What You Need to Know
Navigating the current auto market can be tough. If you’re in the market for a new set of wheels, get ready to experience sticker shock. Prices on new and used cars soared since the beginning of 2020, and experts aren’t expecting them to fall anytime soon. Here’s what you need to know before you venture out to dealership lots.
Why are auto prices so high in today's market?
The coronavirus pandemic touched every sector of the economy and the auto industry is no exception. According to the U.S. Consumer Price Index, the price of used cars and trucks jumped a full 9.4% in the last 12 months, while the price of new cars and trucks increased by 1.5%. The drive behind the increase is multifaceted and linked to several interconnected events.
When the pandemic hit American shores, demand for new and used cars increased significantly. This was largely due to the many people avoiding public transportation for safety reasons. The mass exodus from big cities and their high rates of infection also boosted the demand for new cars.
At the same time, supply of new and used cars dried up, thanks to these factors:
- The pandemic put a freeze on the production of new vehicles for nearly a full business quarter. The factory shutdowns reduced output by 3.3 million vehicles and sales dried up, along with subsequent trade-ins.
- The production freeze prompted chipmakers to focus on the electronics industry instead of creating chips for automakers. Now, the industry is still scrambling to keep up with the automakers’ demand.
- Business and leisure travel was halted for months. This led to a steep decline in travelers renting cars, leading to rental agencies holding onto more of the cars in their lots instead of selling them to used car dealerships.
The rise in demand and shortage of supply triggered a steep increase in prices of both new and used vehicles in the current market.
Rethink your auto purchase
If you’re in the market for a new car and the prices are scary, you may want to rethink your decision. If your car is in decent condition, consider holding onto it until the market stabilizes. To go this route, consider the following tips to help make your car last longer:
- Use a trickle charger to keep the battery in excellent condition.
- Change your filters regularly.
- Follow the service schedule. Most cars need to be serviced every 10,000 miles.
- Keep all fluid levels high. This includes coolant, oil, antifreeze and windshield washer fluid.
- Drive carefully to avoid sudden braking and prolong the life of your brakes.
- Replace spark plugs when they begin showing signs of wear or melting. Depending on the vehicle, spark plugs need to be replaced every 30,000-90,000 miles.
- Check your tires regularly and rotate and inflate them as needed.
- Pay attention to all warning lights that are illuminated on the dashboard.
- Have your car rust-proofed to keep the exterior looking new.
Tips for buying a car
If you’ve decided to go ahead and begin navigating the current auto market, it’s best to adjust your expectations before hitting the dealership.
First, a seller’s market means many dealerships will not be as eager to close a deal as they tend to be. They have more customers than they can service now. That can translate into a willingness to move only slightly on a sticker price of a car, or a refusal to negotiate a price at all. Processing a car loan may now take longer, too.
Second, expect to pay a lot more than usual for your new set of wheels. If you’re looking to purchase a new car, prepare to pay approximately $40,000. As mentioned, the supply of new cars is down while demand is up, so you likely won’t have as many choices as you may have had in the past.
The used-car market has been hit even harder by the pandemic since prohibitive prices and a short supply has pushed more consumers to shop for used cars instead of new vehicles. This increase in demand, coupled with the dwindling supply, has driven the prices of used cars up to an average of $23,000, according to Edmunds.com. If you’re thinking of buying a used car, prepare to encounter a highly competitive market where bidding wars are the norm and cars are super-expensive.
If you’re looking to take out an auto loan, consider one with your credit union. Recent data shows rates on auto loans at credit unions are a full two points lower, on average, than loans through banks. Car prices may be soaring, but credit unions continue to deliver low rates and excellent member service you can really bank on. To view Harvester Financial's current auto rates, click here. If you're ready to apply for an auto loan, visit https://www.harvesterfcu.org/auto-loans/.
The auto loan market has been hit hard by the coronavirus pandemic. Follow the tips outlined here and you'll be navigating the current auto market with ease.