If you bought or tried to buy a car at a dealership – new or used – in 2021, it probably wasn’t an enjoyable experience in terms of price or selection. COVID-19, 7% overall inflation, supply problems and the shortage of semiconductor chips drove new and used car prices in the same direction: higher.
Today, car manufacturers have adapted better to the issues of producing cars in a COVID-19 environment, but prices and the chip shortage are still daunting problems.
The average price of a new car just passed $47,000 for the first time, and the average price for a used car in November was $29,000, up 39% from 12 months earlier, according to U.S. News and World Report.
But it is the chip shortage that is currently driving the vehicle-supply shortage. A typical new car uses up to 150 chips to operate all the electronic components, and an electric car uses about 3,000 chips, according to tech news source TNW.
So, what should a car buyer do in 2022 in order to feel that the process is reasonable, fair and successful? Here are a few tips to consider:
If you need to finance a car purchase, the first thing to understand is what you can afford. Having dreams of a Porsche with a Camry budget will make the process even more frustrating.
Visit your financial institution to get a better idea of what you can afford. After looking at your finances – monthly salaries, debts, other obligations and credit scores – they should be able to give you a better idea of what you’ll be able to spend on a car.
Research and flexibility
Before you set foot on a car lot or think about buying a car online, do your research and decide on three models that will work for you and the features that must be included. As you progress through the car-buying process, you need to be willing to compromise on fringe features – like color – that may not be available.
Car dealers know that they are in a position of unprecedented negotiating strength. In 2021, according to J.D. Power, the average car was in a dealer’s possession for 17 days before it was sold, compared to 70 days before the pandemic. If you don’t like their price, someone else will trot in shortly and buy the car.
While price is pretty much locked, dealers may be willing to talk about favorable pricing on extended-warranty coverage, free oil changes or longer free-maintenance periods.
Your position of strength
If you have a trade-in car, that’s your ace – and you should treat it as such. In November, the average trade-in was worth about $23,000, up 50% from November 2020, according to Money.com. Start with the Kelly Blue Book online app. It will give you a value range for your car.
Then take your car to several local dealerships and see what they will pay you outright for your car. Going through this process could add hundreds or thousands of dollars to your trade-in price.
Order exactly what you want
If you can’t find a car at a dealer or online that fits your needs, don’t be pressured into settling for a car that you won’t like next week. Consider custom ordering on a manufacturer’s website the exact model that has all the features that you want. Then you can send that information to your dealer of choice.
The downside is that it can take two, three or four months for your car to arrive, and you’ll have to pay the manufacturer’s suggested retail price or more.
But you’ll also eliminate some of the costs that dealers have related to a car sitting on their lot, like finance charges that dealers pay to manufacturers. Eliminating those costs may lower the price.
Waiting and watching
If you have the luxury of waiting a year or two, the vehicle supply shortage and the chip shortage should abate. Industry experts expect that sales in late 2022 will look more like pre-COVID sales, and there are much stronger volume outlooks for 2023 and 2024, according to Cars.com.
Keep an eye on local dealership lots and see if their inventory is growing, and read about current supply issues. Generally, an informed buyer will do better when a market is turbulent and less predictable.