Don’t Buy a Car Right Now
As of July 7th 2021
If you haven’t heard by now, the United States economy is suffering from a severe lack of supply. There has been a shortage of lumber, glass, housing, and even labor (which is strange because of the unemployment rates, but that’s another topic for another time). However, the shortage that I have suffered from firsthand is an automobile shortage.
Because of the COVID-19 lockdown, there is a lack of inventory in the new car market, and the used car market has seen a shortage since even before COVID-19. Because of the low supply, demand has skyrocketed, driving the prices to unbelievable new heights. I have had the unfortunate experience of shopping for a car during this time because my previous 2007 Volvo S40 broke down dramatically. So I needed a new car and let me tell you firsthand, the prices on these vehicles are ridiculous, and I wouldn’t expect them to get better until at least 2022.
Here’s why
Covid-19
Because of the lockdown we faced last year, lots of car production companies were forced to close. This obviously prevented new cars from being built and sold to the market, creating a lack of supply for new and used cars. Experts say, “The average cost of used cars and trucks jumped 10% during the month of April and 21% from the same month a year before, partly fueling a 4.2% increase in the most recent consumer price index from the Bureau of Labor Statistics.”
Free Money
Because of the stimulus, package and unemployment benefits, lots of people who didn't have the down payment for a car now have the down payment, creating a larger demand for cars. Also, the trade-in values on used vehicles are increasing because used car dealerships need inventory. That alone entices people to trade in their old cars for newer ones, driving up the demand even more.
Price of raw materials
The cost of materials needed to make automotive vehicles is higher than usual because of a shortage. This makes the metals, plastics, steel, glass, and other materials used to build the car more expensive. This will cause new car prices to be raised. According to Autoblog.com, “Analysts at JPMorgan Chase & Co. estimate the price of an auto’s raw materials have climbed 83% in the year through March. Those pieces typically make up about 10% of the cost of building a vehicle, meaning the price tag for a $40,000 car would have to increase 8.3% to offset the rally, analysts for the bank wrote.”
Chip shortage
Just like there is a shortage of many items in our economy because of COVID-19, the computer chip shortage is a major factor affecting the production of new vehicles. There is an advanced microchip that is used in many of our electronics, laptops, phones, tablets, and now cars. This microchip is almost universal in these technology products and is needed to power your tablet interfaces. It also controls factors such as safety features, music and entertainment interfaces, as well as other sorts of technology features that are required in modern vehicles. In fact, these chips are so prevalent in vehicles, one car could hold 500–1,500 chips alone. Because of this shortage, many new vehicles' production is being delayed. Ford and GM even stated that they have cars all put together just waiting on chips to be shipped, so they can finish the vehicle. Unfortunately, this chip shortage won’t end soon, the CEO of Cisco Chuck Robbins told the BBC in late April: “We think we’ve got another six months to get through the short term. The providers are building out more capacity. And that’ll get better and better over the next 12 to 18 months.”
My experience
So after about 2 weeks of searching I had to buy a car, unlike most people I couldn’t wait. My experience of finding a good car with a budget of $20,000 was pretty poor. I was stuck with very little options and very high mileage. I could not find a new car under $20,000. So I looked used and realized my only options were sedans if I wanted low mileage. I saw Toyota Corollas and Hyundai Elantras. I saw Honda Civic’s and Volkswagen Jettas, however; I did not see a vehicle that I was truly excited about. Everything was 2016–2017 with at least 50,000 miles on it, and they weren’t exactly the flashiest of cars. Then I found the Mazda 3 and Mazda 6.
Finally, I had found a car with a luxury interior, superior driving and handling, and low mileage all in my budget. So after looking at what feels like hundreds of Mazda’s, I found the one for me. A 2017 Mazda 6 with 12,000 miles at $22,000. I put $2,000 down and had the rest financed, with a payment of about $345. Was it a good deal, yea I think so, but many people may disagree. Because it was a 2017, that was the only reason I got it even close to my budget and I still went a little over. That alone tells you how competitive this automotive market is right now.
What to do if you're buying a car
So If you’re like me, and you need to get a car during this period, here are some things I think you should consider, to get the best bang for your buck.
Be patient
There were many times during these 3 weeks when I considered settling. When you are forced to buy a car, it is easy to get impatient and pull the trigger on something that you “kind of like”. The car buying process is daunting, and I understand why once you get to a certain point it’s easy to settle, but don’t. If you don’t find a car that you love just by looking at it, then it’s probably not worth your money. Keep looking for a car that you love at a price you love because it is a depreciating asset that will be a waste of money if you don’t enjoy the car, and hating a car makes paying for it miserable.
Sedans are a way better buy
I know people love SUV’s and trucks, and I don’t blame you. However, the prices of these bigger vehicles have increased significantly more than the prices of sedans, due to demand. So if you're looking for a better buy find a sedan you really like because it will be a lot cheaper and less inflated than SUV’s and trucks.
Know that popular brands are more expensive
If you’re looking for a used car, realize that there are brands that have a much higher resell value because they are better quality vehicles. Toyota's are going to cost a fortune used, it’s just the reality of the market, so keep that in mind when you're deciding what vehicle to purchase. But, that doesn’t mean you should buy worse brands because they are cheaper. Mitsubishi's cars are very cheap in a used lot, but I would never buy a Mitsubishi, no matter how good the price is because they are typically low quality vehicles. When it comes to used, you get what you’re paying for, so do your research on car brands and don’t go with the lowest price because you will end up with a pile of junk in your driveway waiting on repairs.
Don’t cheap out
Like I said earlier with used cars, you get what you pay for. If you see a deal that seems too good to be true, it usually is. If you have to pay a bit more to get what you really want or get a more reliable vehicle, I suggest you do it, even if the prices are inflated. (as long as you can afford it)
Buy new
Obviously there is a shortage of new cars, but hear me out. Usually It would be advised to buy used vehicles to save money while receiving the same results, however with these markets the tables are turning. The prices of used cars are very high and when comparing it to a new car you often find that the price of used is $2,000-$4,000 less than a new one or newer one. This rule is especially true for high-quality vehicles. I saw many Toyota Corolla’s that were 2016 with 80,000 miles, and they were just below $20,000. While a brand new 2021 Toyota Corolla was a measly $24,000. Many used car lots are asking for way more than the car is worth because the brands' reputation is so good they know someone will purchase it, not being informed on the MSRP of a brand new one. So make sure you check how much the new vehicles start at and if you're getting a good deal.
If you can, wait
Now of course this is obviously based on the title, but I might as well say it, anyway. Right now is not the ideal time to be car shopping, the prices are simply too inflated, and they will continue to go up for the rest of this year. I am almost certain that 6 months from now the prices on these vehicles will decrease and return to normal because this shortage of materials will most likely be gone. The economy simply needs to spend some time catching up with demand. I love my car wholeheartedly, and I have no regrets after purchasing it, but I believe that if I could have waited 6 months I could’ve paid less money or gotten something better for the same amount of money. Unfortunately, I had no choice. So if you have a choice just bite your tongue, save up some money and hold off.
Trust me, it will benefit you.
