Ty Wright | Bloomberg | Getty Images
It is a challenging time to be a car buyer.
High consumer demand coupled with a shortage of manufacturing microchips – critical parts needed to power today’s automobiles – have squeezed new car inventories at dealerships across the country. And with drivers looking for affordable ways to drive on the open road, the used car market doesn’t offer much relief.
“It’s a seller’s market, not a buyer’s market,” said Kelsey Mays, executive editor, consumer affairs at Cars.com. “And salespeople don’t have that much to sell.”
The average price for a new car is around $ 40,000, according to Edmunds.com. For used cars, it’s around $ 23,000.
A year ago, when dealers and manufacturing plans were closed due to the pandemic, chipmakers focused on the consumer electronics industry – i.e. computers and game consoles – and are still trying to meet renewed demand from automakers.
“The chip shortage is causing a lot of chaos,” said Ivan Drury, senior manager for Insights at Edmunds.com. “But these chips are critical to a car because it’s essentially a rolling computer.”
Some manufacturers have new cars made that sit in their parking lots waiting for chips to arrive and be installed, Drury said.
“It’s what they can do to get the cars as close to completion as possible,” he said.
One result of the squeezed inventory is that fewer cheaper vehicles are available. At Cars.com, deals for cars sold under $ 25,000 were down about 19% in March from February. There are also only 38 days of inventory at dealerships, Mays said. This is comparable to the usual 65 to 70 days.
“What remains on dealership properties is more expensive inventory,” said Mays.
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While the chip shortage is expected to affect production by late summer or early fall, not all automakers – or certain models – are equally affected.
“This could be a good time to discover other brands if you’re usually only loyal to one,” said Drury. “There could be a vehicle with the same characteristics and the same color … but possibly a different make.”
Although manufacturer incentives are no longer as numerous as they were in the past, there are some models that continue to be discounted. JD Power and LMC Automotive estimate the average incentive amount to be $ 3,527, down from $ 4,415 in March 2020 and $ 3,789 in March 2019.
It could be a good time to discover other brands if you’re usually only loyal to one.
Ivan Drury
Senior Manager for Insights at Edmunds.com
For example, Chevrolet has Equinox deals for 2021, which, according to Cars.com, will range between $ 3,500 and $ 6,500 for most versions through May 3. After the discount, the price would be between $ 21,000 and $ 38,000. The new Jeep Renegade has a factory discount of $ 2,000 to $ 6,000, so the price ranges from $ 20,000 to $ 33,000.
If you can get a manufacturer discount, don’t assume that the price doesn’t add any additional wiggle room.
“The [reduced price] should be the starting point for negotiations, “said Mays.
In addition, the high demand for used cars means your existing car may also be more valuable. The average trade-in amount is around $ 17,000, according to Edmunds. The average age of these cars is around 5.5 years.
“Those trade-in values are pretty dramatic,” said Drury.
Average cost of financing a car
| New car | used cars | |
|---|---|---|
| Duration (months) | 70 | 68.2 |
| Monthly payment | $ 575 | $ 432 |
| Funded amount | $ 35,040 | $ 23,958 |
| APR | 4.51% | 8.10% |
| deposit | $ 4,729 | $ 3,345 |
Whether you’re considering a new or used car, it’s worth looking beyond dealerships in your area, Drury said. The greater the radius of your search, the more options are available to you.
There are other ways you can reduce the cost of your purchase as well. Depending on your credit rating, you may be able to get a 0% finance contract on a new car. Otherwise, the average interest rate on a new car loan is around 4.5%, according to Edmunds. For used cars it is 8.1%.
Note that the longer you extend your loan – for example for 72 or 84 months (six or seven years) – in order to be able to afford the monthly payments, the more interest you will pay (unless it is 0%) and the greater the chance that you’ll end up trading it in for a new car before paying for it.
And in this scenario, if the trade-in value is less than the value owed on the loan, consumers can put that “negative equity” into the loan for their next car.
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