Used car prices have skyrocketed during the coronavirus pandemic. Supply chain issues, altered purchasing patterns and a limited supply of new cars have pushed up selling prices by 30% nationally and 36% in Tennessee from January 2020 to June 2021, according to Kelley Blue Book.
“Just like stocks and everything, you don’t want to buy at the top of the market,” Karl Brauer, auto industry analyst and chairman of iSeeCars.com, told Tennessean. “The problem for a lot of people is that they need the car now.”
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Brauer and Tracy McMurtry, owner of Franklin Motor Co. in Madison and president of the Tennessee Independent Auto Dealers Association, offered advice on buying a vehicle in today’s market.
Buy a vehicle that you will keep
McMurtry and Brauer recommended purchasing durable models with a clean vehicle history where possible. This will reduce the likelihood of costly repairs and rapid depreciation down the road.
“Study the history of a car and try to buy a car that has good longevity,” McMurtry said. “If I have to pay too much for a car, I want to pay too much for a car that can go 200,000 or 300,000 miles compared to a car that can only travel 150,000 miles.”
Used car values, which are unusually high due to supply shortages for new cars, are likely to drop quickly once new cars return to dealer lots. So it is even more important to keep your vehicle as long as possible: buying a car in the current high value market and then reselling in a low value market means a greater potential for losing money or going under. water with a loan.
Buying used might not save as much
Buying used is generally considered a sure-fire way to save money on a car, but with so few new cars available, used cars have gained in value. iSeeCars.com found that a little-used Honda Accord, for example, costs 5.6% more on average than the MSRP of a brand new Accord in Nashville.
Buying new means either waiting for a car to become available or paying premium prices for a model that is immediately available.
Expand your preferences
If you are on a very specific car, you will probably spend a lot of time looking for it and a lot of money buying it.
“If you have to have the make, model, finish and color this year, you’re very specific about what you want,” Brauer said. “You have just greatly reduced your bargaining power.”
Checking multiple resellers online and comparing the value can also save money, even if it means expanding the geographic area of your search.
“If you could go 230 miles instead of three miles and save $ 1,000, make the pay rate on the travel time to go and get that car,” Brauer said. “You’re probably doing fine. “
Check your lease
Leasing a car is usually not the best value to get a vehicle, but renters could save thousands of dollars if their lease expires when used vehicle values peak.
The lease of a vehicle sets a residual value at which a buyer can purchase the vehicle in full after the contract expires. Since this residual value is fixed at the start of the contract, it does not fluctuate with the market thereafter.
This means that a car’s residual value can be significantly lower than its current market value.
“There are people who entered into leases two years ago who had a three-year amortization curve on their vehicle,” Brauer said. “Their vehicle will be worth more than that.”
Some common advice is valid
Even in an unprecedented buying market, current advice has proven true.
Car sales are always expected to be hot in the summer and cold in the winter, which means waiting to buy can save consumers money.
Borrowers will always get more value from a loan, the more money they are able to put in and the more they can afford a shorter loan term.
It is still important to know the market value of a car before going to a dealership to avoid paying too much.
And having a high value car is not very useful if you sell it and need to replace it immediately.
“It’s like when your house goes up in value, and you get excited until you realize that in order to sell your house, unless you want to live under a bridge, you have to buy another,” he said. Brauer said. “All the other houses are more expensive too.”
Cole Villena covers the affairs of The Tennessean, which is part of the USA Today Network – Tennessee. Contact Cole at [email protected] or 615-925-0493. Follow Cole on Twitter at @ColeVillena and on Instagram at @CVinTennessee.