That has resulted the average transaction price hitting $45,717 in January, or $728 above MSRP.
It’s up nearly $6,000, or 15%, from January a year ago, and about $7,500 higher than the average price paid in January 2020, just before the pandemic started roiling the auto industry.
Only 2% of buyers paid above MSRP a year ago, with buyers paying on average about $2,150 less than sticker at that time.
“Demand is through the roof, and supplies are historically tight,” said Ivan Drury, senior manager of insights for Edmunds. He said if a buyer isn’t willing to pay above the sticker price, the dealer can be confident there will soon be another buyer who will.
“We’re talking only a 10- to 11-day average for the time vehicles are on the lot,” he said. “We’ve never seen that.”
Part of the increase in pricing is because consumers are increasingly buying more SUVs and pickups and fewer sedans, which are typically less expensive. They’re also choosing more expensive options, such as automatic braking and lane departure warnings that are designed to make the cars safer.
But the biggest factor behind the price increases is the shortage of cars.
Dealers are the big winners
So while automakers benefit from not having to offer some of the cash-back offers or other incentives to boost demand, the auto dealers are reporting booming profits that come from the higher prices.
But many car buyers are upset with the idea of paying over sticker price. And their worries are causing concern among some of the automakers themselves.
“It has come to our attention that in connection with some of these announcements and launches, a small number of dealers have engaged in practices that do not support a positive sales experience for our customers,” said a letter that Steve Carlisle, president of GM North America, sent to dealers. “Specifically, it has come to our attention that some dealerships have attempted to demand money above and beyond the reservation amounts set in GM’s program rules and/or have requested customers to pay sums far in excess of MSRP in order to purchase or lease a vehicle.”
Ford spokesperson Said Deep said that Ford has notified dealers about similar concerns surrounding the Lightning, which is due to start production in the spring; customers with reservations could start completing their orders starting on January 4. He added that the company also is looking at the large premiums for other hot models, including the Mustang Mach-E and the Bronco, a gasoline powered car.
But neither automaker said they are outright prohibiting the widespread use of charging over list price by dealers, only when the price is “far in excess” of that benchmark.
AutoNation CEO Michael Manley, who was previously CEO of Fiat Chrysler before it merged with France’s PSA Group to form Stellantis, said he didn’t believe pricing over sticker is a problem for the industry’s reputation. He says prices should be close to the MSRP, and he hopes and expects prices to be closer to that level even once the supply of vehicles is no longer constrained.
“The levels of profitability for both [automaker] and dealers clearly show the benefits of selling vehicles at MSRP. And what a concept, right? Selling at MSRP,” he said to investors. “I think it’s equally clear that significant discounting and high incentives can also damage a brand, which is another reason for our industry to balance appropriately supply and demand.”
If he’s right, that means the days of paying thousands below sticker are over.
Paying over MSRP is not going away any time soon, according to Drury, of Edmunds. With projections that supply of vehicles could remain tight into the second half of this year, it could be 2023 before paying over sticker price becomes rare once again.