New or used, car prices soar as stocks drop this spring
Ty Wright | Bloomberg | Getty Images
It’s a tough time to be a car buyer.
Strong consumer demand coupled with a manufacturing shortage of microchips – key parts needed to run cars today – have squeezed inventories of new cars at dealerships across the country. And with drivers looking for affordable options to hit the road, the used car market isn’t offering much respite.
“It’s a sellers market, not a buyer’s market,” said Kelsey Mays, senior consumer writer for Cars.com. “And the sellers don’t have much to sell.”
The average price paid for a new car is around $ 40,000, according to Edmunds.com. For used cars, it’s about $ 23,000.
A year ago, when dealerships and manufacturing plans were closed due to the pandemic, chipmakers focused on the consumer electronics industry – that is, computers. and game consoles – and are still scrambling to meet renewed demand from automakers.
“The chip shortage is causing a lot of chaos,” said Ivan Drury, senior director of ideas at Edmunds.com. “But these chips are essential to a car because it is essentially a running computer.”
Some manufacturers are having new cars produced that are in their parking lots waiting for the chips to come in and be installed, Drury said.
“This is what they can do to get the cars as close to completion as possible,” he said.
One of the results of tight inventory is that fewer lower cost vehicles are available. On Cars.com, listings of cars sold below $ 25,000 fell about 19% in March compared to February. There are also only 38 days of inventory at dealerships, Mays said. This compares to the usual value of 65 to 70 days.
“What’s left on the dealership lots is the more expensive inventory,” Mays said.
However, while the chip shortage is expected to impact production through late summer or early fall, not all automakers – or specific models – have been affected by the same way.
“This might be a good time to explore other brands if you’re generally loyal to just one,” Drury said. “There could be a vehicle that has the same characteristics, the same color … but could just be a different make.”
While manufacturer incentives are not as plentiful as they have been in the past, some models continue to receive discounts. The average incentive amount is $ 3,527, compared to $ 4,415 in March 2020 and $ 3,789 in March 2019, according to estimates by JD Power and LMC Automotive.
Chevrolet, for example, has offers on the 2021 Equinox ranging from $ 3,500 to $ 6,500 for most trims through May 3, according to Cars.com. After the rebate, the price would be between $ 21,000 and $ 38,000. The new Jeep Renegade comes with a factory discount of $ 2,000 to $ 6,000, which puts the price you would pay between $ 20,000 and $ 33,000.
If you can get a discount from the manufacturer, don’t assume that there’s no extra wiggle room in the price.
“This [reduced price] should be the starting point for negotiations, ”Mays said.
Plus, the high demand for used cars means your existing car may be worth more as well. The average trade amount is around $ 17,000, according to data from Edmunds. The average age of these cars is around 5.5 years.
“These exchange values are pretty spectacular,” Drury said.
Whether you’re considering a new car or a used car, it’s worth looking beyond just dealerships near you, Drury said. The greater the radius of your search, the more options you will have.
There are other ways to reduce the cost of your purchase as well. Depending on your credit score, you may be able to find a 0% financing offer on a new car. Otherwise, the average interest rate paid on a new car loan is around 4.5%, according to Edmunds. For used cars, it’s 8.1%.
Be aware that the longer you extend your loan – say 72 or 84 months (six or seven years) – to pay the monthly payments, the more interest you will pay (unless it is 0%) and the more likely you are to end up. by exchanging it for a new car before paying for it.
And in this scenario, if the trade-in value is less than what is owed on the loan, can consumers end up incorporating this “negative equity” into the loan for their next car.