High prices and low inventory, a new normal for car buyers
Buying a new or used car over the past two years has become a more difficult undertaking. Due to the COVID-19 pandemic and its aftermath, we have faced factory shutdowns, supply chain issues, a global shortage of semiconductor chips, vehicle shortages, price increases on dealer lots and fewer discounts. Add to that exorbitant fuel prices and rising interest rates, and it’s enough to make people raise their hands in resignation.
“Consumers who need a new vehicle this summer need to break old habits and relearn how to navigate smart in today’s market,” said Ivan Drury, senior knowledge manager at Edmunds. “You can’t just walk into the dealership hoping to find deals, incentives, or even the vehicle you want.”
With that in mind, here are some issues you need to know about today’s car-buying climate, along with some tips on how to best manage them.
WAITING FOR IT MAY BE HARDER THAN EXPECTED
Many people who were hesitant about buying a new car probably decided to wait out the chip shortage. In a recent interview, however, Intel CEO Pat Gelsinger said he expects the chip shortage to persist well into 2024.
Part of the problem is that building new semiconductor factories is a complicated and expensive process that takes years. Another problem is somewhat of a Catch-22: there is a shortage of chip-making machines and they themselves also need chips to work. Additionally, the lead time for these machines can be around two to three years before they are operational.
Tip: If you choose to wait, make sure your vehicle is capable of lasting at least a few years. Now is the time to fix any lingering issues or give it some much-needed maintenance.
PAY THE PRICE OF THE STICKER, OR MORE
The good old days of deep rebates or cash bonuses from manufacturers are long gone. You are much more likely to come across vehicles with markups or “market adjustments” than vehicles with a discount. We’ve seen markups as low as $1,000 and over $50,000 for high-end luxury vehicles.
You will also find vehicles with many dealer-installed accessories that can add thousands to the price of a car. Customers don’t carry much weight in negotiations these days, and if you’re not willing to pay the asking price, chances are someone else will.
Tip: It may take a little time to research, but there are a number of dealerships that choose not to add markups. They usually advertise it on their website or you can call ahead to ask. If you have to deal with a markup, be aware that the dealer is sometimes ready to negotiate on this amount.
THE SELECTION MAY REMAIN LIMITED
“As inventory numbers will eventually normalize, consumers should probably get used to the idea of ordering their vehicle rather than being presented with a surplus of choice at a dealership,” said Jessica Caldwell, executive director knowledge of Edmunds.
Caldwell says it’s likely automakers will be more conservative with their production numbers going forward and try to shift some of their sales to build-to-order.
Tip: Those set on a certain color or combination of hard-to-find options are better off ordering the vehicle. Patience is required, as a specially ordered car can take several months to arrive. If you need a new car in a shorter time, you’ll need to be flexible about colors, options, or even the model itself. This is the best way to increase the number of vehicles in stock that you can choose from.
LOANS WILL BE MORE EXPENSIVE
In May, the Federal Reserve announced that it had raised interest rates by half a percentage point, the biggest increase in more than 20 years. Data from Edmunds shows that the average annual percentage rate, or APR, for new vehicles financed in April was 4.7%. Used cars tend to have higher rates, and in April the average used car loan APR was 8%. That’s not much higher than a year ago, but the Fed has signaled it plans to raise rates a few more times in 2022.
Point: If your credit isn’t the best and you’re shopping for a used car, be sure to check with different lenders before purchase to get the best rate. Look for Certified Pre-Owned vehicles instead. They cost more than the average used car, but they’re more likely to have promotional interest rates below the average APR. Plus, they come with the peace of mind of an extra warranty.
EDMUNDS SAYS: Buying a car today can seem daunting, but if you temper your expectations, shop at reputable dealerships, and plan to order your vehicle if possible, you’ll be ahead of the game.
This story was provided to The Associated Press by automotive website Edmunds. Ronald Montoya is Consumer Advice Editor at Edmunds.