If you are counting on getting a great deal on a new car this President’s Day weekend, I cannot tell a lie. Chances are any car will cost you more, not less, than in years past.
Drivers are not just experiencing pain at the pump. Car prices are as high as they have ever been – and that is a painful reality for anyone in the market for a new or used vehicle.
“Anyone looking for a car right now, new or used, is facing an unprecedented challenge,” says Keith McIntyre, spokesperson for the AAA Car Buying Program. “There are ways to save, but buyers will have to do their homework.”
According to AAA Auto Buying partner TrueCar:
- The average transaction price of new cars jumped almost 15% last year to almost $45,000.
- The average listing price for a used car jumped almost 40%, to more than $33,000.
This is the age-old story of supply and demand. There just aren’t enough new or used cars on the market.
The shortage of new cars is driven primarily by the chip shortage which has significantly slowed auto manufacturing or, in some cases, halted production altogether. According to Cox Automotive Insights, at the end of last year, new car inventories were more than two million short of where they were in 2019.
The shortage of used vehicles is the result of rental car companies that sold off their fleets during the pandemic, now looking to replenish those fleets and having only used cars as an option.
Most New Cars Selling ABOVE MSRP
At the beginning of last year, more than 90% of all new cars were sold below the MSRP (Manufacturer’s Suggested Retail Price). Now, the majority of new car sales are above the MSRP, so much so that some automotive manufacturers have threatened to withhold inventory on dealerships that continue to sell vehicles significantly above that suggested threshold.
Indications are that buyers have been going the extra mile to save. In January, traffic to the AAA Auto Buying Program website, was up almost 10% year over year, suggesting that buyers are tapping new resources and doing more research.
AAA Automotive experts say the supply chain issues causing costs to skyrocket will likely continue well in to 2022 but, they say, it is too early to predict whether the troubling trend will continue into 2023.
AAA Car Buying Tips:
- If you can, wait. If you do not have to buy a car right now, it is probably better to hold off. While we cannot predict future pricing with certainty, in most cases, it is less expensive to maintain/repair the current vehicle you own rather than negotiating the purchase of a new or used vehicle. Basic vehicle maintenance may be the best investment you can make.
- Negotiate when possible. Consumers may have less of a choice of a specific vehicle model, but not necessarily less power to negotiate. There are, typically, three negotiations that occur when purchasing a vehicle – the cost of the car; the finance rate; and the trade-in value. Keep each transaction/negotiation separate from the other.
- Understand your financing options. Consumers should obtain pre-approval from their financial institution (e.g. Bank, Credit Union, AAA) before discussing finance rates with the car dealer. By obtaining pre-approval, you will have a threshold of the best lending rate you’ll pay. If the dealer offers a higher rate, you can use your pre-approval to negotiate. If they offer a lower one, then you have saved money.
- Stick to your budget. The purchase of a car is a business decision, not an emotional decision. It’s too easy to get caught up in the “new car smell” and lose focus. Consumers need to have a budget and stick to that budget. Additionally, they should buy the car they want, not necessarily the car the salesperson wants them to buy.
- Save on Insurance. When creating your budget, do not forget to factor in your car insurance payments. Once you narrow your vehicle choices down to two or three, call your insurance agent and obtain a quote for each vehicle. Insurance premiums can vary greatly based on model and trim level.
- Do your homework. Sites like Kelley Blue Book or the AAA Auto Buying Program can tell you the actual price you will pay for a new or used vehicle, may help you to save on your Auto Loan and can provide you with an Insurance quote so you can budget accordingly.
- Buy out your lease. If your lease is set to expire in the next six months, chances are the residual value you will pay for ownership is significantly less than the replacement value.