As if the pandemic hasn’t thrown us enough curveballs, we can now add a topsy turvy auto industry to the mix. Current car shortages are impacting both new and used car markets, and the consumer’s decision–making process. The large jump in prices for both new and used cars is partially because of the global chip shortage, which is hampering new-car inventories. These microchips are needed to run many of the features and systems in today’s vehicles. When automakers cut back production of vehicles when the pandemic attacked demand, chip makers applied their skills elsewhere in the form of computers, gaming systems and other areas directly correlated with a work from home/stay at home situation. So, here we are in an environment where things seem upside down. Where does that leave someone who needs to purchase a vehicle today? What should they know going into the process?
Did You Know?
- • New cars lose 10 percent of their value the minute they are driven off the dealer’s lot.
- • According to an analysis by iSeeCars.com, the average lightly used car present day costs about 3 percent less than a new version.
- • Used car prices have risen dramatically! According to Karl Brauer, executive analyst for iSeeCars.com, prices have shot up about 16 percent in the past year.
- • The most popular buying season is between May and September and creeps along between November through March (which is why any time between November and February is the best time to purchase a vehicle).
- • According to Karl Brauer, the best place to get a used car is through a rental car agency since they are more affordable, come with full records of how well they were serviced and typically come with limited warranty.
- • According to J.D. Power’s research, the average transaction price for a new vehicle was $39,942, which is an increase of 14 percent from June 2020. The average transaction price for a used vehicle was $27,984, which is an increase of 24 percent from the same time period
Do Your Research
Finding deals will be harder than ever in today’s market. Look to sites such as Edmunds, Kelly Blue Book, AutoTrader, Cars.Com and CarGurus. These websites allow you to research makes and models, read reviews and compare prices. Also, expand your search. Look for new or used vehicles outside of your immediate area. New York and Washington, D.C. have larger inventories than many. Call around to different dealerships! Shop around and use the information you get from one against the other. Be sure to shop auto loan rates through banks and credit unions prior to visiting any dealership. Unless you are scoring a 0% financing deal, you will typically make out better getting financing through a lender of your own. Discounts may not be as plentiful as they once were, but they are still out there. Some are available for recent college graduates and military members, some dealerships are offering friends and family discounts, and some clubs like Costco offer auto discounts.
Based on a search of 2.6 million new and used cars sold from August 2020 through March 2021, iSeeCars.com says these are the best vehicles to buy new since the new price is closer to last year’s price:
Tesla Model 3
Toyota RAV4 Hybrid
GMC Sierra 1500
Honda Civic (hatchback)
The vehicles that dropped in value the fastest during this same time period, which would be better to purchase used rather than new are:
BMW 5 Series
BMW 3 Series
Mercedes – Benz CLA
Mitsubishi Eclipse Cross
Try not to get hung up on color or brand. Sometimes adjusting your preferences can help increase your options. Perhaps you can live without all the bells and whistles after all. Choosing a model that is less well – equipped could help keep the price in your ballpark. Consider a sedan rather than a truck or SUV.
Trucks and SUVs are priced very high these days. If you can’t stomach the idea of settling for something less than what you had your heart set on, consider leasing until the market improves. According to J.D. Power, the 10,000-mile-per-year leases are the most common right now.
This auto market we are in right now is one for the books. How long will it last? The consensus of many is at least through the calendar year. When the typical slow down occurs in November through March, there will be a natural reduction in demand, which will help rebalance everything as more micro-chips become produced and made available. Until then, we must be creative, flexible, and prepared to engage in extreme due diligence.
Sources: Kiplinger/ Consumerreports.org/ Wall Street Journal/ The Balance
© Geier Asset Management, Inc. August 2021. Gregory Palacorolla, CFP ® is Director of Wealth Management for Geier Asset Management, Inc., a Registered Investment Advisor. The articles & opinions expressed in this material were gathered from a variety of sources, but are reviewed by Geier Asset Management, Inc. prior to its dissemination. All sources are believed to be reliable but do not constitute specific investment advice. The views expressed are those of the firm as of January 2021 and are subject to change. These opinions are not intended to be a forecast of future events, a guarantee of results, or investment advice. Any advice given is general in nature and investors must consider their own individual circumstances. In all cases, please contact your investment professional before making any investment choices. Geier Asset Management, Inc. is not responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.