Prices for New, Used Autos Staying High, Dealers Say

Russ Daniel, the owner and managing partner of McLarty Daniel Automotive of Bentonville, believes the car-buying process will change to a “sale-by-order model” permanently because of the reduction in inventories at dealerships. 

It’s no secret to anyone who’s tried to buy a vehicle recently: Inventories are down and prices are up.

Arkansas auto dealers don’t expect relief anytime soon. A shortage of new vehicles, thanks to the pandemic, led to a spike in demand for used cars and trucks, and that tight market has caused higher prices. It’s a condition unlikely to change until inventories return to pre-pandemic levels. 

“Until that happens, the consumer is going to be the one who hurts the most,” said Greg Kirkpatrick, the president of the Arkansas Automobile Dealers Association.

According to the National Automobile Dealers Association, the average sales price of a new vehicle in 2021 was more than $42,000; the average sales price of a used vehicle — bought at a new car dealership — was more than $26,700.

Those figures are steep increases from just two years before in pre-pandemic 2019. Then, a new vehicle sold for an average of $36,800; a used vehicle went for an average of $21,000.

New car prices increased 12% between 2014 and 2019 but have jumped more than 15% in the subsequent two years. Used car prices increased slightly less than 12% during the same six-year period but have jumped 26.6% in the past two years.

Kirkpatrick said most of it goes back to lower inventory. Gone are the days when there were a plethora of choices, he said. 

“The way I view a lot of this is the lack of inventory and the inability for a consumer to go to a dealer lot and compete for pricing,” Kirkpatrick said. “For years, the biggest issue was how much information was available because customers had a huge advantage. They were able to go online and shop each dealer and just keep driving the price down. That’s just gone.” 

Kirkpatrick said vehicle shopping could revert to how it was in the mid-20th century, when showrooms had models for customers to peruse before ordering. Then the vehicle would be shipped to the dealer for the customer to pick up later.

“In the long term, the days of consumers having vast amounts of cars to choose from are over,” said Russ Daniel, owner of McLarty Daniel Automotive of Bentonville. 

“I believe we will move more to a sale-by-order model where customers will come in and order their vehicles well in advance. Our business model will permanently change industrywide to accommodate these new consumer expectations.”

Kirkpatrick said he senses that automakers such as the Ford Motor Co. like the idea of managed production to keep inventory more transactional. 

When the pandemic began in March 2020, many companies responded by halting or slowing production and sending workers home; one industry that did just that was microchip processors.

Microchips are important to vehicle manufacturing and the lack of chips led to a decline in production. But the pandemic didn’t slow vehicle demand as many expected. When people kept buying cars and trucks, manufacturers didn’t have the microchips to keep pace. They’re still playing catch-up.

The pandemic affected all levels of the automotive supply chain and has led to labor shortages, too.

The drop in available new vehicles led to the rise in the value of used cars. Can’t afford a new car? Then go find a nice used one.

Car dealers scooped up as many used cars and trucks as possible, making them pricier. For Jeff Williams, the CEO of America’s Car-Mart Inc. of Rogers, it made a tough job tougher for the buy-here, pay-here company that sells used cars to lower-income and lower-credit buyers across the country. 

It doesn’t take much for inexpensive cars to become too expensive for buy-here, pay-here buyers in a red-hot market. In fiscal 2019, which ended as the pandemic started, Car-Mart sold 50,257 vehicles at an average price of $11,125; in fiscal 2021, it sold 56,806 vehicles at an average price of $13,621, more than a 22% increase.

“It has a waterfall effect,” Williams said of new car dealers selling more used cars because of inventory shortages. “[It’ll be] maybe two years before there is any kind of normalcy on the supply side out there. We are looking at this as a long-term issue.”

Williams said America’s Car-Mart has worked hard to become a true used-car company with a focus on after-sale service and support. 

Daniel said customer service and support are more important now because many customers are driving older cars longer because of rising prices.

“Because we manage the entire life cycle of the ownership experience, we must be nimble in our business model and reinvent ourselves daily to adjust to the customer’s current circumstances and needs,” Daniel said. “[O]ur most important need is to provide an exceptional customer experience even as we navigate the reduced supply issues.”

Kirkpatrick said good car dealers know how to respond to changing markets in tough times. He doesn’t know when things will return to normal.

“It is a supply and demand thing,” he said. “Dealers are ultimately businesspeople, and they will work with what the buyers want. The buyers want cars and right now they are paying for them.

“At some point you price people out. It can’t be a never-ending thing.”

Average Car Prices

Source: National Automobile Dealers Association