If you are in the market for a car — but you haven’t bought one in the past couple of years — you may be in for a shock. Today, I want to tell you about my recent experiences, and hopefully provide some advice that helps save you some money.

My 20-year old son is a sophomore at college, which is more than three hours from home. He graduated high school as valedictorian of his class, and I told him I would buy him a car.

To this point, it hasn’t been a pressing issue for him. He has been driven back and forth to college. But now he is ready for that car.

Narrowing the List

My son is practical, and safety is his top concern as he drives Oklahoma’s rural roads. So, we were looking for a safe, mid-sized sedan. We started with the list of Top Safety Picks in this category from the Insurance Institute for Highway Safety (IIHS).

Cars in this class include the Toyota Camry, Nissan Altima, Honda Accord, Hyundai Sonata, Kia K5, and several types of Subaru. No U.S.-based car makers made this list.

First, we tried the used car market. I would guess that the price of a two-year old Toyota Camry is $5,000 to $7,000 more than it was pre-Covid. Why has this happened?

Basically, there has been a global shortage of computer chips that go into these cars. The Covid-19 pandemic disrupted production of these chips, but modern cars are also using more of them. This supply/demand imbalance resulted in a slowdown in the production of cars.

New or Used?

This slowdown of course impacted the availability — and in turn, the price — of new cars. But, that also trickled into the used car market. I have heard many stories of people selling cars they bought five years ago for what they paid for them. In fact, I did that myself last year. We sold a 2016 Ford Escape for what we paid for it in 2016.

Thus, the used car market — which is where I started shopping — isn’t what it used to be. Prices are high and inventories are short. I had multiple dealers tell me that you no longer save thousands of dollars buying a one- or two-year old car. Demand for those cars is high, and that drives up the price. Further, insurance costs are lower for slightly used cars, which is why someone might pay nearly as much for a two-year old car as for a new one.

After finding few attractive options in the used car market, I decided to bite the bullet and buy new. My situation is somewhat more complex, as I am trying to buy a car for him in Oklahoma while I am in Arizona. There are multiple online car-buying services, as well as other ways to find help.

Finding a Dealer

I was perusing the list of “Best Midsize Cars for 2022 and 2023” in U.S. News and World Report, and each car on the list had a button to “Find Best Price” after entering your zip code. I decided to give it a try.

Within five minutes my phone started ringing. I was getting texts and emails from five dealers within a 120-mile radius of the zip code I entered. Everyone was promising me a good deal. But here is what that experience has been like.

I have probably been involved in my lifetime in the purchase of close to 20 automobiles. I have negotiated for cars many times. I have always walked out the door well below the manufacturer’s suggested retail price (MSRP), because that’s well below what car dealers pay for their cars. MSRP gives them a nice profit margin, so they will typically shave thousands of dollars off that price.

My starting point is always the wholesale price, obtained from something like the Kelley Blue Book (which will also connect you with dealers). I am frugal. I demand a good deal, or I don’t do a deal. I have walked away many times.

Deal or No Deal?

But one dealer after another would demand thousands above MSRP. They might send me a spec sheet that showed MSRP, but then there were thousands of add-ons. In an actual case, I got a spec sheet for a new Camry for $27,500, but then the final price out the door was close to $32,000.

Even though I was shopping around with multiple dealers, the story was always the same. Friends tried to advise me on hardball negotiating tactics, but I always found that those people haven’t bought a car recently. This isn’t a matter of hardball negotiating tactics. It’s a matter of not enough cars. It’s supply and demand, and it’s a seller’s market.

One dealer told me “Two years ago I had 22 cars on my lot. Now I have 6.” That means they can hold out for very high prices. I tell them I want out the door for less than MSRP, and they tell me they can do it. They continue to call to close the deal. But it’s always the same story: MSRP is their starting point, and then they pad on thousands of add-ons (like, “we fill the tires with nitrogen!”).

Expanding the Options

Finally, I started to look for cars that weren’t impacted directly by the chip shortage. Of course they will be impacted indirectly as people seek out those cars as alternatives. But, I found that the Nissan Altima wasn’t directly impacted. I decided to shift focus, and I told one Toyota dealer I was going to look at the Nissan.

A friend, also shopping for a Toyota, said that the previous day a Toyota dealer had told her that their allocations were raised that day. If true, it could signal a potential improvement in the inventory situation. Like clockwork, the next day two dealers quoted me a new price. One sent me a new invoice for MSRP plus taxes. Another dropped the price of a 2021 Camry by $5,000.

I still haven’t pulled the trigger, but I would distill the advice down to the following. As long as you are willing to be bombarded with phone calls, texts, and emails, you should negotiate with multiple dealers online.

If you aren’t pressed for time, that gives you one advantage. If you can put off the purchase for a few months, then the situation may be better than it is now. Don’t be pressured into making a quick decision.

But, also don’t get locked into a specific model. Any car with high safety ratings was going to suffice for us. So, I am going to continue to work my way down the list until I can make a deal.

However, if your historical car-buying experience has been to get thousands off of MSRP, we still aren’t back to that kind of market. At least, not with the cars I have looked at.

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