How to Navigate Surging New-Car Prices
Less availability and higher prices make buying a new car challenging, but there is a silver lining
If you’re looking to buy a new or used car, now might not be the best time to find a great deal. Long story short, it’s a seller’s market, and analysts say it may stay that way well into next year. A global semiconductor shortage has been causing production delays, leading to fewer new cars for sale and fewer manufacturer incentives to buy them. Less availability has driven up new-car prices, while pushing people toward an already tight supply of used cars. Those pre-owned cars have gotten drastically more expensive because of the rise in demand from consumers, as well as rental car companies that are being creative in replenishing the fleets they liquidated last year.
Fortunately, there is a bright side: Used car values have never been higher, giving new-car shoppers a leg up if they have a car to sell or trade in. And there are ways around limited inventory and higher prices. Chief among them are being flexible and managing your expectations. Armed with a realistic understanding of what’s available, you can begin looking in corners of the market that have been less popular. They might have better availability and, if you’re persistent and lucky, a good deal. One thing experts agree on: If you find a car that meets your needs for a reasonable price, be ready to jump on it. The current market moves quickly.
“The demand for SUVs and pickups continues to be high,” says Jake Fisher, senior director of Consumer Reports’ Auto Test Center. “But a midsized sedan might suit your needs just as well, and with greater availability, you are much more likely to find a good deal on one.”
Where Have All the New Cars Gone?
Do new-car dealerships where you live seem to have fewer cars on the lot than usual? There is a constellation of reasons behind that phenomenon, with the underlying cause being the COVID-19 pandemic, when most people stopped buying cars for a few months. Automakers responded to the public health crisis by shutting down manufacturing plants—both to protect workers’ health and to stop the flow of cars into a moribund market. The semiconductor manufacturers that supplied them with the microchips that control almost everything in a new car, from navigation computers to electric door locks, slowed down production. At the same time, they began directing their microchips to other uses, such as the tablets and other devices that provided homebound consumers with streaming entertainment and video meeting capability when people were stuck at home.
Car sales came back with a vengeance at the beginning of 2021. Businesses were opening back up, consumers were receiving stimulus checks, and people wanted new and used cars. Nick Woolard, an analyst for TrueCar, an automotive pricing and information service that is also a Consumer Reports partner, says that demand is higher than it has been in more than a decade. But car manufacturers haven’t yet come back up to speed, thanks to a bottleneck in the supply of microchips. Some manufacturers have had to pause production while waiting for the chips they needed to finish new vehicles. Beyond complications from the pandemic, the semiconductor industry faced further setbacks in the form of extreme weather in Texas and a semiconductor plant fire in Japan as it was working to adjust to higher demand.
The result of all of that has been fewer cars for sale on dealership lots, and fewer incentives from manufacturers.
“There’s less choice, and people are making concessions,” Woolard says. “You might not get your first choice of color, or all the options you want, or even the exact car you want. We’re hearing stories of people going in for an SUV and coming out with a sedan.”
What to Do About It
Times are tough, but there’s no reason to lose hope. By following these key strategies, you can proactively eliminate some of the roadblocks you will face along the way, easing the search and purchase process.
Get prequalified. This is good advice during the best of times, but as especially now, says Jon Salzberg, director of Credit Karma, an organization that helps car buyers get a credit score and keep track of their personal auto financing. Getting prequalified gives the buyer a leg up in a negotiating process that is currently skewed in the seller’s favor. Since you’re likely to be paying more than usual for a car, the best deals to be found are in financing, he says.
Cast a wider net. If you’re searching local dealerships, look outside your geographic area for more options. You can also shop for cars using a number of online search tools that typically allow you to specify the distance you’re willing to travel to make a deal.
Leverage your existing car. Used car prices have never been higher, which means that selling or trading in your old car will make more of a dent in the price of a new car. Woolard says dealers are hungry for trade-ins. You may be able to net significant savings if you can buy something less popular, like a sedan or small hatchback; something with fewer popular features; or a front-drive SUV, rather than an AWD one. If you have an extra car you’re not using much, now is a good time to sell it. You can use the money to help finance a more expensive car now or in the future.
Be flexible. SUVs and pickups are immensely popular, and although Woolard says manufacturers are prioritizing these models as they attempt to ramp up production, there may be deals to be had among less popular models. He says that while incentives have dried up for popular models—in fact, some people are paying above MSRP—there are still incentives for small sedans and hatchbacks, even if the incentives aren’t as enticing as they were at the end of last year. Keep in mind that there won’t be as many available choices as there were last year. You may want a red car with heated seats and built-in navigation, but if you’re willing to make concessions, you’re more likely to get a car.
Fix your old car. Even an expensive repair like an engine rebuild or a transmission replacement may be worthwhile right now. If you’ve fallen behind on routine maintenance, get back on schedule, and stay on top of it so that your vehicle will last until the car market calms down again. If you can’t decide whether to fix it or move on, CR suggests figuring out how many months you want to keep the car, then dividing the cost of the repair by that many months. The monthly amount for the repair could be cheaper than the monthly payment on a new car. If you don’t have enough money to pay for a major repair up front, you may be able to find a shop that will finance the work.
Refinance your old car. If you’re inclined to wait for the market to change, Salzberg says the higher value of used cars can make it easier to get qualified to refinance your car loan. Credit Karma has found that consumers can save an average of $3,000—about $55 per month—over the life of the loan by refinancing.