Rising inflation and low car inventory make it a challenging year for car-buying
In 2021, we expected 2022 to be a much brighter year for the automotive market. But things have not turned around so quickly. A combination of crises, including the war in Ukraine, COVID lockdowns in Asia, supply chain problems and a microchip shortage, has created issues. Inflation has hit a 40-year high. A shortage of new cars has also shifted some typically new car buyers into the used market.
When was the last time dealers truly held all the cards? Between 1942 and 1945 during WWII, there was low production and immediately following, the demand well exceeded the supply. Some dealers have implemented a non-negotiation policy and others started charging more than the MSRP!
This spring, new car buyers paid an average of around $46,000. The average used car sold for around $28,000. Average used car prices rose 37 percent in October of 2021 when compared to the prior year and increased an average of $1,100 over the last month. While the very beginning of the year saw some decreases, those were short-lived. Americans are holding onto their cars longer, an average of over 12 years, given the short supply in cars, especially those under $15,000.
There are a couple of positives about today’s automotive market. If you have a vehicle to trade-in, you might get a much higher price to help reduce the purchase price of a new or used car. Also, long gone are the several hours at a dealership with paperwork and pressure to finalize a car purchase. You can accomplish a new car purchase in a half-hour on the internet with websites such as Carvana, and have that new car delivered right to your home. Over 30 percent of new car sales are now online.
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All things considered, it isn’t a good year to buy a new or used car. However, next year could be questionable too, as the issues won’t clear up overnight. According to an expert at J.D. Power, new-car inventories could start to increase in late 2022 and dealers could start to increase incentives by early 2023. The microchip shortage could ease slightly by the end of the year, but it is hard to predict if prices will remain high throughout the next year. So, if you can wait, do. If possible, wait until 2024. But if you can’t, you will need to have the flexibility and the ability to act quickly. Plus you will likely have a price and interest rate that are higher than you planned.
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