The same thing that happened to toilet paper last year – scarcity and panic buying – is now happening to cars.
“I’ve never seen anything like it in my 28 years in business,” said Oren Weintraub, president of Authority Auto, a concierge car-buying company in the Los Angeles area. A shortage of microchips, a need to catch up and a “burning” used car market are driving up prices and fueling a buying frenzy, he says.
Used cars will be expensive for a while as the shortage of new cars means that there are fewer used cars on the road. But chip production will ramp up and the demand for new cars will be met; The Federal Reserve estimates that it will take six to nine months before the chip shortage subsides and inventory levels rise. Dealer lots won’t be empty forever.
When thinking about a new car, the smartest thing to do is to wait. Still, a lot of people are jumping into the market right now – a lease expires, an accident or a new model they just can’t resist.
Here are some common situations you may face.
You need a new car
Don’t expect new car discounts. “I tell people to recalibrate their idea of what kind of discount they can get,” said Ron Montoya, senior editor, consumer advice at Edmunds.com, a car buying website.
Know the market, he adds. If you look around and all the dealers charge the sticker price, you have to pay that price. But don’t make any assumptions, says Weintraub. While one dealer may charge the sticker price, another may even sell the same car on account, a difference of at least $ 1,000.
Look for savings that merchants don’t control, such as factory discounts, low interest finance, loyalty and conquest programs, and even discounts through family and friend plans.
Get in line early. Stock levels are so low that you may need to bid on a car before it gets from the factory to the dealer. Find a responsive salesperson and ask what cars are coming in (often this is also noted on the dealer’s website). Then get your deal in writing, stating the vehicle identification number or VIN. Leave a deposit and make sure you get a receipt.
Be flexible. With limited inventory and multiple buyers bidding for the same car, you may not get the candy apple metallic red with leather interior and sunroof. Instead, choose multiple colors to search for and figure out your must-haves.
Watch out for extras. With fewer vehicles to sell, dealers could try to maximize their profits by adding expensive extras to their cars like wheel locks, paint protection, fenders and anti-theft devices, says Weintraub. These dealer additions are often listed on an addendum, an additional sticker next to the factory sticker in the shop window of new cars. Find out in good time what is included in the offer price.
Your lease ends
In addition to simply dropping off the car, you have three options:
Extend your rental agreement. If your lease is about to end, you can usually renew it for the same monthly amount. This means there is no need to re-lease or buy a car while the prices are high. Manufacturers’ rules regarding lease renewals are slightly different, but Scot Hall, executive vice president of Swapalease.com, says they usually allow you to keep the car running for several months for the same monthly payment.
Weintraub warns that if you renew your lease you may be outside the car’s bumper-to-bumper warranty coverage. Plus, you may have to pay expensive registration fees for a full year.
Buy out your lease. If you like your leasing vehicle, you should buy it outright. You know its history, and in the current market, the buyout price can be much cheaper than a comparable car on a dealer lot. You need to find a lender who can lease buyout loans.
Trade in your car. You get more because the market is hot but you pay more because the market is hot. “It will be a push,” says Hall.
You want to make a profit
Little do many people know that they can sell their leased car and keep the remaining equity. If you can wait a few months for the market to cool down to buy a new one, you have a nice down payment to go shopping with.
Weintraub says he got one of his customers $ 17,000 when he returned his Chevrolet Tahoe because its value had risen above the lender’s projected residual value at the end of the lease.
In the current market, the values according to the Manheim Used Vehicle Value Index are on average around 25% higher than a year ago. Some cars may have appreciated much more in value.
Dealers and online retailers looking to replenish their inventory can offer to buy out your lease and give you the difference, which greatly simplifies the process of running down your equity. But these sales divert vehicles that would have been returned to new car dealers for sale on their properties – a major source of profit. Several manufacturers have introduced restrictions that make these third party acquisitions difficult.
Of course, lessees can still buy their cars and then sell them outright, but that would mean arranging financing and paying sales tax, which could significantly reduce the potential profit.
Finally, there is the question of how do you get around until you buy another car? Consider breaking the bubble by taking over the end of someone else’s lease with Swapalease or LeaseTrader. You can even call cabs or carpooling until prices drop. While rental car agencies are expensive these days, you may find something that suits your needs at Turo for a few months.
Your car was totaled
If your car is total loss in an accident, your collision insurance (or fault liability insurance) owes you the fair market value of the car immediately prior to the damage. This amount has always been negotiable and it is not uncommon for the severance pay to be adjusted once the owner can demonstrate the greater value of their car.
Check every number that is offered to you by getting offers to buy from online dealers (for the condition of the car before the accident, of course) or speaking to the used car buyer at local dealerships.
Then, when you need to buy another car, at least start with a car totals statement that reflects the current climate.
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Philip Reed writes for NerdWallet. Email: email@example.com. Twitter: @AutoReed.
The article It’s the Worst Time to Buy a Car – But What If You Have to? originally appeared on NerdWallet.