Car shoppers might find that bargains are scarce this year. But better prices on trade-ins could ease the pain.
Last year's pandemic-induced production delays, combined with a continued shortage of computer chips and other automotive components, have tightened the supply of new models — especially popular sport utility vehicles and pickups.
The inventory of new vehicles at dealerships in March was down more than a third from a year earlier, according to automotive website Edmunds. That means it might be challenging to find a new ride with the colors and features you want at a price you can afford.
"It's harder to get exactly what you want," said Ivan Drury, senior manager of insights at Edmunds. "Don't expect heavy discounts."
Consumers have started buying cars again, as pent-up demand from the pandemic and the receipt of stimulus checks send shoppers to dealer lots. Car sales in the first three months of the year were "extremely strong," according to the National Automobile Dealers Association, an organization representing franchised dealers.
"Sales demand has been far stronger than anyone expected," said Michelle Krebs, senior director of automotive relations at Cox Automotive.
She attributed the high demand to well-heeled consumers who continued working during the shutdowns in 2020 but didn't take vacations or dine out and now have cash to spend on high-end vehicles. Plus, she noted, "People are taking more road trips, so they are investing in vehicles to do so."
Whether the demand continues as the economy gains steam remains to be seen, said Keith Barry, who writes about cars for Consumer Reports. Competing pressures are at play. As offices reopen, some people will return to commuting to work but might prefer to drive instead of taking public transportation, raising demand for cars. But others likely will continue working at home, which would tend to reduce the need for cars.
"It's a really big, open question," Barry said.
Supply, demand vary
Inventories of luxury cars are the lowest as buyers have pounced, while run-of-the mill sedans are relatively plentiful, said Krebs. Parts shortages have added to the pent-up demand for popular vehicles.
"It's been a weird year," Drury said.
That has driven up the average purchase price of a new vehicle to about $40,000.
So if new cars are too expensive, you can just buy a used car, right?
Yes, but deals might be elusive there, as well. Fewer people bought new cars last year, so fewer used cars were traded in. And the short supply of new cars is pushing more buyers to consider used cars, raising those prices, analysts say. The average price paid for a used car is well above $20,000, Edmunds says.
On the plus side, if you have a car to trade in, its value probably is going up, too, especially if it is a popular model. The average value for trade-ins, including leased cars turned in early, was about $17,000 in March, up from about $14,000 a year earlier, according to Edmunds. The average age of trade-ins was 5 ½ years.
Various online services, like Kelly Blue Book, TrueCar and Carvana, will supply a trade-in estimate based on your location and your car's age, mileage and general condition, and offer more tailored appraisals if you provide details like the vehicle identification number. Some even offer to buy your car outright.
If you trade in your car at a dealership, negotiate the price of your new purchase before you discuss the value of your trade, Consumer Reports advises.
And if you buy a used car, it's important to have it inspected by an independent mechanic to spot any potential problems. If a dealer balks at letting you do that, it might be best to shop elsewhere, Barry said.