There’s a theory holding that when gas prices are high, consumers wind up paying higher prices for cars—especially vehicles with good gas mileage. Well, gas prices are rising, and sure enough, the numbers show that we’ve been paying more for cars lately, too—a lot more.
As gas prices soared in February, Kelley Blue Book released data indicating that it was very likely prices paid at dealerships for new fuel-efficient models would soar as well. In the summers of 2008 and 2011, when gas prices also rose noticeably, demand understandably increased for small cars with good gas mileage. As you might expect, that increase in demand led to automakers and dealerships decreasing the likelihood that they’d be willing to part with such vehicles at prices significantly lower than MSRP. Why discount vehicles if you don’t have to?
Now, as interest in small, fuel-efficient compacts and subcompacts has risen again, consumers are again agreeing to higher prices at the dealership. This goes not just for small cars, though, but for sales across the board.
The research and car-shopping site TrueCar says that, on average, buyers paid 6.9% higher prices—$1,977 more—last month for new cars than they did in March 2011.
Last month, the average Hyundai or Kia sold for $21,717, or 1% more than one month prior ($21,502), and 9.4% more than in March of 2011 ($19,857). The average Nissan, meanwhile, was purchased for $28,322 in March of 2012, and $26,364 (7.4% less) the year prior.
Incentives are part of the reason why buyers are paying more. Overall, automakers’ incentives were down 1.8% from March 2011 to March 2012, with some manufacturers dramatically decreasing cash rebates (Hyundai and Kia incentives are down 31%), and others kicking them up a notch (Nissan’s were actually up 28%).
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For the most part, though, it appears as if drivers are paying more mainly because 1) MSRPs have risen; and 2) dealerships are being tougher when negotiating prices. It’s obviously easier for dealer salesmen and managers to do the latter when they’re confident buyer demand is strong—and based on record sales in early 2012, dealerships have good reason to be confident this is the case.
Notwithstanding exceptions like Volkswagen, which lowered sticker prices on some vehicles last year, new car MSRPs regularly tend to creep higher and higher. General Motors raised prices last spring, and Toyota just announced price hikes for a handful of vehicles.
Higher sticker prices, less generous incentives, and hardnosed dealership negotiations all combine to form a scenario in which drivers are less in the driver’s seat in terms of getting the car they want, at the price they want.
If ever there was an especially bad time to buy a new vehicle, it’s in the next few days ahead. Dealerships really do discount more toward the end of the month, and Easter Sunday is historically an awful time for a consumer to try to haggle over car prices. Why? It tends to fall at the beginning of the month, and dealerships figure the only people shopping on such a major holiday are folks who are desperate to buy—and there’s no need to kowtow to these folks on price. This year, though, Tuesday, April 10, is supposedly the worst day in all 2012 to buy a new car. According to TrueCar data, consumers can expect an average of just 5.1% off MSRP on vehicles purchased this day. Cars bought at the end of December, by contrast, were often purchased for 8% or 9% less than MSRP once negotiations had ended.