Jim Palusky had no plans to buy a car this fall, but then received an offer he couldn’t refuse.
Walser Toyota in Bloomington said he would buy his 2019 Tacoma pickup for just $ 1,500 less than he paid for it, even if he had driven it over 30,000 miles in a year and a half .
âI couldn’t believe it was for real,â said Palusky, a Maple Lake retiree who travels frequently to Duluth. “Everyone I spoke to said I was crazy not to trade.”
While other segments of the economy are still trying to recover from the pandemic, the auto market is reaching new heights. With manufacturers unable to ship enough new vehicles due to a shortage of parts, prices for new and used vehicles are skyrocketing. Some customers who transact even get more than what they originally paid for.
Walser Toyota is one of those dealers scrambling for inventory. It typically stocks 600 new cars, but none were on display over Thanksgiving and Black Friday weekend. At the start of this weekend, its waiting list for new cars had 484 names.
To keep its bundle filled, managers are reaching out to recent customers with generous offers for their vehicles. The exhibition space for new cars is now occupied with used cars and additional tables for closing deals.
Palusky sold his 2019 pickup to the dealership for $ 32,500 on the Saturday after Thanksgiving. Normally, the value of the truck would have depreciated by 30% in the first year. Instead, Palusky’s price is time: the 2022 Tacoma Sport he bought as a replacement won’t arrive until next month.
âThis is unprecedented,â said Scott Lambert, president of the Minnesota Automobile Dealers Association (MADA). “I’ve been doing this for 30 years and I’ve never seen the market look like this.”
Although used car prices typically decline in the fall, they rose an average of 37% through October compared to the previous year, according to JD Power Valuation Services, a leading market observer.
Rising prices for used cars and trucks are a key driver of inflation this year. Overall, consumer prices were up 6.2% in October from a year ago, with used cars and trucks up 26%, according to government data. November figures will be released on Friday.
Meanwhile, dealer profits have skyrocketed. According to the National Automobile Dealers Association, the average U.S. dealership reported pre-tax net income of $ 3 million through September. That’s well above the record $ 2.1 million profit achieved by the typical dealer for all of 2020.
The problem, according to market analysts, is that the auto industry was unprepared for increased demand during the pandemic which was fueled in part by the government’s multibillion-dollar relief program. Instead of increasing production, automakers have slowed down factories and cut back on computer chip orders needed to run today’s sophisticated vehicles.
As a result, inventories are reaching levels not seen since WWII, when manufacturers diverted production at many military vehicle factories. The market is not expected to return to normal until 2023.
âDemand exploded because people had all this money they couldn’t spend on concerts, out dinner parties and plane trips,â said Jamie Butters, editor of Automotive News, a leading professional publication. “People started to buy the nicest vehicles they could afford. If you could go anywhere, you wanted to drive.”
In Minnesota, where dealerships kept at least 60 or 70 new vehicles on the lot, it’s rare to find someone with more than a handful of new vehicles now, according to Lambert. Most buyers pre-order the vehicles, which can take months to arrive.
For buyers, the market can be cruel. Most dealers have cut discounts and other incentives drastically and instead impose so-called additional markups on customers, which can add tens of thousands of dollars to the purchase price and has led to scam complaints.
Pete Swenson, senior vice president of Walser Automotive Group, said the biggest markup he saw was for a Seattle dealership, which was looking for $ 96,000 for a new RAV4, $ 45,000 more than the price of detail suggested by the manufacturer.
Swenson said dealers have been more reasonable in the Twin Cities, where the biggest markup he saw recently was $ 5,000 for a new Ram pickup at a competing dealership.
âI’m sure you could make an extra $ 15,000 on some cars if we wanted to, but I don’t think that’s a good thing to do,â said Andrew Walser, CEO of Walser Automotive. âIt gives dealers a bad name.â¦ And it eliminates that person as a customer in the future.â
Walser was the only major Twin Cities car dealership willing to discuss the current market. Other prominent dealers declined to comment or make anyone available for interviews.
âI know the dealerships are getting the best price for vehicles right nowâ¦ but I don’t think the word ‘gouge’ is a right word here, honestly,â said Lambert of MADA. “I think there are basic laws of supply and demand, and the market is responding to that.”
Across the country, dealers were charging an average of $ 800 more than the sticker price for new cars in October, compared to $ 2,300 less than the manufacturer’s suggested retail price (MSRP) in 2019, according to Kelley. Blue Book, another leading market analyst. Butters said average transaction prices have not exceeded the MSRP for decades.
Many customers experience sticker shock.
Angel Phillip said she almost burst into tears on her first visit to Walser Toyota in November, two days after someone destroyed her RAV4 in a parking lot accident. Phillip wanted to spend around $ 17,000 to replace her SUV, and she didn’t want a vehicle with over 20,000 miles.
She quickly realized that she had to adjust her expectations. She ended up spending an additional $ 3,000 for a vehicle with over 40,000 miles. âIt was very disappointing,â she said.
Deirdre Mulvey spent $ 16,000 last week on a 2013 Honda Pilot with 120,000 miles. Mulvey said a similar pilot cost him $ 5,500 less a few years ago. âYou can’t find that kind of deal right now,â Mulvey said. “Be prepared to spend more.”
While this is a bad time to buy a car, it is a spectacular time to sell one. Adam Burnside was offered $ 14,000 for his 2014 Kia ââSoul last week by Carvana, an online used car retailer. That’s more than double what he paid for the car in 2020 and a healthy premium over the $ 9,400 Carvana offered him earlier this year.
âIt’s absolutely amazing,â Burnside said. “I’m not 100% sure that makes sense, but I’ll probably sell it.”
Carvana pays more than local dealerships on many vehicles, according to market experts, but the company has also drawn hundreds of complaints from the Better Business Bureau.
âThey don’t have a good reputation,â Lambert told MADA. “Their vehicles can be overpriced and they have a habit of leaving problems for their customers.”
A spokesperson for the Minnesota Department of Public Safety said the agency is still evaluating MADA’s complaint.
A spokesperson for Carvana said the company is “committed to providing its Minnesota customers with a great car buying experience and constantly reviews regulations and communicates with public authorities to ensure compliant operations in all of our markets.” .
Joseph Juntune said he decided not to take the $ 17,546 offered to him for his 2017 Toyota Corolla by Carvana last week for a vehicle that cost him $ 14,100 in 2020. He said he compared Carvana’s prices at those of local dealers in Virginia, Minnesota, and the online retailer. was 5-10% higher on comparable models.
âWe don’t want to have to buy a car in this market,â Juntune said.