 2022 will pay a premium price. So far, buyers haven’t balked at skyrocketing prices that average around 11% above sticker price, according to Brauer.

Edmunds data reveals that average transaction prices for new vehicles continued to hit record levels in the fourth quarter, climbing to $45,872 in November 2021, compared to $39,984 in November 2020. In many cases, consumers are paying more because they are purchasing higher trim levels with more expensive features.

Experts also predict there will be fewer leased vehicles in 2022, a trend that began this year. With low inventories, dealers won’t be encouraging leases by providing incentives.

Downside to leasing

Savvy consumers may also be less likely to consider a lease in 2022 because the residual value of the vehicle at the end of the lease will be set by today’s inflated values for used cars. It’s difficult to predict where used car prices will be 36 months from now.

"Consumers who are planning on making a vehicle purchase in 2022 must prepare for a much different market and car shopping experience compared to years past," said Ivan Drury, Edmunds' senior manager of insights. 

In short, competition for new vehicles will be fierce as inventory shortages persist. It could cause some buyers to consider an electric vehicle since automakers may be producing more of them in the coming year.

There has been a shortage of new cars since early in the COVID-19 pandemic, leading to a number of interrelated and cascading economic issues. More than a year and a half later, the economy is still trying to cope.

It all started when the U.S. economy abruptly shut down. Assembly plants closed for several weeks in April 2020, and struggled to catch up with demand when they reopened. The increase in demand was a surprise, but, in hindsight, it probably should not have been.

With mass transit shut down and fewer ridesharing options, consumers became more dependent on personal transportation. But supply chain constraints, notably the shortage of computer chips, limited auto production.

When auto plants close or reduce output, it doesn’t just mean that they need fewer workers; it also has an impact on plants that make tires, headlights, and other components. That causes municipalities where these plants are located to lose tax revenue. Some economists believe the effects could linger for years.

“It’s a very meaningful drag on growth and employment,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, told DNYUZ.com.

Fewer bargains

With a limited number of vehicles to produce and sell, automakers are focusing on the most expensive trucks and SUVs that carry a higher profit margin. A consumer on a limited budget who is looking for a compact sedan is being confronted with smaller selections as well as higher prices.

Pamela, of Globe, Ariz., was able to find and purchase a 2022 Nissan Pathfinder, but they haven’t been able to drive it because of paperwork back up at the dealer.

“I took possession of a 2022 Nissan Platinum Pathfinder that I paid cash for on 8/24/21,” Pamela wrote in a ConsumerAffairs review. “To date, Nissan has not sent the MSO to my dealer so that I can get the title in my name. For nine weeks I've had to park my new car, DMV, my insurance, no one shows ownership. I've also had to get two extensions on my temporary plates from the dealer. I'm further insulted to get the Sirus notices saying my free trial is over when I haven't even been able to drive the car.”

Manufacturing economy still growing

Despite these problems, the manufacturing economy is still growing, albeit more slowly. This week, the Institute for Supply Management (ISM) reported that new orders were down 6.9% in October from the previous month. At the same time, the prices that consumers pay are rising. The ISM’s Prices Index registered 85.7%, up 4.5% from the month before.

In its latest report, Cox Automotive found a number of factors in the market that continue to work against consumers. Vehicle prices, both new and used, hit record highs in September and the middle of October. 

Meanwhile, the selection of new cars continues to shrink. New-vehicle inventory dropped below 1 million units, but used-vehicle inventory improved slightly.

Amid shortages of new cars, buyers faced even steeper challenges in September. As a result, new car sales are expected to be sharply lower when the final numbers are in.

In its preliminary estimate, Cox Automotive predicts that sales for the month will be down 8.5% from August and 26% lower than September 2020. In fact, when all the figures are tallied, Cox expects the worst month for new car sales since May 2020, when most of the economy was locked down.

By all accounts, there are plenty of people shopping for a new car or truck. But there are fewer choices as the shortage of new and used vehicles gets worse.

“After a strong spring selling season, the supply situation has worsened precipitously and is dragging sales down with it,” said Cox Automotive Senior Economist Charlie Chesbrough. “The monthly declines have been large – the sales pace has declined by more than a million units in each of the past five months. Available supply on dealer lots is now 58% lower than last September, down nearly 1.4 million units.”

Negative impact on consumers

This is having a negative impact on car buyers in a number of ways. First, there are limited vehicles to choose from. Forget color, you might not be able to find the model and trim level you want.

Buyers lucky enough to find their desired vehicle will have much less leverage negotiating a sale than they might have had before the pandemic. Manufacturers have cut back significantly on incentives because the vehicles are selling without them.

Dealers aren’t just holding to the sticker price; in some cases, they are raising it for vehicles that are popular or in short supply. That’s sending more buyers to the used car market, where prices have also risen and some late model cars and trucks are hard to find.

Still not enough computer chips

Auto industry analysts have not yet forecast an end to vehicle shortages, which are largely caused by a shortage of computer chips and other supply chain issues. That could mean very few vehicles for sale in December, a time when buyers traditionally reap savings with end-of-the-year sales.

An earlier study by Kelley Blue Book found that consumers in the market for a new vehicle are prepared to call off their search for three or more months. That, at least, could alleviate some of the demand pressures.

“With a large portion of the in-market population now saying they plan to delay their purchase given the current market conditions, it will be interesting to see how that could impact the ongoing delicate balance of supply, demand, and pricing across the industry,” said Vanessa Ton, senior industry intelligence manager for Kelley Blue Book.

In the opinion of consumers, new car quality rose at a slower pace last year. According to J.D. Power, the problem wasn’t under the hood -- it was in the dashboard.

J.D. Power’s Initial Quality Survey found that 25% of the problems consumers cited about their new cars involved the infotainment system. Specifically, more consumers were unhappy about how their smartphones connected -- or didn’t connect -- to their vehicle’s system.

“Owners are caught in the middle when vehicle and phone technologies don’t properly connect,” said Dave Sargent, vice president of automotive quality at J.D. Power. “This year there are many examples of smartphone technology not working as intended in new vehicles. With more vehicles being fitted with the wireless technology owners want, the study reveals an increase in connectivity problems between smartphones and vehicles, leaving many owners unhappy.”

M. of Larchmont, N.Y., is one of those unhappy consumers. He tells ConsumerAffairs that the infotainment system in his 2019 Honda has always given him problems.

“When turning on right blinker Apple CarPlay turns off,” he wrote in a ConsumerAffairs post. “Using steering wheel to change display doesn’t work. Constantly lost signal in middle of driving for no reason. Now nothing works on the system. So now the car I bought to have AppleCarPlay and maps does nothing.”

How quality is assessed

J.D. Power bases initial quality estimates on the number of problems experienced per 100 vehicles (PP100) during the first 90 days of ownership. The lower the number, the higher the quality. The industry average of 162 PP100 is only 4 PP100 better than in 2020, with 20 of 32 brands improving their quality from last year.

That’s good, but it would be even better if consumers were happier with the infotainment systems. The survey found that 6 of the top 10 problems across the industry are infotainment-related.

Connectivity has emerged as the major irritant. For the first time since 2011, voice recognition is not the top problem cited by new-vehicle owners. 

Android Auto and Apple CarPlay

Rather, owners increasingly cite issues with Android Auto and Apple CarPlay connectivity, which they claim has gotten significantly worse. Sargent says it’s clear that the industry has not met consumers’ expectations.

“Owners want wireless connectivity, and the industry has responded,” he said. “However, this has created a bigger technical challenge for both automakers and tech companies.

Sargent says both automakers and their technology partners are probably to blame, but consumers generally take out their frustrations on the manufacturers and their dealers. 

“Owners don’t care who’s at fault, they just want their phone and their vehicle to talk to each other,” he said.

With dwindling selections and fewer dealer incentives, consumers spent more to purchase a new car in May. Kelley Blue Book (KBB) estimates that the average transaction price (ATP) for a new car or light truck was $41,263, a $2,125 increase over May 2020.

It was also nearly $500 more than consumers paid for a new car or truck in April. Consumers purchased more trucks and cars with higher trim levels, helping to boost the ATP.

"Last month's average transaction price-performance highlights an all-time high in year-over-year growth for the month of May," said Kayla Reynolds, industry intelligence analyst at Cox Automotive. "Many manufacturers reported year-over-year gains in average transaction prices. The largest increase came from Mitsubishi, up 12% from this time last year."

Mitsubishi is known as one of the more affordable automotive brands, offering a line of compact sedans that are easy on the wallet. In May, consumers purchased more Outlander and Outlander PHEV vehicles, which are Mitsubishi's highest-priced vehicles.

Non-luxury vehicles got more expensive

The rise in automotive spending was not limited to luxury cars. KBB notes that non-luxury cars saw bigger price gains than luxury models.

Standard full-size SUVs and pickup trucks also contributed to the growth among non-luxury segments. The third and fourth highest-priced models within the segment include the GMC Yukon and Yukon XL, which carry an average ATP of $77,031 and $79,695, respectively. Both of those prices are substantially above the industry and segment average.

At the same time, consumers paid less for electric vehicles (EV) than they did a year ago. The ATP for EVs fell 10.8% from 12 months earlier but was slightly higher than April’s average cost. The minivan segment saw the largest overall price gain last month. Its ATP increased by nearly $6,000 over May 2020, and was 2.3% higher than in April 2021.

Fewer sales, higher profits

The vehicle shortage is working in car dealers’ favor. Cox Automotive reports dealer profits will likely end the second quarter at record highs.

“The price pressure index in Q2 dropped to a record low, meaning a majority of dealers are feeling little pressure to lower prices,” the company said in its latest update. “Inventory, on the other hand, continues to be a major concern.”

Cox Automotive Chief Economist Jonathon Smoke says many of May’s automotive sales trends have carried over into this month. He says June’s sales activity appears to be at pre-pandemic levels.

Consumers who have been turned off by higher prices and smaller selections of new cars and trucks are now finding the same situation on the used car lot. The shortage of computer chips that has limited new vehicle production has spurred demand for previously owned vehicles, with supplies falling and prices rising.

Industry sources show that the average price paid for a new vehicle was more than $40,000 in March, and the average paid for a used car or truck hit an all-time high of $25,463 in April. With automakers cutting production because they can’t find enough computer chips, there are fewer new cars in new car showrooms, and dealers aren’t cutting the deals they used to.

At the same time, dealers are struggling to replenish supplies of used cars and trucks. At wholesale auctions, they’re now having to compete with rental car companies that can’t buy enough new cars and are replenishing their fleets with used ones.

The COVID-19 effect

You can blame the whole issue on the coronavirus (COVID-19) pandemic. When the economy shut down a year ago, carmakers canceled their computer chip orders. Because of the long lead-time necessary to produce semiconductors, chipmakers haven’t been able to catch up.

The pandemic also caused Hertz and other rental car companies to sell off vehicles in the face of plunging demand. But now that the economy is reopening, people are traveling again.

“These rental-car companies sold off large chunks of their fleet in order to right-size for rental demand,” David Paris, senior manager at J.D. Power, told the public radio program Marketplace.

Consumers don’t appear to be balking at these higher prices. With stimulus money flowing freely, many families are feeling flush. The online automotive marketplace TrueCar reports that used car and truck sales rose to 3.4 million units in April, a 58% increase year-over-year. That added to the used car squeeze because dealers started the month with declining inventories.

How consumers might benefit

While the situation might appear to pose challenges, Kelley Blue Book (KBB) suggests that there is a way consumers might turn lemons into lemonade. Assuming they can find a new vehicle they like, their trade-in vehicle has never been worth more.

"There has never been a much better time to sell or trade in your car than right now during this strong seller's market," said Matt DeLorenzo, senior managing editor for KBB. "Dealerships are seeking more used-car inventory, and prices are reaching sky high. If you're in a position to sell, it's a great time to command top dollar for your old car.”

While there may be fewer dealer incentives attached to a new car purchase, DeLerenzo says the increased value of your used car will help take some of the sting out of a potentially higher price point. 

The economy was preparing to shut down a year ago as coronavirus (COVID-19) cases surged in the U.S. One industry bracing itself for the worst was the auto industry.

But a year later, it’s clear that the worst-case scenario never occurred, and the industry has spent the last few months trying to keep up with demand. In a report, Cox Automotive found the changes initiated by dealers last year proved highly popular with consumers and are likely here to stay.

Amid shelter-in-place orders, car dealerships were closed to the public. Sales cratered at first, but dealers quickly adapted to allow buyers to shop for a vehicle, negotiate terms, and even schedule a test drive all online.

What’s more, some national used car dealers already had that model in place. The study found what it called a sharp rise in the usage of “New Form Online Retailers,” which include used-vehicle-only sales sites like Carvana and Vroom. 

According to the study, approximately 17 percent of car buyers visited a New Form Online Retailer during their buying process, a significant increase from 11 percent in 2019 and only 7 percent in 2018. 

These retailers allow consumers to shop for a car online and then deliver it to their homes. If there is a trade-in, they take it away when they deliver the purchase. Many consumers who had never tried this before found that they liked it.

Growing role of the internet

Cox Automotives’ Car Buying Journey (CBJ) Study shows that online shopping continues to be a central activity in the car buyer’s journey. In fact, many consumers have long used the internet to research purchase options. Third-party automotive websites are still the number one destination for vehicle shoppers as they enter the process, with up to 79 percent of buyers indicating that they used a third-party site in 2020.

At the same time, the number of dealerships visited and the amount of time spent in them dropped in 2020, but sales held relatively steady. The Cox researchers attribute that to how traditional car dealers adapted to the new realities.

One of the most important steps taken in response to COVID-19 was dealers’ willingness to bring a car to the shopper’s home for a test drive. An estimated 22 percent of buyers said they did not go to a dealer to test drive the vehicle they purchased.

However, of the buyers who took a test drive, approximately 81 percent said they were satisfied with the process, the highest satisfaction rating for any step.

Efficiency led to increased satisfaction

According to the CBJ Study, consumer satisfaction with the car-buying process rose as more dealers used the internet to promote efficiency. “Heavy Digital” buyers – consumers who performed more than half the steps online – were more satisfied with the process than buyers who didn’t use the internet.

“The Cox Automotive Car Buyer Journey Study: Pandemic Edition shows that vehicle buyers in 2020 were more decisive about their purchase, spent less time on the process, and were more satisfied than ever,” said Vanessa Ton, senior manager of Industry Intelligence at Cox Automotive.  

With this level of success during a pandemic that severely limited consumer activity, the researchers say car dealers are likely to keep these new procedures in place, at least for the foreseeable future.

General Motors has committed to producing no gasoline-powered cars by 2030; Ford says it will only sell electric vehicles in Europe by 2035.

You’d think that consumers must be clamoring for electric vehicles if automakers are making such an abrupt pivot from vehicles powered by fossil fuels. But a report by The Wall Street Journal says they aren’t. In fact, the report found that car dealers are concerned that the industry’s sudden embrace of electric vehicles, pushed by government mandates, could result in a radical drop in new car sales.

Brad Sowers, a GM dealer in St. Louis, says he has yet to see any enthusiasm among his customers for electric vehicles. Last year his dealership sold 4,000 Chevrolets, but only nine were the all-electric Chevy Bolt.

“The consumer in the middle of America just isn’t there yet,” Sowers told The Journal. 

‘Concerned for automakers’

Dealers who have to sell the cars that manufacturers turn out don’t seem all that enthusiastic about electric vehicles, despite governments demanding their production.

The government mandates have caused about 180 GM dealers -- about 20 percent -- to decide to drop their Cadillac franchises rather than incurring the cost of the upgrades that GM has required to sell its planned line of electric cars.

“Frankly, we’re concerned for automakers,” said Kristin Kolodge, executive director of driver interaction & human machine interface research at JD Power.

J.D. Power’s 2020 Mobility Confidence Index Study, released in April, flashed a warning sign to the auto industry. It warned that manufacturers are plowing ahead producing cars that, so far at least, most consumers have not asked for.

While it is true that the technology is evolving quickly, the survey found that even consumers who have previously owned an electric vehicle aren’t really interested in buying another one. They cite the lack of charging infrastructure, the cars’ limited driving range per charge, and the purchase price as their main objections.

The researchers also fault the industry for its efforts to educate consumers about electric vehicles. They note that 70 percent of consumers have never ridden in an electric vehicle, and 30 percent know nothing about them.