What you can do if you absolutely have to buy a car in this expensive market
The same thing that happened with toilet paper last year – shortages and panic buying – is now happening with cars.
“In my 28 years in business, I’ve never seen anything like it,” says Oren Weintraub, president of Auto Authority, a car-buying concierge service in the Los Angeles area. Microchip shortages, pent-up demand and a “burning” used car market are driving up prices and fueling a buying frenzy, he says.
Used cars will be expensive for a while, as new car shortages today mean fewer used cars on the road. But the production of chips will increase and the demand for new cars will be satisfied; the Federal Reserve estimates that six to nine months before chip shortages ease and inventories rise. Dealer lots will not be empty forever.
If you are considering a new car, the wisest thing you can do is wait. Yet many people may be entering the market right now – an end of lease, an accident, or a new model they just can’t resist.
Here are some common situations you might encounter.
You need a new car
Don’t count on discounts on new cars. “I tell people they need to recalibrate their idea of what kind of rebate they can get,” says Ron Montoya, editor of consumer advice for car buying site Edmunds.com.
Know the market, he adds. If you shop around and all the dealers charge the price of the sticker, this is the price you will have to pay. But don’t make assumptions, says Weintraub. While one dealership asks for the sticker price, another might even sell the same car on account, a difference of at least $ 1,000.
Look for savings products that thrift merchants don’t control, like factory discounts, low interest financing, loyalty and conquest programs, and even discounts offered by family plans. and friends.
Line up early. Inventories are so low that you may need to bid on a car before it even reaches the factory dealership. Find a responsive salesperson and ask which cars are inbound (often this is also noted on the dealership’s website). Then get your agreement in writing, noting the vehicle identification number, or VIN. Leave a deposit and make sure you get a receipt.
Be flexible. With limited stocks and multiple buyers bidding on the same car, you might not get the Candy Apple Metallic Red with a leather interior and a moonroof. Instead, choose multiple colors to research and find your must-haves.
Watch out for extras. With fewer vehicles to sell, dealers can try to maximize their profits by adding expensive extras to their cars such as locks, paint guards, fenders and anti-theft devices, Weintraub explains. Often times, these dealer add-ons are listed on an addendum, an additional sticker next to the factory sticker in the window of new cars. Find out early in the process what is included in the listed price.
Your lease ends
You have three options besides just returning the car:
Extend your lease. If your rental contract ends soon, you can usually extend it with the same monthly payment. This means that you don’t need to re-rent or buy a car while the prices are high. The manufacturers’ rules for lease extensions differ slightly, but Scot Hall, executive vice president of Swapalease.com, says they will generally allow you to continue driving the car for the same monthly payment for several months.
Weintraub warns that if you extend your lease, you could be outside of the car’s bumper-to-bumper warranty coverage. In addition, you may have to pay a hefty registration fee for an entire year.
Buy out your lease. If you love your rental car, consider purchasing it directly. You know its history, and in today’s market the buy-back price can be much cheaper than a comparable car on dealership lot. You will need to find a lender who lease buyout loans.
To see: Should you buy your rental car? Yes here is why
Trade in your car. You will get more because the market is hot, but pay more because the market is hot. “It’s going to be a push,” Hall says.
You want to make a profit
A lot of people don’t realize that they can sell their rental car and retain the remaining equity. If you can wait a few months until the market cools down to buy another one, you’ll have a good down payment for your groceries.
Weintraub says he got one of his clients for $ 17,000 when he returned his Chevrolet Tahoe because its value had skyrocketed above the residual value the lender expected at the end of the lease.
In today’s market, values are on average around 25% higher than a year ago, according to the Manheim Used Vehicle Value Index. Some cars may have increased in value much more than that.
Dealers and online retailers eager to fill their inventory can offer to buy out your lease and make a difference, greatly simplifying the process of leveraging your capital. But those sales divert vehicles that would have been returned to new car dealerships for sale on their lots – a major source of profit. Several manufacturers have put in place restrictions that make these third party buyouts more difficult.
Be sure to read: Why automakers are closing this loophole in your rental car
Of course, renters can still buy their cars and then sell them directly, but that would involve setting up financing as well as paying sales tax, which could drastically reduce the potential profit.
Finally, there is the question of how to get around until you buy another car. Consider breaking out of the bubble by picking up the end of the lease from someone else on Swapalease or LeaseTrader. You can even call taxis or rideshare services until the prices drop. While car rental companies are also expensive these days, you might find something on Turo that meets your needs for a few months.
Your car has been totaled
If your car was destroyed in an accident, your collision coverage (or the driver’s liability policy) owes you the fair market value of the car just before it was damaged. This figure has always been negotiable, and it is not uncommon for the settlement to be adjusted if the owner can demonstrate the superior value of their car.
Check out any figure offered to you by getting buyout offers from online retailers (for the condition of the car before the accident, of course) or by speaking with the used car buyer at local dealerships. .
To see: If you are shopping for a used car, these are your best bets
Then, if you have to buy another car, you will at least start with a total car settlement that reflects the current climate.
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Philip Reed writes for NerdWallet. Email: [email protected] Twitter: @AutoReed.