Car shoppers might have to settle for their second or third choice

The most desirable new vehicles are selling before they even hit dealerships. Used-car prices are through the sunroof. And automakers worldwide are idling plants and cutting capacity as they wait for more desperately needed chips to be delivered.

Instead of the more typical dealer discounts, markups are spreading to new cars, and for hot models like the Chevrolet Tahoe, $10,000 would not be out of the question. Shoppers, confronting a market that should have millions more new cars on the road this year, are shrugging and paying up.

Bu with dealer lots cherry-picked and sparse, many car buyers have been forced to reconsider their choices and kick the tires of overlooked models and brands. Some are settling for paint colors they would normally dismiss. Others are turning from new to used. People are rethinking their transportation coming out of the pandemic and even changing the way they buy a vehicle.

At the moment, paying the suggested retail price on a new car might be a bargain. Can you wait a year? Then hold back, even if it means putting money into your current ride.

"It's a bad time for consumers wanting a new car," said Stephanie Brinley, principal analyst with IHS Markit. "In 2021, the lost global automotive production is at 6.58 million units through the third quarter."

Inflation has been running hot this year, and used-car prices are a key culprit. A report Wednesday showed little sign that consumer prices were cooling, although used-car prices, after a huge run to start the year, have begun to ebb in the Consumer Price Index.

In Seattle, Ed Wood, a 63-year-old electrician, wants to replace his 1995 Chevrolet, fully understanding the timing is awful.

"My uncle is getting his affairs in order and offered to pay the lion's share for a new one," he said. "He wants to see me happy."

Loyal to Chevy's Silverado, Wood could not find one. Little by little, he widened his search to dealers in Idaho, South Dakota and Texas.

"All sold out," he said. "I went around and around with dealerships, then branched out to F-150, Ram, Sierra and Tundra and found either no stock available or crazy markups."

It led him to the Titan from Nissan, typically in the middle of the pack of carmakers by sales, after General Motors, Toyota and Ford. Nissan's pickup was more available and surprisingly appealing.

"Titan is definitely a strong contender now, and it wasn't even on my radar when I started," Wood said. "As a big guy, I found the seats to be extremely comfortable."

The owner of Bill Korum's Puyallup Nissan, outside Tacoma, Wash., said he always has touted the Titan's quality. "It simply didn't break through because of the fierce loyalty of Chevy, Ford and Ram owners," Korum said. "It's good to see it getting the love it deserves."

Three months ago, 118 Titans were on the lot; now only 20 are left, he said.

The new landscape may be playing out in market data. According to IHS Markit figures, pickup brand loyalty — as measured by the number of buyers in a month who purchased the same brand they had before — was down to 51% in June, from 56% in March 2020.

Edgar Zurita, 43, of Fairfax, Va., veered hard from his initial choice. "We needed lots of space and seriously considered a new Kia Telluride SUV, but the markup of $18,000 for one on the lot was too much," Zurita said.

He switched to looking at minivans. Still, he saw more than $10,000 in markups. He ended up buying a used, 2019 Sedona SXL with 20,000 miles.

Kia was running short of Tellurides before the pandemic, thanks to strong sales. It recently introduced the Carnival minivan (the successor to Sedona) with an SUV look. "Carnival has been a tremendous fallback for those that can't find or don't want to wait for a Telluride," said James Bell, from Kia's global media relations office.

"We're seeing a resetting of the market," he added. Besides the Carnivals, Kia is seeing more people looking at the smaller Sportage or ending up moving up to a higher-end model SUV.

Used cars might be more affordable than new ones, but their prices have skyrocketed, too. Carvana, which sells used vehicles online and delivers them, offers eye-opening figures. According to its second-quarter results, it sold 96% more cars than a year earlier; revenue was up 198%, to $3.3 billion; and gross profit was $552 million, up 268%.

Part of Carvana's success is the high demand in pre-owned vehicles. In addition, the pandemic has made consumers far more willing to buy online.

This holds true for new cars as well. At Hyundai, Michael Stewart, a senior group manager, said online sales comprised 24% of transactions in July 2021, compared with 10% last year.

Brad Ellman, an accountant in Fort Lauderdale, Fla., was hoping to upgrade from his Honda Accord Hybrid to Toyota's RAV4 Prime but couldn't find any of the RAV4 models. Before his search, he said he was hesitant to go with a full electric model.

But with no Primes to be found, he went with the fully electric Tesla Model Y Long Range.

"Considering the big markups on the Toyota, the price of the Tesla wasn't much more," Ellman said. "My commute is 40 miles round-trip, but as an accountant I sometimes need to visit clients. I've not had any of the range issues I worried about. Now I may never go back to a gas-powered car again."

Even sedans that languished on dealer lots a year ago are in short supply. It is difficult to discern if they are scarce simply because desirable SUVs are all sold out. At Hyundai, U.S. sedan sales are up 52%, while SUVs have risen only 40%.

Are shoppers settling?

"It's complicated," said Stewart of Hyundai, "and not always about people switching to cars because they couldn't get an SUV. ... There are still many shoppers out there interested in passenger cars."

Bell at Kia concurred. "Sedans might be getting a lift due to the SUV shortage, but it's not always clear, because of this crazy, unprecedented marketplace," he said.

Wood, the Washington electrician who has been looking at trucks since the end of June, is still mulling his options.

"It's not easy," he said. "I haven't pulled the trigger yet, but the process surprised me. I might go Nissan, but I might even wait to make the switch to electric with Ford's F-150 Lightning. I'm kind of glad the shortage made me think much more creatively."