Article originally published on: https://www.kbb.com/
For several months, car shoppers got a breather. But prices for new vehicles continue to climb.
New car buyers paid an average of $47,148 in May, representing an increase of $472 over April.
The average used car sold for $28,312 in May. That’s about $60 less than the previous month, showing that prices leveled off a bit after a nearly 4% jump in April.
“The end of May showed interesting and divergent patterns for new and used listing prices,” said Charlie Chesbrough, senior economist with Cox Automotive, the parent company for Kelley Blue Book. “We have been expecting vehicle inflation to ease as the anniversary of the start of the chip shortage passes, and that, indeed, is occurring in the used market.”
So, is it time to head out to buy a car? Read on.
Will Supply Chain Problems End Soon?
“For nearly a year now, we’ve seen new vehicles transacting above suggested retail prices,” said Rebecca Rydzewski, research manager of economic and industry insights for Cox Automotive, the parent company of Kelley Blue Book. “High prices, a lack of inventory, few incentives — the market is changing, pushing many would-be buyers to the sidelines and forcing others to order from future stock and wait.”
New car prices have soared thanks to a collision of crises disrupting the supply chain. A global microchip shortage has most automakers unable to build cars fast enough to meet the demand for more than a year. New COVID-19-related lockdowns in Asia and the ongoing war in Ukraine have slowed the supply of other parts.
A shortage of new cars has pushed some shoppers into the used car market, inflating prices in that sector.
Does that mean it’s time to look for a new or used car? How does it compute when selling or trading in your vehicle?
Fuel-Efficient Cars in Short Supply
High gas prices are pushing many Americans to reconsider their cars. Kelley Blue Book’s Brand Watch reports, which track car shopper behavior over time, show that fuel economy is now more important to shoppers than at any point in the past five years. But dealers are short on hybrids, compact SUVs, and small cars — exactly the sort of fuel-efficient models many shoppers have in mind.
How Long Will New Car Prices Stay High?
“We expect new vehicle affordability will be a challenge for the foreseeable future,” Rydzewski says.
Many analysts believe the microchip shortage will ease near the end of the year. That could bring some relief. But, with everything from a global pandemic to the war in Ukraine affecting prices, car prices are harder to predict.
What to Expect With Used Car Prices
Our analysts expect used car prices to continue to decline during the summer. The dramatic $1,100 increase in April likely won’t happen again.
Older, Less Expensive Cars Harder to Find
If you hope to find an older vehicle and your budget is less than $15,000, these vehicles are also in short supply. More would-be new car shoppers started buying up the available used cars. So, the short supply is partly due to a lack of inventory of inexpensive used cars.
Americans are holding onto their cars longer than ever. The average car on American roads is now 12.2 years old. And automakers produced fewer cars for several years after the 2008 recession. That leaves few higher-mileage, older used vehicles available to sell.
The easiest cars to find are priced between $15,000 and $30,000. Cars priced under $15,000 remain in short supply.
How to Buy a Car Right Now
If you want to purchase a new or used vehicle, be prepared for sticker shock.
But take stock in some good news that the next car you buy will likely last a long time and help you drive safer than ever with all the technology advances and offerings.
Vehicle quality studies repeatedly show that today’s new cars suffer fewer problems than those from just a few years before. That means that any buyers of higher-priced used cars will likely see the vehicle driving on the road even longer. The same goes for those buying new ones.
With most automakers now building such durable cars, they compete by adding more and more high-tech features. Options like adaptive cruise control and Apple CarPlay are now more common than ever on entry-level vehicles.
How to Sell a Car Now
Few of us are in the position of selling a car without needing to buy a replacement for it. But, if that’s you, what are you waiting for? There may never be a better time to sell your existing car for top dollar.
The best way to get the most money for your used car is to sell it privately. But if you don’t want the hassle, this is a perfect time to sell to a dealership.
Dealers are hurting for cars to sell. They’re particularly desperate for older, higher-mileage models. As their inventory recovers, they’ll be less motivated, so now is the right time to approach them.
Trading In a Car Now
The same forces that work against you if you’re buying can help you if you’re selling or trading in a used car.
A higher price for the car you’re trading in can help get you into a newer car more easily. You might even want to try this trick in this market: shop your trade-in around.
Research the Kelley Blue Book value of your vehicle, then call several local dealerships to see what they’ll offer you for it. Or try our Instant Cash Offer tool, which brings the deal to you from various dealerships without obligation. You can choose the offer you prefer or use it to negotiate with others.
Each dealership differs in its needs. Some might be willing to pay more for your trade-in than others. Savvy shoppers know to shop their trade-in to several dealerships to see what they can get for it.
If you can afford to wait, the second half of 2022 is starting to look better for buying a vehicle. Inventory is slowly beginning to recover, particularly in the used market. Many analysts expect the microchip shortage to ease by fall.
However, prices may never return to a pre-pandemic “normal.” Several automakers have said they plan to keep inventories lower indefinitely, maintaining high prices.
Ironically, what can help shoppers is if gas prices stay high long enough, manufacturers may be forced to focus on making more fuel-efficient, small cars. Those tend to carry lower price tags.
That could lure some shoppers back to new car showrooms, so you’ll see less competition on the used car lot.
Is a Used Car Price Crash Coming?
Soaring used car prices have led some experts to speculate that an economic bubble has formed. Could used car prices come down in 2022 as fast as they shot up in 2021?
Not likely. Cox Automotive Chief Economist Jonathan Smoke said, “The core argument behind the crash scenario seems to rest on the premise that retail used vehicle prices and retail new vehicle prices are severely out of whack.”
They’re not. In 2019, before the pandemic’s massive disruption, the average new vehicle price was 179% of the average used-vehicle price. Today, it’s 163%. That makes a sudden crash in used car prices unlikely.
There are reasons to believe conditions will improve in 2022. But it will take months and occur slowly as the microchip supply recovers.
Tips for Buying a Vehicle Right Now
If you must shop right now, we recommend a few strategies that might help you find the right new or used car that fits your budget.
- Expand your search. Widen your search to a broader geographic area.
- Stay patient. Call dealerships early and often to see what’s coming off the trucks. Leave a refundable deposit if you want first dibs.
- Understand the timing. Be prepared to shop for several weeks and know it involves calling or visiting dozens of dealerships as you look for the right fit.
- Don’t jump. Shop around your trade-in as aggressively as you seek out the right car. Don’t accept the first offer. You could sell yourself short in such a good market.
It may still make sense to keep your existing car for another year if you can. If you must buy, be prepared to take excellent care of your next car to keep it running for a long time.