Ty Wright | Bloomberg | Getty Images
It’s a tough time to be a car buyer.
Strong consumer demand coupled with a shortage of manufacturing microchips – key parts needed to run automobiles today – have reduced 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, consumer affairs editor 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 turned to the consumer electronics industry – that is, computers and game consoles – and always strive to meet the renewed demand from automakers.
“The chip shortage is causing a lot of chaos,” said Ivan Drury, senior director of insights at Edmunds.com. “But these chips are essential for a car because it is essentially a running computer.”
Some manufacturers are producing new cars that are set up in their parking lots and wait for the chips to come in and be installed, Drury said.
“This is what they can do to get the cars as close to finishing as possible,” he said.
One of the results of squeezing inventory is that fewer, cheaper vehicles are available. At Cars.com, listings of cars sold under $ 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.
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However, while the chip shortage is expected to impact production through late summer or early fall, not all automakers – or some 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 be a different make.”
While manufacturers’ incentives are not as plentiful as they have been in the past, some models continue to be downsized. The average incentive amount is $ 3,527, up from $ 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 Equinox 2021 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, putting the price you would pay between $ 20,000 and $ 33,000.
If you are able to get a manufacturer discount, don’t assume that there isn’t additional wiggle room in the price.
“This [reduced price] should be the starting point for negotiations, ”Mays said.
Additionally, the high demand for used automobiles means that your existing car may also be more valuable. 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 dramatic,” Drury said.
Whether you’re considering a new or used car, it’s worth looking past the 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 0% financing 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 is 8.1%.
Be aware that the more you stretch 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 you will have. chances. that you will end up trading it in for a new car before you pay 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.