In the market for a car? Attention drivers.
With demand rising and supply falling, new and used cars are more expensive than ever as dealerships report record profits.
That situation has produced some sobering numbers for car buyers: New car prices are up 30 percent since 2002, and used car prices are now 43 percent above their predicted normal level, according to CoPilot’s Return to Normal Index. And with interest rates rising for the fifth time this year, expect sticker shock to make your hair stand on end.
See also: The Fed has hiked rates again. Here’s what that means for your wallet.
What’s happening? For one thing, there is a lack of semiconductor chips that control most of a car’s electronic functions. And fewer chips mean fewer cars.
Second, the auto industry has yet to recover from the pandemic, when manufacturers slowed production and failed to anticipate the surge in demand thanks to stimulus checks and people not wanting to use public transit.
“The combination of the two basically means the industry produces four or five million fewer cars a year than it could sell,” says Pat Ryan, CEO of CoPilot, an app that searches every dealership for the best car prices.
But with some inside information, you can survive these traffic hazards. Ryan offers strategies for car buyers in 2022.
1. Be patient
While new car prices will rise at a slower pace in 2022, they will continue to reach record highs. Dealers raise prices, sometimes nearly $10,000 over MSRP. But Ryan believes the situation will improve in 6 to 12 months. “The longer you wait to buy, the more you save,” he says. “Every two to three months that you wait, you price a notch up.” Again, that situation will change as there is more inventory and outlets are full, but it’s a sellers’ market for now.
2. Look at used cars that are one to three years old
If you absolutely must buy a car in the next few months, keep an eye out for almost new market cars.
“Over the past 45 days, prices for 1-3 year old cars have fallen about 3.6 percent,” reports Ryan. Cars that are four to seven years old are also slowly, albeit hardly, returning to normal. They fell 1.5 percent.
3. Consider SUVs and station wagons
According to CoPilot data, some used car types are closer to returning to their normal prices than others. For example, the cost of SUVs fell 10 percent last month, most likely because buyers are turning away from gas guzzlers. Station wagons and minivans are also slowly creeping back to their normal prices.
However, more expensive vehicles include fuel-efficient compacts, electric vehicles, and hybrid vehicles. Interestingly, used Ram vehicles are selling 34 percent above normal levels, according to CoPilot’s Used Car Price Premium Index.
4. Go inland
Sure, the cost of cars is completely out of whack no matter what you buy. But if you dig a little deeper into the numbers, you’ll see some interesting differences. Take domestic vs. foreign cars. According to CoPilot, the average price of a domestic used vehicle in August averaged $8,301, down 12 percent from July. Meanwhile, the cost of used foreign cars hasn’t budged. They are still 44 percent above their predicted normal.
Certain high-volume brands like Ram, Chevrolet, and Ford remain well above their normal price. On the domestic side, Toyota, Honda and Subaru are the big-ticket items. You might want to look at less inflated brands like Pontiac, Saturn, Isuzu and Mitsubishi.
5. Financing with credit unions
With interest rates rising, paying for your car in cash is your best plan of action. But for most people, that’s not a reality. The next best option is securing financing through a credit union, which offers lower interest rates. Once you’ve determined your budget, you can base your funding on what you can afford to pay per month.
6. Use your old car
Remember this is a seller’s market. If you have a car to trade or sell, you can leverage its value against rising vehicle prices. You can also use this old car to upgrade to something more fuel efficient with up to date features.
“It’s like seeing a hot housing market,” says Ryan. “If you don’t own a house, it’s difficult to get into. But if you own something with an appreciation and could roll your profit from end to end, it becomes more affordable.”
This can make navigating the car market a lot more pleasant.