Car prices, new or used, rise as inventory dwindles this spring

It is a difficult time to be a vehicle buyer.

High consumer demand, along with the scarcity of microchip manufacturing (key parts needed for the operation of current cars), have reduced the inventory of new vehicles at dealerships across the country. And with drivers looking for affordable options to get off the road, the used car market doesn’t offer much recovery.

“It’s a sellers’ market, not a buyers ’market,” said Kelsey Mays, senior editor in consumer affairs at Cars.com. “And sellers don’t have that much to sell.”

According to Edmunds.com, the average price paid for a new car is about $ 40,000. For used cars, they are approximately $ 23,000.

A year ago, when dealerships and manufacturing plans closed due to the pandemic, chip makers focused on focusing on the consumer electronics industry (i.e., computers and consoles). of games) and still face the new demand from car manufacturers.

“The shortage of chips is causing a lot of chaos,” Ivan Drury, senior reporting manager at Edmunds.com, said. “But these chips are critical to a car because it’s basically a rolling computer.”

Some manufacturers have produced new cars that are sitting in their parking lots and waiting for chips to arrive and be installed, Drury said.

“It’s what they can do to get the cars as close as possible to finish,” he said.

One result of the reduced inventory is that there are fewer lower cost vehicles available. At Cars.com, car ads selling below $ 25,000 fell about 19% in March from February. There are also only 38 days of inventory at dealerships, Mays said. This compares with the usual value of 65 to 70 days.

“What’s left in dealer lots is more expensive inventory,” Mays said.

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However, while chip shortages are expected to affect production until late summer or early fall, not all car manufacturers (or specific models) have been affected equally.

“It might be a good time to explore other brands if you’re usually just loyal to one,” Drury said. “There could be a vehicle that has the same features, the same color … but it could be a different brand.”

While the manufacturer’s incentives aren’t as plentiful as in the past, there are some models that continue to be discounted. According to estimates by JD Power and LMC Automotive, the average incentive is $ 3,527, down from $ 4,415 in March 2020 and $ 3,789 in March 2019.

Chevrolet, for example, is offering deals for the 2021 equinox ranging from $ 3,500 to $ 6,500 for most versions through May 3, according to Cars.com. After the discount, the price would be $ 21,000 to $ 38,000. The new Jeep Renegade includes a factory discount of $ 2,000 to $ 6,000, which puts the price you’ll pay between $ 20,000 and $ 33,000.

If you can get a discount from the manufacturer, don’t assume there is no other place to move the price.

“That [reduced price] it should be the starting point of the negotiations, ”Mays said.

In addition, the high demand for used cars means that the existing car can also be more valuable. According to Edmunds data, the average amount of a foreign exchange transaction is about $ 17,000. The average age of these cars is about 5.5 years.

“These values ​​of change are pretty dramatic,” Drury said.

Whether you’re thinking of a new or used car, it’s worth looking beyond the dealerships near your home, Drury said. The larger the radius of your search, the more options you will have.

There are also other ways to reduce the cost of your purchase. Depending on your credit score, you may be able to find a 0% financing agreement on a new car. Otherwise, the average interest rate paid on a new vehicle loan is about 4.5%, according to Edmunds. For used cars, it is 8.1%.

Keep in mind that the longer you extend your loan (for example, for 72 or 84 months (six or seven years)) to pay your monthly payments, the more you will pay in interest (unless it is 0%) and the more chances you have that you’ll end up swapping it for a new car before you pay for it.

And in this scenario, if the value of the deal is less than what is owed on the loan, consumers may end up incorporating this “negative equity” into the loan for their next car.