LIers turn to used cars, buying off lease as shortage sends prices soaring 

Shaun O’Connell has looked at more than 10 car dealerships’ websites over the past several weeks to shop for a Toyota Tacoma pickup truck.

Every time he called a dealership to inquire about a listed vehicle, the truck already had been sold, said the Sayville resident.

After he finally was able to sign paperwork to buy a truck at a Long Island dealership in early April, he was told a few days later that the vehicle had sustained storm damage and he would have to wait a month for another one to become available, he said.

'I think they sold it to someone for much more money.'

-Shaun O’Connell, 33, of Sayville

“I don’t believe the story at all. I think they sold it to someone for much more money,” O’Connell, 33, a physician assistant at a hospital, said   last week while at a different dealership, Smithtown Toyota, still shopping for a truck. 

Nationwide, the car-buying process has been turned on its head, and the COVID-19 pandemic is responsible for the turning. 

Supply chain disruptions, including an insufficient number of microchips needed in cars, have led to a shortage of new cars, driven up the prices of new and used vehicles and forced consumers to be more flexible in their shopping, auto industry experts said. 

More customers are taking what they can get, versus what they really want, they said.

“It’s never been like this. … I think this shortage is going to last a long time,” said Wayne Siegel, co-owner of Legend Nissan in Syosset.

Here is the rundown of what’s taking place in car sales:

Sticker shock

Low inventory and high demand have sent car prices soaring.

In December, there was a record-high average national price for used cars, $29,969, an increase of 29% from a year earlier, said Jessica Caldwell, executive director of insights at Edmunds, an auto retail information company based in Santa Monica, California. The average fell to $29,124 in March but that was still 25.7% higher than the price a year earlier.

The average national price of a new car in December also was a record high, $46,426, up 14.4% from a year earlier.  The March average dipped to $45,128, still up 13% from a year ago.

On Long Island, the average new-car price hit a record high of $43,007 in January, but had fallen to $41,070 by March, according to Cox Automotive, an Atlanta-based provider of auto industry information. The March price was 11% more than the cost a year earlier.

Used-car prices on Long Island  averaged $30,617 in March, 14.1% more than a year earlier.

Auto dealerships are benefiting the most from the rising prices because manufacturers are selling vehicles to dealers at invoice prices, which generally don’t change, Caldwell said. 

Some Long Island customers reported dealers quoting prices that were thousands over the sticker price.

Several  local dealerships Newsday called over the past several weeks either declined to comment or did not respond to requests for comment.

But some that did respond said they're not doing that.

“We don’t as a practice want to charge over sticker price for a car. Some dealers choose to do that.  We don’t,” said Siegel, of Legend Nissan. 

In March 2021, non-luxury vehicles were selling for more than $1,300 under manufacturers' suggested retail prices, but every month from June to March 2022, consumers paid more than the MSRP, according to Kelley Blue Book. Auto buyers paid an average of $970 above MSRP in March this year.

Centereach resident Anthony Mega had been looking at Tacoma pickup trucks for three weeks before he went to Smithtown Toyota last week. The auto-buying process was the most difficult one he had ever experienced, said the retiree, 73.

“I was getting ridiculous prices,” said Mega, who said cars were going for $5,000 to $10,000 above their sticker prices.

But he got a good deal on the 2022 Tacoma pickup he leased at the Smithtown dealership last week, he said.

The leasing company paid off the last three lease payments on his Jeep and gave him a check for $2,500, so Mega didn’t have to pay much money for his new truck, he said.

'I was getting ridiculous prices.'

-Anthony Mega, 73, of Centereach

More people buying their leased cars

Long Island has historically had a high car lease rate that far exceeded the national average.  Long Island is a high-income area whose residents like to have newer-model cars parked in their driveways, auto industry experts said. 

The Long Island lease rate is still high, but the rate is falling in the two-county area and nationwide, while the percentage of people financing cars increases.

Due to the shortage and rising prices of new cars, more people are choosing to buy their cars after their three-year leases expire rather than lease pricier, new vehicles, which they might have to wait for, said Denis Dagger, vice president and general manager of Smithtown Toyota. 

“That is up tremendously over the previous year,” he said.

A car lease contract includes a buyout amount, which is the leasing company’s prediction of how much the car will be valued at when the contract expires a few years down the road.  But those buyout amounts are much less than the values of the cars now because used cars are not depreciating as they would normally.

“And no one could have foreseen that used cars would be worth so much,” said Benjamin Preston, auto reporter at Consumer Reports, a Yonkers-based consumer advocacy nonprofit.

“Right now, it’s advantageous for the [lessee to buy] the leased car because they’re getting a car for below market value because the value was calculated before all this happened,” he said. (More car-buying tips from Consumer Reports and Nerdwallet here.)

Also, with more people working from home during the pandemic, some residents in households with multiple vehicles are finding that one car will suffice, said Tyson Jominy, vice president of data and analytics at J.D. Power, a market research company based in Troy, Michigan.

On Long Island, 73.3% of new cars registered in January 2020 were leased, compared to 60% in January 2022, according to S&P Global Mobility, an automotive data provider in Southfield, Michigan.

Nationwide, 30.8% of new cars registered in January 2020 were leased, compared with 20.7% in January 2022.

Smithtown resident Sue Muller’s lease on her 2019 Toyota RAV4 will expire in August, she said.

She was at Smithtown Toyota last week  for an oil change but decided to talk to a sales associate about what options she’ll have after her lease expires.

'There may not be that many cars to choose from or that I would want.'

-Sue Muller, 67, of Smithtown

“One of the big reasons [to ask now]  is that there may not be that many cars to choose from or that I would want,” said Muller, 67, who said heated seats and a heated steering wheel are must-haves.

Auto dealerships are warning customers about delays in the arrival of new cars, so many are choosing to buy their leased vehicles instead of waiting.

“What we’re telling people is that they should put their order in six months in advance,” said Theresa McManus, vehicle upgrade specialist at Smithtown Toyota.

Want car, will travel

The car shortage has consumers searching far and wide – and willing to travel out of town – for vehicles, auto industry experts said.

It used to be rare for Smithtown Toyota to see customers flying in from out of state or sending a transporter to pick up vehicles – and even then that was typically done for specialty cars, Dagger said.

“Now we’re seeing it on regular everyday stock units,” said Dagger, who said the dealership is seeing more out-of-town customers from Colorado, New Orleans, Connecticut, New Jersey, Florida, Michigan and other states.

There is more desperation among consumers nationwide now, so they are more willing to travel or settle for cars and features that they would not have accepted before, industry experts said.

At Legend Nissan, the Nissan Pathfinder is the most popular vehicle, Siegel said. 

We just don’t have enough.

-Wayne Siegel, co-owner of Legend Nissan in Syosset

“Demand greatly, greatly outpaces supply. … We just don’t have enough,” he said.

Even high gas prices are not cutting into demand for large cars, Caldwell, of Edmunds, said.

“Because inventory is so low, those big SUVs are going to be sold anyway,” she said.

People who want to switch out their vehicles for more fuel-efficient electric vehicles because of high gas prices also are encountering long waits, she said. 

The number of people searching Edmunds.com for electric, plug-in and battery electric vehicles jumped 39% in early March compared to a month earlier, but there wasn’t a lot of buying, she said.

Your best bet right now is to get on a reservation list.

-Jessica Caldwell, executive director of insights at Edmunds

“Your best bet right now is to get on a reservation list,” she said. 

In September, New York Gov. Kathy Hochul signed legislation setting a statewide goal for all sales of new passenger cars and light trucks to be zero emissions by 2035, which means electric vehicles would replace gas-powered autos. She directed the state Department of Environmental Conservation to come up with regulations to support that goal.

“It’s a big deal for her to take that position. You [have to] start somewhere,” said Rosemary Mascali, chair of the Education & Outreach Subcommittee at Drive Electric Long Island, a coalition of electric vehicle stakeholders.

The likelihood of the goal being met depends on several factors, including how much the prices of car batteries continue to decline, people’s driving preferences and whether manufacturers will have enough models available by the deadline, Mascali said.

Used vehicles in high demand

Rising auto prices and a shortage of new cars have led to more consumer demand for used cars for several months, even among drivers who would have never considered buying used cars before.

In late March, there were 1.23 million new cars in the national inventory, compared to 2.4 million a year earlier, according to the National Automobile Dealers Association, a trade group in Tysons, Virginia.

The number of used cars registered in 2021 on Long Island and in the United States — 249,626 and 40.5 million, respectively — hit record highs not seen since at least 2012, the year that S&P Global Mobility started collecting the data.

Consumers who had been reluctant to buy used cars might feel more comfortable now going to large used-car retailers, like Carmax, Caldwell said.

Carmax Inc., which is the largest buyer and seller of used cars in the country, bought Edmunds in 2021.

Carmax will enter the Long Island market for the first time this summer. 

The Richmond, Virginia-based company is building a new dealership, including a 10,000-square-foot main building, on 5 acres in East Meadow.

Also, in 2023, CarMax plans to open a Smithtown dealership that will have a 60,000-square-foot vehicle showroom on its 18-acre property.

CarMax, with 230 dealerships in 41 states, is entering the New York metro area this month with a store in Edison, New Jersey.

CarMax posted  record sales of $7.7 billion for the quarter ended Feb. 28, driven in part by growth in average selling prices, the company said.

 More buyers are also turning to "new-form online retailers," which are used-vehicle-only websites, such as Carvana and Vroom, according to the “Cox Automotive Car Buyer Journey Study” released in January.

“The number of used-vehicle buyers searching [these] sites during their vehicle-buying process increased by 9% year over year,” the report said.

Carvana, which is the nation’s largest online used-car retailer and is known for its multistory "car vending machines," plans to make its entrance into the Long Island market.

The Tempe, Arizona-based company bought 1.9 acres in East Garden City last year for a planned Carvana Customer Center.

The company has received all its building approvals from Hempstead, according to the town. 

Carvana has declined Newsday’s requests for comment about the project plans, including the construction timeline and expected opening date.

By Tory N. Parrish

tory.parrish@newsday.comToryParrish1

Tory N. Parrish covers retail and small business for Newsday. She has worked at the Pittsburgh Tribune-Review and Observer-Dispatch in Utica, N.Y.