New Car Deals Can Be Found, but for How Long?
A computer chip shortage and other supply delays mean there will soon be fewer new cars for sale than there are buyers
Experts say demand for cars is higher than at any time since the beginning of the pandemic. But there’s trouble brewing. Automakers face supply shortages on parts like computer chips and rubber that are vital to car manufacturing. This tightening supply is likely to make it more difficult to get deals on new cars in the coming months, or to even find the model configuration you want, at any price. According to TrueCar, a firm that tracks the industry and is a Consumer Reports partner, new car inventories are 40 percent below normal.
“Sales were on fire in March but will cool off in the coming months,” says Nick Woolard, an analyst with TrueCar. “The chip shortage in particular has led to production cuts that are only starting to hit the market.”
What that means for consumers, he says, is that the incentives offered by dealers and manufacturers will dry up as prices on both new and used cars rise. On the other hand, say experts, there has never been a better time to sell or trade in your old car.
Woolard says there is no end in sight for the chip shortage, because it will take a while for the electronics industry to meet the increased demand from the awakening economy. Everything from laptops and EVs to refrigerators and robotic vacuum cleaners need chips to function. Woolard says a single vehicle can have hundreds of chips in it that operate both high-tech features, like automatic emergency braking systems, and more mundane ones, like turn signals and window motors.
What that boils down to is a new-car shortage that may last a while.
“You might be better off buying sooner rather than later if you can,” Woolard says.
Alain Nana-Sinkam, TrueCar’s vice president of strategic initiatives, says the idea behind all of the deals and special offers over the last year was to increase consumers’ confidence to buy cars during a time of economic uncertainty, often by engineering lower monthly payments with low or zero interest rates, along with lengthening loan terms beyond the typical 36 to 60 months to 72 or 84 months. He says that the current drop in new car supply means manufacturers don’t need to use incentives as aggressively to sell cars. That means fewer incentives and higher prices.
Experts agree that long-term loans come with their own challenges. For someone who can keep a vehicle for seven or eight years, a longer-term loan at zero percent can be beneficial. But consumers who switch vehicles every few years—or who tend to drive fewer miles—might be better off with a lease. Nana-Sinkam says that consumers who take out zero interest loans on new cars can come out ahead if they invest the money they would have spent on interest payments into something that could gain interest, or into something like a mortgage that would lower financial liability.
“A savvy and engaged consumer would take the zero percent, 84-month loan and siphon the monthly savings into an investment,” he says.
In general, CR’s experts advise caution in taking out long-term loans, though in the right situation they can represent big savings over time.
“Buyers should be aware that they might ultimately pay more depending on the annual interest rate, and no one wants to owe more on a car that's worth less than the remainder of the loan,” says Gabriel Shenhar, associate director of CR’s auto test program.
In addition, if the owner needs to quickly sell or trade in the car, he or she may owe more on the loan than what the car is worth. This is called being “upside down” on the loan. The result is that the owner may have to roll the remainder of the loan into a new one, or put additional money toward paying off the initial loan.
Do the Research
Consumer Reports recommends that shoppers research cars and various option packages online before contacting a dealership, Shenhar says. Shoppers should feel empowered to take the initiative in this process, identifying the exact car they want in their own time frame, including negotiating a price or lease deal over the phone or through email, he says. This strategy not only lessens the time exposed to any sales pressure but also maximizes social distancing. Physically going to the dealership might involve only a test-drive and the signing of final papers, he says. If you don’t have a specific deal worked out ahead of time, you still should have a model preference in mind, whether you're arriving to a dealership or shopping online or via email with a salesperson.
TrueCar’s extensive dealership network of more than 16,500 locations also can be accessed through the Consumer Reports Build & Buy program, a car-buying service that allows shoppers to configure the car they want, compare local transaction prices, and have participating dealers provide their best offer, which can and should include any of the multiple incentives now being offered.
Online Sales More Available
Nana-Sinkam of TrueCar also points out that buy-from-home programs are a rapidly growing part of what dealers are doing right now to lure in cautious would-be customers. He says that since the pandemic forced car sales online, consumers have realized that online car shopping is easier and more enjoyable, and dealers have reached the conclusion that it’s a more efficient way to sell more cars in less time.
TrueCar also has developed a Buy From Home program that allows consumers to handle all aspects of a car purchase without going to a dealership. About 30 percent of the network dealers are participating, with more expected to take part. Dealers with the Buy From Home option are identified by a special logo in car searches on the website.
As with the generous incentives, online sales are aimed at keeping customers from shopping other brands, says PureCars’ Donaldson.
"We're seeing dealerships saying yes to more things now more than ever before," says Jeremy Anspach, CEO of PureCars. "If a customer requests home delivery, the answer now is much more likely to be, 'What's your address?'"
There are also several ways to begin the buying process without leaving the comfort of home. The first stage is researching different models that fit your criteria and, potentially, scheduling a test-drive. (Many dealers are allowing customers to test-drive cars without a dealer present or are delivering test vehicles to customers' homes.) Most dealer websites contain tools for researching vehicles, and many now include a way for customers to apply for financing online, too. Some dealers can mail paperwork that needs to be signed. The level of physical disengagement depends upon location—every state has different regulations for things like contract signatures and vehicle delivery.
"Just like in 2008 and 2009 when we went through the big recession, there is a lot of motivation out there by manufacturers and dealers to sell new and used vehicles," says Mark Schienberg, president of the Greater New York Automobile Dealers Association. "If dealers can get a used car that's depreciating off their lot, they're very anxious to do it. The same thing is true with new cars."
Shop CR's Car Buying Service From Home
The Consumer Reports Build & Buy Car Buying Service is evolving to face the challenges of shoppers' needs during the pandemic. The core service engages a nationwide network of more than 14,000 participating dealers to provide up-front pricing information and a certificate to receive guaranteed savings off MSRP. A growing number of dealerships are enrolled in a Buy From Home program, enabling buyers to complete the buying process without going to the dealership.
Participating dealerships will take you through the paperwork remotely and deliver a sanitized vehicle right to your home, all at a fair price. When using the Build & Buy Car Buying Service, accessed through the car model pages, you will find Buy From Home participants denoted by a special banner highlighting “Buy From Home: Have your vehicle delivered to you and complete your paperwork at home.”