New or used car prices rise as stocks fall

It’s a challenging time to be a car buyer.

The huge consumer demand, together with the manufacturing shortage of microchips – important parts needed for the current cars to work – has squeezed new car stock at dealers across the country. And if drivers are looking for affordable options to drive on the open road, the used car market does not offer much delay.

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

The average price paid for a new car, according to Edmunds.com, is about $ 40,000. For used cars, it’s about $ 23,000.

A year ago, when dealers and manufacturing plans were discontinued due to the pandemic, chipmakers focused on concentrating on the consumer electronics industry (i.e. computers and game consoles) and are still meeting the renewed demand from automakers.

“The shortage of chips is causing a lot of chaos,” says Ivan Drury, senior manager of insights at Edmunds.com. “But the chips are critical to a car because they’re basically a rolling computer.”

Some manufacturers have new cars manufactured that sit in their parking lots waiting for chips to arrive and install, Drury said.

“This is what they can do to get the cars as close to completion as they can,” he said.

One consequence of the composite inventory is that fewer lower-cost vehicles are available. At Cars.com, offers for cars selling less than $ 25,000 have dropped by about 19% since March. There are also only 38 days of stock at retailers, Mays said. It can be compared to the normal value of 65 to 70 days.

“What’s left over at merchant parties is more expensive stock,” Mays said.

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Although the shortage of chips is expected to affect the end of summer or early autumn, not all car manufacturers – or specific models – will be affected equally.

“This may be a good time to explore other brands if you’re usually just one,” Drury said. “There may be a vehicle that has the same characteristics, the same color … but just a different brand.”

Although incentives for manufacturers are not as plentiful as in the past, there are some models that are still discounted. The average incentive amount is $ 3,527, lower than $ 4,415 in March 2020 and $ 3,789 in March 2019, according to estimates from JD Power and LMC Automotive.

For example, Chevrolet is offering deals on the 2021 Equinox that range from $ 3,500 to $ 6,500 for most versions through May 3, according to Cars.com. After the discount, the price will be from $ 21,000 to $ 38,000. The new Jeep Renegade has a factory discount of $ 2,000 to $ 6,000, which puts the price you would pay between $ 20,000 and $ 33,000.

If you can get a manufacturer discount, do not assume that there is no extra winding space in the price.

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

In addition, the high demand for used cars means that your existing car can also be more valuable. According to Edmunds’ data, the average amount for a trade-in is about $ 17,000. The average age of those cars is about 5.5 years.

“The trade-in value is pretty dramatic,” Drury said.

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

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

Be aware that the longer your loan – for example 72 or 84 months (six or seven years) – extends to afford the monthly payments, the more you will pay in interest (unless it is 0%) and the greater the chance that you will eventually trade it for a new car before you pay for it.

And in the scenario, if the trade-in value is less than what is owed on the loan, consumers could eventually roll the ‘negative equity’ into the loan for their next car.