Why are new cars so expensive right now?

Theo Ebert looks out at his empty new car lot in Woodland Hills.

“There's typically three rows [of cars] where we're standing,” says Ebert, the sales manager at Vista Ford Lincoln. “Right now, we've got, what, five cars we're staring at?”

This dealership normally stocks around 500 to 600 cars this time of year. But right now, total inventory is just 100, including those five lonely cars in the middle of the sales lot. 

Even so, business is booming, leading to sky-high prices on new and used cars, and even bidding wars for cars you don’t have to pre-order. “People come in and we get two or three [sales]-people working on the same car. … Whoever wants to pay the most for the car gets the car,” he says. 

The global supply chain issues stretching many business owners to their breaking points has actually been a boon for car dealerships all across Southern California. Most are seeing record profits despite significantly reduced inventory. Ebert says his dealership is running with lower overhead and fewer employees while demand is at an all-time high.

Theo Ebert points to a large whiteboard inside his office in Woodland Hills that tallies the number of cars sold per salesperson. Photo by Benjamin Gottlieb.

“We're making more money on less cars,” Ebert says. “Anyone that's in the car business that says they're not having a record year is probably lying to you.”

Business is especially good for some of the car market’s hottest cars, such as the new Ford Bronco. Ebert says those cars can sell for $30,000 to $40,000 over asking price in some instances. 

“So a $60,000 Bronco can sell for $100,000,” he says.

It’s a great situation for car dealerships but the exact opposite for car shoppers like Zoe Rosenberg, who is in the market for a new lease. She turned in her Toyota this past summer and held off on getting a new car.

“I was thinking about upgrading a bit, so I went to Lexus in August,” says Rosenberg, a freelance TV and film producer. “At the time, prices seemed about normal.”

But when she went back to check out the same car a few weeks ago, she says, “The lease price was $200 more for the same car.” 

In order to keep the lot looking full, Vista Ford Lincoln often parks the cars it does have around the perimeter of its lot, sometimes (as seen here) horizontally. Photo by Benjamin Gottlieb.

A big part of the supply problem has to do with a shortage of computer chips that new cars need to function, says Larry Dixon, vice president of industry insights and analysis for the National Independent Automobile Dealers Association (NIADA), an industry group representing car dealerships across the country. 

Many car manufacturers cancelled orders for those integrated circuits in the early days of the pandemic, concerned about flagging demand. But as consumer confidence picked up this year, including in the car market, so too did demand for other products that need chips.

“These computer chips aren’t just for cars and trucks, but for your cell phone, for your kids, Xbox or PlayStation 5,” Dixon says. “These computer chips go into a wide variety of products and all of these industries are competing for them.”

Meanwhile, the supply problems facing new cars are supercharging the used car market. If you ask Ebert, it’s a perfect time to get rid of that extra car sitting in your garage.

“If you have an extra car, sell one because you're gonna make money on it,” he says. “If you have to buy, I would say buy new versus pre-owned cars, which are just inflated across the board. A three-year-old Ford Fusion is not worth $19,000, it's just not.”

Even though that’s what it’s going for in many parts of LA right now.