Inflation is driving up car prices. 6 tips for buying in 2022

2021 was an unusual year for the automotive industry. While customer demand for new cars rebounded from the economic uncertainty of 2020, automakers found themselves unable to meet that demand because of semiconductor chip shortages and supply chain problems, and prices for both new and used cars skyrocketed. 

So what should car shoppers expect for 2022? Much of the same, unfortunately.

"Competition for new vehicles will be fierce as inventory shortages persist in 2022," said Ivan Drury, senior manager of insights for the auto website Edmunds.

Along with shortages and supply chain issues, drivers also have inflation to thank for continued price hikes for cars in 2022. Overall consumer inflation soared 7% in 2021, the biggest increase in nearly 40 years, the Labor Department said on Wednesday. Used car and truck prices, a main driver of the surge, shot up 37% last year, with the average used vehicle now costing $29,000, according to Edmunds. 

Shoppers today must contend with a limited selection, dealership markups, little to no discounts, and a greater sense of urgency to move quickly on a deal. With this in mind, here are six ways that car buying has changed, along with a few tips on how to manage it.

1. Vehicle shortages mean higher prices

Vehicles that make their way onto the lot are more likely to be in more expensive trims and either marked-up in price or with numerous dealer-installed accessories that achieve the same effect. And if that wasn't enough to contend with, you'll find that dealerships are much less likely to come down on price since they know there aren't many other options available. It's a textbook case of supply and demand.

These days, paying MSRP (or Manufacturer's Suggested Retail Price) might actually be a "good deal," relatively speaking, Edmunds reported.

Tip: Casting your net out farther to increase your options. Not every dealership is marking up vehicles. If you see one you like, be prepared to move quickly because it may not be there the next time.

2. You're more likely to order your next car

One way to avoid the markups and dealer add-ons is to order the vehicle from the manufacturer. This ensures that you get exactly the color and options you want, provided you're willing to wait roughly six to eight weeks.

The basic idea is that ordering a vehicle saves the dealership on lot fees and insurance for vehicles parked on- or off-site, and it can then pass the savings on to the consumer. The "savings" these days is paying MSRP and not being charged for dealer add-ons or the convenience of having a vehicle right away.

Tip: The easiest way to order a vehicle is to use an automaker's website to build the vehicle configuration you want and then send that information to your preferred dealership.

3. Leasing will be less enticing 

Edmunds analysts said leasing is becoming less popular for a couple of reasons. As inventories remain low and the cars that are in stock tend to be more loaded with options, they're less likely to be targeted by automakers' leasing programs because these vehicles typically suffer higher depreciation than their mid- to lower-level-trim counterparts.

Tip: You might need to do some extra planning and research before your lease ends to find affordable options, Drury said. You can also consider buying out your lease, as it will likely be a better deal since the selling price for it was calculated years before the market took a turn.

4. Used vehicles may not offer relief

Many new-vehicle shoppers turned to the used market for a better selection or respite from the higher new car prices. But this, in turn, caused its own shortage and record-high prices. Edmunds analysts predict that in the coming year, the average used vehicle price will surpass the $30,000 mark for the first time. Prices for 1-to-3-year-old vehicles will also often approach or exceed the price of what they would cost brand-new. Bonkers, right?

Tip: If you have your heart set on used, it's worth taking a look at certified pre-owned vehicles. They may be pricier than other used vehicles, but they come with a warranty, are often in better condition, and you're more likely to get a subsidized interest rate, Drury said. Finally, trade-in values are very strong now, which can help offset the higher pricing.

5. Dealerships will be more open to home deliveries 

Having a vehicle delivered to your home was something of a "secret menu" item in past years, reserved for VIP clients or those in the know. But after the COVID-19 pandemic forced the shutdown of countless dealership showrooms, home deliveries and the subsequent paperwork became almost a necessity. It will vary by location and brand, but your chances of wrapping up a car deal at home are significantly better than before.

Tip: Make sure to ask for a home delivery when making a deal on a car. Filling out any finance paperwork beforehand will greatly speed up the process.

6. Consider an electric vehicle

Drivers across the U.S. have good reason to watch the negotiations over the Build Back Better Act, the November version of which contained substantial tax breaks for owners of electric and plug-in hybrid vehicles. 

Even without the federal tax credits, fierce competition among EV makers Tesla, Ford, General Motors, BMW, Hyundai, Toyota, Honda, Volkswagen and others is beginning to drive down prices in the category. Electric, hybrid and plug-in hybrids accounted for 8.2% of all light vehicles sold in the U.S. in the first half of 2021, according to Wards Auto Intelligence. Electric vehicles accounted for 2.3% of those sales, hybrids 4.9% and plug-in hybrids 1%. 

Tip: If you're planning on purchasing a car that you intend to drive for the next 10 years, electric and hybrid vehicle options give you a lot to consider.