If you’re in the market for a new-to-you vehicle, you’re likely prepared to experience sticker shock. It’s no secret that prices on new and used cars have soared since the beginning of 2020, and experts aren’t expecting them to fall anytime soon. In addition, supply is low and finding your dream car can be challenging – or impossible. Here’s what you need to know about the state of the market, as well as the pros and cons of buying a car now.
The state of the market
Prices on new and used cars are at all-time highs, thanks to the trickle-down effects of the pandemic.
During the months-long lockdown, production of new vehicles and car parts halted. At the same time, the demand for new cars increased exponentially as many drivers moved from cities to suburbs. In addition, lots of consumers shunned public transportation out of safety concerns. When production resumed, manufacturers were unable to maintain their pre-pandemic output, let alone meet the increased demand, thanks in part to a shortage of car parts and an ongoing lack of labor.
The used-car market has been hit most by the pandemic. First, the prohibitive prices and short supply of new cars has pushed more consumers to shop for used cars instead of new vehicles. Supply is low, as car rental services, which generally sell their cars to dealers, experienced a severe decline in business for a full quarter and held onto their used cars for longer. The unbalanced supply and demand has driven the prices of used cars up to an average of $41,200, according to car-buying app CoPilot.
Though production of new cars has since picked up and the used car market has recovered a bit, it’ll be a long time before the market completely stabilizes and prices drop.
Pros of buying a car now
Purchasing a car this year won’t come cheap, but there are several advantages to buying a car now:
- Favorable interest rates. Rates are climbing, but they are still relatively modest. If you plan to take out an auto loan to cover the cost of your new car, you may walk away with a low-interest loan.
- Get your wheels while you can. While no one can predict the future, the last couple of years have been especially tough for consumers. Most recently, inflation and supply-chain issues have hit the pockets of the average American in a big way. The car market does seem to be improving, but there’s no way to know how the Russia-Ukraine conflict will affect the supply of new cars over the next few seasons. If you find a car you like, you may just want to grab it while you can.
Cons of buying a car now
If you decide to go ahead and purchase a new or used car this year, anticipate these disadvantages:
- Reluctant sellers. A seller’s market means many dealerships will not be as eager to close a deal as they generally would be under typical market conditions. Don’t count on negotiating the sticker price on the car down to a lower price. Dealerships may only move slightly on a price, or refuse to move at all. Processing a car loan may take longer as well.
- Higher prices. Of course, the biggest disadvantage to purchasing a car now is facing higher prices. New cars are retailing at $40,000, on average.
- Low supply. Unfortunately, you’ll likely have slim pickings when buying a car this year. Some car companies have officially delayed the rollout of newer models for later in 2022 as manufacturers are still scrambling to catch up with the gap in production that is still affecting the supply. It may be years until the supply of cars can satisfy the demand.
If you’re looking to take out an auto loan to cover your car purchase, consider one through AgFed. The most recent data shows that auto loans at credit unions are a full two points lower, on average, than auto loans through banks. Car prices may be soaring, but credit unions continue to deliver lower rates and quality service you can really bank on.
The auto loan market has been hit hard by the coronavirus pandemic. Follow the tips outlined here to help you decide whether it makes sense for you to purchase a car this year.
Your Turn: Have you purchased a car this year? Tell us about it in the comments.