New or used car prices are on the rise as stocks fall this spring

It is a challenging time to be a car buyer.

High consumer demand coupled with a manufacturing shortage of microchips – essential parts needed to run today’s cars – have squeezed new car inventory at dealers across the country. And with drivers looking for affordable options for taking to public roads, the used car market doesn’t offer much respite.

“It’s a seller’s market, not a buyer’s market,” said Kelsey Mays, senior editor of consumer affairs at Cars.com. “And sellers don’t have much to sell.”

The average price paid for a new car is about $ 40,000, according to Edmunds.com. For used cars, it’s about $ 23,000.

A year ago, when dealerships and manufacturing plans closed as a result of the pandemic, chipmakers focused on the consumer electronics industry – that is, computers and game consoles – and they are still struggling to meet the renewed demand from carmakers.

“The chip shortage is causing a lot of chaos,” said Ivan Drury, senior Insights manager at Edmunds.com. “But those chips are crucial to a car, because it’s basically a rolling computer.”

Some manufacturers have produced new cars that are in their parking lots waiting for chips to arrive and be installed, Drury said.

“It’s what they can do to get the cars as close to completion as possible,” he said.

A consequence of a limited stock is that fewer cheaper vehicles are available. At Cars.com, listings for cars selling less than $ 25,000 in March were down about 19% from February. There is also only 38 days of stock at dealers, Mays said. That is comparable to the usual value of 65 to 70 days.

“What’s left on dealer lots is inventory that is more expensive,” Mays said.

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While the chip shortage is expected to affect production through the end of summer or early fall, not all automakers – or specific models – have been equally affected.

“It may be a good time to explore other brands if you are usually only loyal to one brand,” said Drury. “There may be a vehicle with the same features, the same color … but it may be a different make.”

While manufacturer incentives aren’t as plentiful as in the past, there are some models that are still discounted. According to estimates by JD Power and LMC Automotive, the average incentive amount is $ 3,527, compared to $ 4,415 in March 2020 and $ 3,789 in March 2019.

For example, Chevrolet is offering deals for the 2021 Equinox that range from $ 3,500 to $ 6,500 for most versions through May 3, according to Cars.com. After the discount, the price would be anywhere from $ 21,000 to $ 38,000. The new Jeep Renegade comes with a factory discount of $ 2,000 to $ 6,000, putting the price you pay between $ 20,000 and $ 33,000.

If you can get a factory discount, don’t assume there’s no extra wiggle room in the price.

“Which [reduced price] should be the starting point for negotiations, ”said Mays.

In addition, the high demand for used cars means that your existing car may also be more valuable. The average amount for a trade-in is about $ 17,000, according to Edmunds data. The average age of those cars is about 5.5 years.

“Those trade-in values ​​are pretty dramatic,” said Drury.

Regardless of whether you’re considering a new car or a used car, it’s worth looking beyond just dealers near your home, Drury said. The larger the radius of your search, the more options you have.

There are also other ways to lower the cost of your purchase. Depending on your credit score, you may be able to find a 0% financing agreement for a new car. Otherwise, the average interest rate paid on a new car loan is about 4.5%, according to Edmunds. This is 8.1% for used cars.

Keep in mind that the longer you extend your loan – say, 72 or 84 months (six or seven years) – to make the monthly payments, the more you pay in interest (unless it’s 0%) and the more likely you eventually trade it in for a new car before paying it off.

And in that scenario, if the trade-in value is less than what is owed on the loan, consumers can pass that “negative equity” on to the loan for their next car.