Since the global outbreak of COVID in early 2020, the world has been turned upside down in many ways. And the auto industry has not been immune to COVID's effects.
The automotive supply chain has been drastically impacted due to COVID, the result of which has greatly reduced the amount of new vehicles available in the market. With car buyer demand unabated and less new vehicles in the market, prices have gone up across the board on the remaining vehicles available to buy, both new and used.
This December I helped a client in Maryland who was looking for a mid-sized hybrid SUV. After exploring a wide variety of different models, we landed on a Toyota Highlander Hybrid as the best combination of size, quality, ride and fuel economy.
As we reviewed the desired options, colors and overall spending budget targets, I began my search. My business was founded on - in addition to trying to treat clients right and make the car buying experience enjoyable for them - finding a great price-to-value (or P2V) for my clients in the used car market. So I began my search there: looking for 1-3 year old cars that had low miles, a clean title, etc., as I looked for a gem of a used hybrid SUV with a great P2V. And then something truly unique happened along the way...
Buying New Turned Out to Be a Better Deal
I went searching through a dozen or so digital sites when I do car searches for my clients, and I began looking at certified pre-owned Highlander Hybrid XLEs, built in year 2018 or newer. Given my client had a sense of urgency to get their vehicle, we kept the search to within 150 miles of them so that we could avoid the need for a third party shipper which would extend the timetable for them to be able to get their vehicle. To give some perspective, we were targeting a budget of $35-40K. And a new 2021 Highlander Hybrid XLE is going for $44-45K.
I reviewed the available inventory within that 150 miles of my clients location, with a focus on 2018 and 2019 XLEs with the miles/condition we wanted. To shed some more light on the situation, the Toyota Highlander Hybrid was completely redesigned in 2020, thus buying a 2018 or 2019 was already going to be an older body style. Pre-COVID, this would generally prove to provide a good-to-great price discount for a discerning car buyer who was comfortable buying a late model vehicle in great condition but that was not in the 'latest and greatest' body style. But in this COVID market? Not so much. Those 2018s and 2019s, with anywhere from 15K to upwards of 39K+ miles, were going anywhere from low-to-mid $40Ks, and in some instances the HIGH $40Ks. In expanding the search outside the 150 mile radius to see if there was any price difference, I found that these same higher-than-new prices were occurring all across the country. And a 2020 or newer? They were starting in the mid $40Ks and escalating all the way up to the low $50Ks, with some vehicles having 30K-40K+ miles on them.
So for the first time since I've been in business, I formally recommended to my client that buying NEW would be a better deal for them vs. buying used! And while they would ultimately have to spend a little more than their original budget, they would be getting the benefit of a brand new car, with next-to-no miles on it, in pristine condition, as well as a new car warranty. Toyota Highlanders have always had great resale value - even before COVID. And clearly in the current COVID market their used prices are going for MORE than the original MSRP of the same vehicle that was purchased new (BTW, this is not a phenomenon germane to only Toyota, I have born witness to other vehicle brands where this same situation is occurring in the COVID car markets).
Finding a Needle in a Haystack: The Hunt for a New Car You Want in a COVID Car Market
So I began the search with my client on 2021 Toyota Highlander Hybrid SUVs in the local area. For a car buyer willing to buy a new car, on the lot, with a few color options they would be satisfied with, and willing to pay MSRP, you would think that should be pretty easy to do, right? Not so much.
My client and I both began calling local Toyota dealers to try and find a new Highlander
Hybrid XLE. My client lives in Maryland, so we called dealers in MD, VA and PA, all within the 150 mile radius. And how were we received? Mostly with a mix of apathy and/or curtness across the dozen or so dealers we called, with a few exceptions. The question of "I see you have a 2021 Toyota Highlander Hybrid XLE on your website and I wanted to see if it was still available?" was met with one of a few responses: "It's already sold" or "All the inventory on our website is pre-sold before it even gets here" or "That car is 'in transit' which means it's not here and may not even be built yet". To top it off, most of the salespeople we spoke with did not even offer to take our name or call us back if they happen to get more inventory. In pre-COVID days, this type of experience by calling a dealer would be unthinkable. But given how lopsided the markets are - there are WAY more car buyers out there than available inventory - it stands to reason that it must be tough for dealers today as they have to deliver more bad news than good for customers who want to buy cars!
"What's Our Negotiating Leverage on a Scale of 1-10, and 10 Being a lot of Leverage?"
My client asked me this question, which is a fair and good question when one is about to make the second largest purchase decision (first being a home) in most people's lives.
And to this question I answered "Negative 4 (-4)", meaning we have little-to-no negotiating leverage whatsoever when we are buying a car in a time crunch when car inventory is as historically low as it currently is. I, as likely most of the automotive world, has never seen a market like this: it is clearly a seller's market. Thus I followed up the "-4" statement with "we'd be in good shape if we a) find the car we want and b) pay standard MSRP with no markup." No sooner did I say this via text exchange that my client calls me to inform me that, the last dealer he spoke with had an XLE Bronze, with MSRP of $47K, and the out the door price for it was $65K (yes, that is not a misprint, $65K!). My client told me that the dealer said there was a "20% markup on the car because of low inventory as well as $9K in dealer/tax/tag/title fees". My client asked me whether there was any way I would find that reasonable deal, to which I emphatically replied "No!". Having purchased cars for clients ranging from Range Rovers to Porsches to Mercedes Benzs, there is never a time where, sales tax aside, dealer fees of $6-7K is 'normal', particularly when there are no aftermarket products/services being provided for that price, let alone the markup OVER MSRP!
We Found the Needle in the Haystack: The Fitz Way!
I wound up tracking down a 2022 Hybrid XLE Bronze edition, with a color combination my client was looking for, at a local Maryland dealer, Fitzgerald Toyota, located in Gaithersburg, which was within 50 miles of my client's home.
When I first called to check on the car, the salesperson thought it was not available. After double checking, he found out that the car had just come in the night before and was in pre-delivery inspection, so it hadn't yet been formally released in inventory. Upon confirming that the vehicle was not already spoken for, I wanted to confirm the price and dealer fees, to which the salesperson shared "we are selling it at MSRP with $499 dealer processing fees, we don't play games like other dealers do." Upon hearing that pleasant news, I promptly called my client to share the find and setup a time where they could go look at the car. We got the deal done later that day at the dealer, and the entire team at Fitzgerald Toyota were great: they turned around the paperwork quickly, provided great financing, and offered to personally drive the vehicle straight to my client's house that evening once it went through final dealer prep. Hats off to Fitzgerald Toyota for treating my clients like gold and offering fair and reasonable pricing, especially in these extraordinary times.
What to Expect of the COVID Car Market Ahead
We're certainly not out of the woods yet in terms of low new car inventory. And while I don't have a crystal ball, I would expect the world to continue to experience low new car inventory for at least the next 6-9 months.
For anyone in the market for a new or used car, my best advice would be to check out the prevailing car prices on new vs. used before you decide on making your decision in terms of which direction to go. And as always, KKAB would be more than willing to help. Contact us to start a conversation today.