Car sales can be a daunting task even in the best of times. However, thanks to the pandemic and shut-downs worldwide, that task has become even trickier to negotiate. New car lots are alarmingly empty across the U.S., and there is no guarantee an end will be in sight any time soon. The shortage has created a new problem because new car buyers find it even more difficult to negotiate lower prices.
What is MSRP and how it works
MSRP stands for the manufacturer’s suggested retail price. This is the price that the vehicle manufacturer has suggested that the dealer charges for that particular vehicle. MSRP and sticker price are often used interchangeably because the MSRP is listed on the sticker attached to the vehicle.
Just because the sticker says a certain price doesn’t mean that is what a customer will pay. In the car-buying world, negotiations between the dealer and the customer will determine the final price the vehicle is sold for. The MSRP serves as the starting point for negotiations.
Recent events have changed the way car sales haggling happen
The pandemic of 2020 has continued to affect all areas of the economy. Supply chain disruption has affected virtually every market. Currently, there is a semiconductor shortage that affects not only car production but also other markets. For example, the highly coveted PS5 is impossible to find, thanks to the chip shortage. When it is made available, units are scooped up in seconds thanks to bots and resold at three times the purchase price in some cases.
This presents an interesting situation for the car-buying industry. Traditionally, a customer could walk away from negotiations with a good deal, sometimes paying thousands less than the MSRP. Because dealers don’t have as many cars to sell, they find themselves in a unique situation where demand is outpacing supply. According to Marketplace, dealers are now only discounting an average of $515 below MSRP, which is the lowest since 2016.
If you don’t buy it, someone else will
Dealerships have historically used lots of tactics to negotiate more money out of customers’ pockets. Now, they have added one more tool to their game. If you don’t buy it, someone else will. This tactic is called the impending event, and the psychology of this is that people will be more interested in a vehicle that someone else wants or already has.
This tactic is being used more than ever now due to the low inventories in car lots everywhere. This makes negotiating more difficult because there is more demand for vehicles right now than there is supply. This gives dealerships the upper hand when negotiating because they can sometimes have two or three customers interested in the same vehicle. Suddenly, negotiations can turn into a bidding war, which is not ideal when trying to haggle on price.
Used car demand has increased in recent months because of new car shortages, and they are fetching prices beyond the KBB value in most cases. This has made the negotiation process even more difficult for customers because dealers can effectively name their price and realize higher profits for the same vehicle than they could a year ago.
The way that consumers buy new and used vehicles are sure to change drastically in the years to come. Dealerships will need to pivot with the changing tides and operate in a way that will not only be profitable for them but also fair to the consumers.