Drivers are not just experiencing pain at the pump these days, but they’re feeling pain at the car dealership as well. For those counting on getting a great deal on a new vehicle this President’s Day weekend, chances are any vehicle will cost more than in years past.
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, according to Lori Weaver Hawkins, public affairs manager, AAA Blue Grass.
“I cannot tell a lie―anyone looking for a vehicle right now, new or used, is facing an unprecedented challenge,” says Weaver Hawkins. “We’re coming up on President’s Day when we typically see some great deals on vehicles, but would-be buyers should brace themselves for sticker shock. There are ways to save, but buyers will have to do their homework.”
According TrueCar:
• The average transaction price of new vehicles jumped almost 15% last year to nearly $45,000.
• Currently, the list price for used vehicles is averaging more than $33,000, which represents a nearly 40% jump from last year.
“This is the age-old story of supply and demand,” Weaver Hawkins adds. “There just aren’t enough new or used cars on the market.”
The shortage of new vehicles is driven primarily by the chip shortage, which has significantly slowed auto manufacturing or, in some cases, halted production altogether. At the end of last year, new vehicle inventories were more than 2 million vehicles short of where they were in 2019, according to Cox Automotive Insights.
Weaver Hawkins says the shortage of used vehicles is due in large part to rental car companies looking to replenish their fleets after having sold off their fleets during the pandemic and having only used cars as an option.
The supply chain issues causing costs to skyrocket will likely continue well into 2022, accouding to AAA, but it is too early to predict whether the troubling trend will continue into 2023.
At the beginning of last year, more than 90% of all new vehicles were sold below the manufacturer’s suggested retail price (MSRP). Now, the majority of new car sales are above the MSRP. The situation has caused some automotive manufacturers to threaten to withhold inventory from dealerships that continue to sell vehicles significantly above that suggested threshold.
Not surprisingly, there is evidence that would-be vehicle buyers have been going the extra mile to save. In January, AAA reported traffic to its buying program was up almost 10% year over year, suggesting that buyers are tapping into new resources and doing more research before embarking on the vehicle-buying process.
Here are some tips for those considering a new vehicle purchase, here are some tips:
• If you can, wait to purchase a vehicle. If you do not have to buy a vehicle 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 and repair your current vehicle rather than negotiating the purchase of a new or used one. Basic vehicle maintenance may be the best investment you can make right now.
• Negotiate when possible. While consumers may have fewer choices when it comes to specific vehicle model choices, that does not necessarily equate to less negotiating power. 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 of these transaction negotiations separate from one another.
• Understand your financing options. Consumers should obtain pre-approval from their financial institution before discussing finance rates with the car dealer. By obtaining pre-approval, you will have a threshold for negotiating what interest rate you are willing to pay. If the dealer offers financing at a higher rate, you can use your pre-approval to attempt to negotiate a lower rate from the dealer. If the dealer offers a lower one, then you have saved money.
• Stick to your budget. The purchase of a vehicle is a financial, 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 it. They should buy the car that meets their needs and their budget, not necessarily the vehicle the salesperson wants them to buy.
• Save on Insurance. When creating your new vehicle budget, do not forget to factor in your vehicle insurance payments. Once you narrow your vehicle choices down to two or three, call your insurance agent and obtain a quote for each of your choices. Insurance premiums can vary greatly based on model and trim level.
• Do your homework. Sites like Kelley Blue Book 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.
“Taking the time to do the research and build a budget before heading to the dealership can help you save if you can’t delay your vehicle purchase,” Weaver Hawkins sums up. “As with most things, knowledge is power when it comes to vehicle buying, especially in the current environment. But this is also a good reminder to keep up with regular vehicle maintenance so you don’t have to unnecessarily replace your vehicle in the near future.”
AAA Blue Grass