By Paul A. Eisenstein —
NBC News
Consumers have a choice of culprits: the COVID-19 pandemic, the semiconductor shortage, the blockades at the Canadian border, the fire aboard a ship full of Volkswagens and Porsches, or all of the above.
The truth is that America's new car yards are unusually empty.
And that means manufacturers and distributors have dropped the discounts and incentives they normally use to lure customers into showrooms.
Indeed price gouging is the new norm.
More than 80% of new-vehicle buyers paid more than the factory suggested price in January,
a 30-fold increase from last year,
according to a recent analysis by Edmunds.
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“Think back two years,” said Dave Gardner, Honda's executive vice president of US operations.
“When did you hear that cars were being sold at MSRP (manufacturer's suggested retail price)?
Now that is the beginning of the negotiation.”
The automotive retail sector has seen a sea change since the pandemic hit.
In the spring of 2020, the North American vehicle manufacturing network closed for three months.
Initially, that didn't seem like a big deal because hardly anyone was buying new cars while the country was in lockdown.
But demand recovered much faster than expected as dealers began taking orders online and delivering vehicles to buyers' homes.
Workers inspect a Titan pickup at a Nissan plant in Canton, Mississippi.
The plant will be converted into a manufacturing center for electric vehicles in 2025, the company announced.Rogelio V. Solis / AP
Once the plants reopened, manufacturers began working overtime.
Then they were hit by unexpected shortages of the semiconductors used in modern vehicles.
According to research by AlixPartners, global vehicle production fell 10 million below initial forecasts in 2021, with automakers losing around $210 billion in sales.
Currently, American dealers have just shy of 1 million vehicles in their yards, less than a third of what would be normal for this time of year.
However, General Motors, Ford and other automakers reported solid earnings for 2021, as did key dealers like AutoNation.
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With the scarcity of new cars,
the market is now for sellers.
Rebates, low-interest financing, and other industry-standard incentives for the past four decades have all but disappeared, especially on popular models.
Dealers are making price "adjustments" that can exceed $10,000 on vehicles like Ford's new Bronco, Chevrolet Corvette and even the Kia Telluride.
"The fact that an overwhelming majority of consumers pay above the suggested price would have been unthinkable even just a year ago," said Jessica Caldwell, executive director of insights at Edmunds.
Yet that is precisely what the firm found in its market study.
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Analyzing sales reports for January, Edmunds found that 82.2% of buyers paid, on average, $728 above the manufacturer's suggested price.
Only 2.8% of buyers paid more than the sticker price in January 2021, and only 0.3% did so in the same month in 2020.
The increase was "driven in part by wealthy consumers who are willing to shell out more cash to get the vehicles they want," Caldwell said, "but there's also a large population of people who are forced to simply because they need transportation and don't They have another option,” he added.
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Last month only six brands saw average selling prices below the suggested price: Alfa Romeo, BMW, Lincoln, Mini, Ram and Volvo.
At the other extreme, Cadillac dealers raised prices the most, $4,048 on average, according to Edmunds.
Luxury car dealers weren't the only ones taking advantage of low inventory.
Kia customers paid, on average, $2,289 above MSRP last month.
The lack of discounts and the increase in the profit margin of dealers hit buyers.
The average cost of a new car transaction, the amount a person actually pays before getting behind the wheel, hit a record $47,243 in December, according to Kelly Blue Book.
That figure fell 1.8% in January to $46,404, but was driven mainly by lower luxury car sales, Kelly Blue Book reported.
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The increase in dealer profits has generated negative reactions from consumers.
Caldwell cautioned that buyers have long memories and may switch brands the next time they replace their vehicles.
That's why a number of automakers, notably Ford and General Motors, are pressuring dealers to keep the MSRP.
The problem they face is that state franchise laws limit a manufacturer's ability to control what a dealer charges.
But manufacturers are not completely helpless.
For example, Ford CEO Jim Farley said dealers that insist on charging more than the suggested price could have a hard time getting the vehicles they want from the factory.
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Still, buyers shouldn't hope to return to the days when they could expect high incentives and demand discounts from dealers.
In recent months, General Motors CEO Mary Barra has said she doesn't expect the automaker to put as many vehicles into dealer inventories as it has in the past.
Other manufacturers have echoed that strategy, which could lead to a long-term shift in the balance of power.
With the semiconductor shortage expected to last until the end of this year, tight inventories will work in the industry's favor.
The longer-term question is what happens if the economy weakens and consumer demand falls.
That could put control back in the hands of buyers.