Negotiating Car Price During the Chip Shortage

It’s still possible to get a good deal on a new or used car when supply is low and sellers hold all the cards.

Blurred view row of new modern cars in showroom behind semiconductor chip graphicShutterstock

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In a balanced market, where supply meets demand, vehicle prices tend to remain steady. Buyers go into the negotiation knowing approximately how much they'll need to shell out and sellers, how much they'll bring in. When things are working normally, it’s common for both the car buyer and seller to feel like they got a fair deal.

But we're not in a balanced market right now. The semiconductor chip shortage has dried up the vehicle supply and changed the game. So now what? How can you get a deal when the seller holds the high ground?

The Car Market Is Brutal Right Now

According to the CarGurus Vehicle Availability Index & Insights Report, new car inventories in August were down by nearly two-thirds compared with a year before. As you may remember from Econ 101, with shorter supply comes higher demand. This has turned car buyers into competitors and made some people willing to accept the dealer’s terms without negotiation.

Vehicle transaction prices are hitting all-time highs. Kelley Blue Book reported that the average price paid for a new car in September was $45,031; that’s up 12.1% from the average in September 2020. What’s more, this has caused a ripple effect in the used car market, where many of these would-be new car buyers have had to turn. The Manheim Used Vehicle Value Index showed a major 44.9% year-over-year increase in used vehicle prices in November 2021.

In this environment, sellers—be they dealers or private individuals—have the upper hand, but that doesn’t mean you’re out of luck. There are ways to sweeten the deal.

Treat the Seller with Respect

There are two things you absolutely shouldn’t do when negotiating a sale: fire off an insultingly low offer or be rude to the seller. Asking “What’s the least you’ll take?” or giving a lowball offer is no way to make a first impression. Oftentimes, it could stop the conversation then and there.

Decency goes a long way. Instead of saying "I'll give you x amount," try "What's the best you could do on that?" or "Could you come down a little?" And if possible, talk to the seller in person or on the phone. Text messages and emails don’t always convey a friendly tone, and showing up in person shows you’re serious about purchasing a vehicle.

Be Conversational, Not Confrontational

When dealing with owners, you’ll want to ask questions about the car’s maintenance record and history, but keep the conversation light and use some tact when asking questions. Phrasing matters.

Try something like this: “I like to take care of my cars with regular maintenance. Can you tell me where you took the car for service? Have you had any work done to it recently? Is there anything I should keep my eye out for in the next year or so?”

Many owners form an attachment to their car and wouldn’t want to see it driven into the ground; showing that you have an interest in the long-term care of the vehicle may help you secure a fair price.

If you’re lucky, the seller will have a log of service receipts, but if not, this questioning should also tell you what you need to know about the state of the vehicle. By discussing potential problems in a conversational (rather than accusatory) way, you have a better chance of learning about costly problems up front rather than down the line. And if your questions reveal that the vehicle is overdue for major maintenance, you may be able to use that in negotiating a price during the chip shortage.

Look for Discounts Elsewhere

If a dealer won’t flex on the vehicle price, there may still be opportunities to get discounts on add-ons. In general, dealers have a higher profit margin on labor and parts than on vehicles, so take from the big pile instead of the small: Look for discounts on accessories that increase the car’s value and utility and on prepaid maintenance that keeps your car in good condition. (Dealers will also be glad to know you’ll keep coming back to the dealership on a regular basis).

Nobody likes a moocher, and in this market, don’t expect freebies. Ask for half off on accessories and a quarter off on prepaid maintenance. Some dealers will say yes. Others may counter. But at least you’re showing the dealer that you mean to invest in the car for the coming years and that’s worth something to them.

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Steven Lang
Steven Lang is a special contributor to Capital One with nearly two decades of experience as an auto auctioneer, car dealer, and part owner of an auto auction. Some of the best-known auto publications turn to him for his expert insight. He is also the co-developer of the Long-Term Quality Index, a survey of vehicle reliability featuring over two million vehicles that have been inspected by professional mechanics.