In the market for a car? Driver beware.
With demand rising and supply falling, new and used cars are more expensive than ever, as are car dealerships report record profits.
This situation has led to some sobering figures for car buyers: the price of new cars has increased by 30 percent compared to 2002 and the prices of used cars are now 43 percent above the expected normal level, CoPilot’s return to normal index. And with interest rates up for the fifth time this year, expect the sticker shock to make your hair stand on end.
Related: The Fed Raised Rates Again. Here’s what that means for your wallet.
What is happening? First, there is a shortage of semiconductor chips, which control most of a car’s electronic functions. And less chips means fewer cars.
Second, the auto industry has yet to recover from the pandemic as manufacturers slowed production and failed to anticipate the increase in demand, thanks to stimulus measures and people who did not want to use public transport.
“The combination of the two basically means the industry produces four or five million fewer cars each year than it could sell,” said Pat Ryan, CEO of Second pilotan app that searches every dealer to find the best car prices.
But with some foreknowledge, you can weather these traffic hazards. Ryan offers strategies for car buyers in 2022.
1. Be patient
Although new car prices will rise more slowly in 2022, they will continue to reach record highs. Dealers drive prices up, sometimes nearly $10,000 above the suggested retail price. But Ryan believes the situation will improve in 6 to 12 months. “The longer you wait to buy, the more savings you’ll get,” he says. “Every two to three months that you wait, you get yourself a notch in terms of price.” Again, this situation will change when there is more stock and the dealer lots are full, but it is now a seller’s market.
2. Look at used cars that are one to three years old
If you absolutely must buy a car in the coming months, you may want to keep an eye on the near-new market cars.
“Over the past 45 days, prices of one- to three-year cars have fallen about 3.6 percent,” Ryan said. The four- to seven-year-old cars are also slowly returning to normal, albeit barely. They are down 1.5 percent.
3. Consider SUVs and Wagons
According to data from CoPilot, some used vehicle types are closer to their regular price than others. For example, the cost of SUVs fell 10 percent last month, most likely because buyers turned away from gas-guzzlers. Wagons and minibuses are also slowly creeping back to their normal price.
But more expensive vehicles are fuel-efficient compact cars, EVs and hybrids. Interestingly, used Ram vehicles are selling 34 percent above normal, according to CoPilot’s Used Car Price Premium Index.
4. Go Domestic
Of course, the cost of cars is completely out of the blue no matter what you buy. But if you dig a little deeper into the numbers, you’ll see some interesting differences. Take domestic versus foreign cars. According to CoPilot, the average price of a domestic used car in August averaged $8,301, down 12 percent from July. Meanwhile, the cost of used foreign cars has not fallen. They are still 44 percent above their expected normal levels.
Certain major brands, such as Ram, Chevrolet and Ford, remain well above their normal price. On the domestic side, Toyota, Honda and Subaru are the big items. You may want to look at less bloated brands like Pontiac, Saturn, Isuzu, and Mitsubishi.
5. Finance with Credit Unions
With interest rates rising, paying cash for your car is your best plan of action. But for most people, that’s not a reality. The next best option is to get financing from a credit union, which offers lower interest rates. Once you’ve determined your budget, base your financing on what you can afford per month.
6. Make use of your old car
Remember, this is a seller’s market. If you have a car to trade in or sell, you can leverage its value against the rising cost of vehicles. You can also use that old car to upgrade to something more economical with up-to-date features.
“It’s like seeing a housing market that’s hot,” Ryan says. “If you don’t have a house, it’s hard to get in. But if you own something with a valuation, and you can roll your profits from one end to the other, it becomes more affordable.”
That can make navigating the car market a lot more pleasant.