Why Cars Are So Expensive Now
Very early on in the pandemic, car sales dried up as quarantine rules set in, commuting all but went away and people remained mostly housebound. Sales for new and used vehicles picked up starting in the summer of 2020, though, and have remained red hot through 2021.
At the same time, the global supply chain has been overwhelmed, causing shortages and raising prices for everything from tennis balls to toys and clothing to refrigerators. And cars, of course. In fact, cars are in particularly short supply because of a global scarcity of microchips.
Normally, some cars languish on a dealership’s lot for weeks if not months, and it’s these vehicles that sales managers are willing to sell at a steep discount. Lately, though, new cars are much more likely to sell very soon after they hit the dealership. New Edmunds data shows that one out of three new cars is selling within the first week of arriving at a dealership, and almost half sell within two weeks.
Edmunds tracks average discounts on new cars, and from 2016 through the early summer of 2020, the typical transaction came with $2,000 to $2,500 off MSRP. Since then, there has been a sharp decline, and the average discount as of July 2021 was less than $100 below the sticker price.
Dealerships could sell cars today for less than MSRP, but why would they? “If you don’t buy at the price the dealership is asking, they know someone else will in the next couple of days,” says Drury.
The Best Day Of The Week To Buy A Car
If you want to further optimize your savings on a car purchase, buy your car on a Monday.
Most people do their car shopping on the weekend. Not many think about going to a car dealership in the middle of a Monday ready to negotiate.
On average, people save up to .61% more when buying a car on a Monday than Sunday . This could be chalked up to the fact that EVERYONE goes to buy a car on Sunday.
Check out the chart below to see the average savings on the market price of a car by day.
|Day of the Week|
If the stars align for the last day of the month to fall on a Monday, you can get even more leverage. In 2019, September 30th was a Monday! If you missed it, dont worry. Itll happen again in 2024.
Best Day Of The Week To Buy A Car
The best day of the week to buy a car is Monday. While its good to shop for a car at the end of the month or the end of the quarter, theres an advantage to shopping at the beginning of the week. Studies have shown that car buyers get better deals shopping on Mondays than any other day of the week.
This is likely because car dealerships are generally not very busy early in the week, which means the sales staff has more time to negotiate.
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Should I Buy A New Or Used Car
9 Min Read | Sep 27, 2021
If youre shopping around for some new wheels, its easy to get swept off your feet by all the fancy bells and whistles inside the newest cars to hit the market.
After all, some of the latest models come with all these cool new features like heated steering wheels and massaging seats. Thats right, the seats give you a massage. What a time to be alive. Its almost enough to make you forget about the 12-year-old used cars that are also sitting in the dealership lot. Because those are so last year.
But is new really better? What are the pros and cons?
Why Ultimately I Am Ok With Buying New
Eventually, I decided not to repair the dent. My insurance deductible is $500, and I estimate it might cost $1,200 or so to repair if I did it on my own. If I ever thought I would resell my truck, I would have to get the repair, but I decided to drive the truck into the ground. The dent doesnt affect the body or drivability of the truck in any way, just cosmetics, and $1,200 even $500 for cosmetics, especially on a truck, seems silly.
The reason I know I will never trade my truck in or sell it is that I drive way, way too muchmore than 25k miles a year. I figure if I drive for eight years and 200k miles, it wont be worth anything and I will replace it.
For somebody who drives as much as I do, and who is OK with driving one car for 8 years, I think a new car ultimately made sense. I wouldnt be able to get 200k out of most used cars, and I would start hitting costly maintenance much sooner given how much I drive.
I expect that when my life settles down a bit I will drive much less. At that point I will probably buy my next vehicle used and hopefully pay cash!
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Tip No2 Keep It Simple At The Dealership
Whenever you buy a car, focus on one thing at a time. Always remember not to give a lot of information to the salesman. Holding all of your cards close to you will help you with the leverage you need to make a good profitable deal.
Primarily, the most important thing an individual needs to do is to not tell the salesman if they want to finance their buys or they want to trade in their old car. This might make the game too complicated. If you negotiate a good deal on a car, the salesmen might jack up the interest rate on or they might give you a low ball offer on the car you want to exchange.
This is why any individual out there needs to do their due diligence and proper research before going to buy a new vehicle. Alongside that keeping, a couple of cards inside your sleeve will help you get the best deal available for you.
Purchasing A Vehicle Is The Worst Investment Imaginable
Although we may want to buy a new car before retirement, you should understand this is one of the worst investments imaginable! The minute you drive it off the dealership lot, on average, you have already lost 10% of its original value.
For Debbie, the drive home in her Jeep Compass cost her $3,000.00! By the end of the first year, she had lost about $6,000.00 – 20% of the value. Sad isn’t it?
After five years, its cost us about $16,000 in depreciation. Imagine if we could have invested that money into a 401K? Theres no point in crying over spilt milk and as I mentioned, she loves her Jeep and it is very, very reliable.
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S To Take To Return A Vehicle
- Start with the dealer. Reputable dealers, in general, prefer to make good on a sale rather than read bad reviews on social media.
- Consumer affairs. Your states consumer affairs division can be another great place to start if you dont get satisfaction with the dealership.
- Lemon laws. Laws exist in every state in the nation. Know what yours says even before buying the car. Read more about returning a vehicle.
Consider The Previous Or Outgoing Model Year
A good way to use timing to your advantage when buying a new car is by getting a vehicle that is from the previous model year. You can also get a good deal by buying a new car that is getting toward the end of its model year, for example, a 2021 model in December of 2021.
Traditionally, new model year vehicles start to come out in the fall of the previous year for example, a 2022 model will debut in the fall of 2021 and dealerships usually want last years stock gone before the new model arrives. But that doesnt always work out, and if a 2021 model is still on the lot when a 2022 model arrives, dealerships will usually offer heavy discounts on the older model in order to sell it.
That said, there could be some drawbacks to this. If you buy last years model, and the new version is substantially changed or updated with a new look or new features, you wont have the latest and greatest in technology or design. For some shoppers, thats a deal-breaker, but other drivers who just want the best price probably wont mind.
Another potential drawback of buying from the previous model year is that you cant be too picky. Youre limited to buying something that the dealer has sitting on the lot. If you have your heart set on a certain color, certain wheels, or specific features, then you may not find exactly what youre looking for in a dealers inventory from the previous model year. However, if youre flexible, this is a great strategy to get a good deal on a new car.
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There Arent Enough New Cars
Compounding the microchip shortage is a shortage in new cars over the past year and a half. With microchips unavailable, manufacturers have been unable to build new cars in the quantities they expected.
In the early stages of the pandemic, this wasnt a major problem. People werent driving as much since many businesses were either shut down or had switched to remote work. Rental car companies sold off much of their fleets because people werent traveling. This gave auto sales a brief reprieve.
As businesses have reopened and people have gone back to work, however, the demand for new cars has returned. About 40% of US households make a car purchase of some sort every year, and this year there could be even more due to pent-up demand from purchases delayed in 2020. Even worse, that demand is happening all at once.
The automotive industry, however, has not recovered from the chip shortage. As recently as August 2021, Honda informed dealers that they would be delivering 40% fewer of certain models than planned due to a combination of the chip shortage and a resurgence of COVID-19 at their factories in southeast Asia.
Tips For Buying A Car The Smart Way
New cars these days have better safety features and more tech gizmos than models from a decade ago. And let’s face it: Trading in a beat-up clunker with grimy seats is an enticing idea.
But many Americans make big mistakes buying cars. Take new car purchases with a trade-in. A third of buyers roll over an average of $5,000 in debt from their last car into their new loan. They’re paying for a car they don’t drive anymore. Ouch! That is not a winning personal finance strategy.
But don’t worry NPR’s Life Kit is here to help. Here’s how to buy a car without getting over your head in debt or paying more than you have to.
1. Get preapproved for a loan before you set foot in a dealer’s lot.
“The single best advice I can give to people is to get preapproved for a car loan from your bank, a credit union or an online lender,” says Philip Reed. He’s the autos editor at the personal finance site NerdWallet. He also worked undercover at an auto dealership to learn the secrets of the business when he worked for the car-buying site Edmunds.com. So Reed is going to pull back the curtain on the car-buying game.
For one thing, he says, getting a loan from a lender outside the car dealership prompts buyers to think about a crucial question. “How much car can I afford? You want to do that before a salesperson has you falling in love with the limited model with the sunroof and leather seats. “
2. Keep it simple at the dealership.
3. Don’t buy any add-ons at the dealership.
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Should I Buy A New Car Or Used Car
In order to get to work, drive the kids around town and get to where we need to be, most Americans still drive. In fact, according to Forbes, 77% of people were still commuting to work in 2017 via their car.
So while personal finance writers like myself will tell you reasons to never buy new cars, obviously there may be times that make sense to buy a new car.
However, it is important to keep in mind that transportation can hit the wallet pretty hard. In fact, after housing, transportation ranks second as the most costly item in adult American’s monthly budget.
There are times when our old reliable, just isn’t so reliable anymore. Thus, we are left searching for a new vehicle to take us from place to place. We find ourselves asking, Should I buy a new car or a used car?
To answer this question, it’s important to first start with assessing if a new car is needed by using this short litmus test list:
Upgrade Your Current Car
Buying a used car is relatively cheaper than buying a new one. This mainly happens because of the depreciation that an automobile goes through. A car loses most of its value as soon as it rolls out of the lot. An individual can save about 30% if not more while buying a used car.
Because of the lower price of these cars, several individuals upgrade their vehicles. They usually go for a higher class of car, which offers more luxury. That is why several individuals prefer buying a used car from a luxurious brand, than a new car that belongs to an economical brand.
Tip No5 Consider Buying A Used Car
An unsaid rule while buying a car is that the price of a car should be anywhere between 20%-30% of your yearly income. Several people do not pay attention to this rule and buy a car that they can not afford. They end up paying off the price of the car, alongside the maintenance for quite a long time. They have a lot of problems and end up extremely stressed about the purchase they made.
We live in a golden era of used cars. The reliability of cars has increased by a huge margin. Alongside that the choice of used cars available is huge. Any year, model or make is available in todays day and age in the used car market. Alongside that, a 3-year loan alongside a used car is the perfect recipe for anyone who wants a good deal on a good car without losing a lot of money to interest or depreciation.
Lack Of Supply And New Features
That enormous financial loss isnt just bad news for automotive giants, as the lack of elasticity in the global supply chain had a direct impact on consumers, who are now shocked to discover nearly empty dealer lots. This is especially true for some of Americas most popular models like Chevrolet and GMCs entire line of full-size pickups, which were put on a production pause over the course of the summer. Almost every automotive company is facing a vehicle shortage.
Its a simple calculus: fewer chips equals fewer cars, and that means a trickle of new models arriving scattershot, increasing wait times for anyone whos ordered a specific vehicle while simultaneously making it almost impossible to browse a dealers almost nonexistent inventory. In some cases, dealerships are looking at 90% fewer cars on the lot compared to the previous year, while those who are patient enough to specify the exact model they want, such as the popular Toyota RAV4 SUV, are cooling their heels for a minimum of between three and six months before taking delivery.
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Indirect Money Saving Opportunities
While some money-savers come with keeping your old car are directly apparent, some hidden costs also come with buying a new vehicle. These costs add up and contribute to the overall price of your new vehicle. By keeping a regular maintenance schedule with your current car, you could save money and hassle down the road.
Inventory Is Low Right Now
As we said before, the inventory on new cars across the board is lower than usual right now. According to , many Toyota dealers are down to just an 18-day supply of new cars, with the 4Runner being the most popular model in the lineup. There is reportedly only a 9-day supply of those.
General Motors isnt looking too good either. MarketWatch reports that many of those dealers have fewer than a 25-day supply of SUVs in which to sell, and thats factoring in the average price of nearly $100,000 for one of them. As we can see, the chip shortage has had a major effect on every automaker, even the ones with some of the largest inventories.
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