If you’re in the market for a new set of wheels, you may be faced with sticker shock. Prices for new and used cars have steadily risen since the beginning of 2020, and experts aren’t expecting them to fall any time soon. Here’s what you need to know about the current auto loan market and how to navigate it like a pro.
Why Are Car Prices So High?
The pandemic has impacted 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 has jumped 9.4% in the last year, 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 first arrived in America, demand for new and used cars increased significantly. This was largely due to the many people who were avoiding public transportation for safety reasons. In addition, the mass exodus from big cities and their high rates of infection also boosted the demand for new cars.
At the same time, the 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 three months. The factory shutdowns reduced vehicle production by 3.3 million, and sales dried up, along with subsequent trade-ins.
- The production freeze prompted chipmakers to refocus 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, which in turn led 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 naturally triggered a steep increase in the prices of both new and used vehicles.
Rethink Buying a Car
If you’re in the market for a new car and don’t want to pay top dollar, you may want to rethink your decision. If your car is in decent condition, consider holding onto it a little longer until the market stabilizes. To go this route, consider these 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 in This Market
If you’ve decided to brave the market and buy a car, 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 then they used to be. This is because they have more customers than they can service now. That may translate to only slight savings from a car’s sticker price or a refusal to negotiate on the price at all. Processing a car loan may also take longer, so consider getting pre-approved.
Second, expect to pay a lot more than usual for your new ride. Do your research before heading to the lot to make sure you don’t overpay. 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.
Lastly, the used-car market has been hit even harder by the pandemic since more consumers have been forced to shop for used cars instead of new vehicles. So if you’re thinking about buying a used car, prepare to encounter a highly competitive market where bidding wars are becoming the norm and cars are overpriced.
If you decide that purchasing a car is the best road for you, check out this Car Buying Cheat Sheet to help you buy a car like a pro. Taking care of the car you have may be the best option for you, so make it your own! Add some seat covers, bumper stickers, or a new air freshener. Sprucing it up can help give it that new car feeling.
This article is for educational purposes only. Tulsa FCU makes no representations of the accuracy, completeness, or specific suitability of any information presented. Information provided should not be relied on or interpreted as legal, tax, or financial advice. Nor does the information directly relate to our products and/or services terms and conditions.