If you’re in the market for a new set of wheels, get ready to experience sticker shock. Prices on new and used cars have soared since the beginning of 2020, and experts aren’t expecting them to fall anytime soon. Here’s what you need to know about the current auto loan market and how to successfully navigate it.
Why Are Auto Prices So High?
The coronavirus pandemic has touched every sector of the economy, and the auto industry is no exception. According to the U.S. Consumer Price Index, the price of used cars and trucks has jumped a full 9.4% in the last 12 months, while the price of new cars and trucks increased by 1.5%. The drive behind the increase is multifaceted and linked to several interconnected events.
When the pandemic hit American shores, demand for new and used cars significantly increased. This was largely due to the many people who were avoiding public transportation for safety reasons. In addition, there was a mass exodus from big cities and their high rates of infection, which also boosted the demand for new cars.
At the same time, supply of new and used cars dried up, partly due to the following factors:
- The pandemic put a freeze on the production of new vehicles for nearly a full business quarter. The factory shutdowns reduced output by 3.3 million vehicles and sales dried up, along with subsequent trade-ins.
- The production freeze prompted chipmakers to focus on the electronics industry instead of creating chips for automakers. Now, the industry is still scrambling to keep up with the automakers’ demand.
- Business and leisure travel was halted for months. This led to a steep decline in travelers renting cars, which in turn led to rental agencies holding onto more of the cars in their lots instead of selling them to used car dealerships.
The rise in demand and shortage of supply naturally triggered a steep increase in the prices of both new and used vehicles.
Tips for Buying a Car in Today’s Market
If you’ve decided to go ahead with buying a car, it’s best to adjust your expectations before hitting the dealership.
First, a seller’s market means many dealerships will not be as eager to finalize a sale. High volume means that processing a car loan may take the dealership longer and they can be more selective about who they work with. They have more customers than they can service now, and that can translate into a willingness to move only slightly on a sticker price of a car, or a refusal to negotiate a price at all.
Second, expect to pay more than usual for your new set of wheels. If you’re looking to purchase a new car, prepare to pay an average of $38,876, according to data provided by Kelly Blue Book. Also, as mentioned, supply of new cars is down while demand is up, so you likely won’t have as many choices as you may have had in the past.
The used-car market has been hit even harder by the pandemic since prohibitive prices and a short supply has pushed more consumers to shop for used cars instead of new vehicles. This increase in demand, coupled with the dwindling supply, has driven the prices of used cars up to an average of $23,000, according to Edmunds.com. If you’re thinking of buying a used car, prepare to encounter a highly competitive market where bidding wars are the norm and cars are super-expensive.
If you’re looking to take out an auto loan, consider one with HVCU. The most recent data shows that auto loans at credit unions are a full two points lower, on average, than auto loans taken out through banks. Moreover, with terms as long as 84 months1, your vehicle becomes even more affordable with more time to pay. Car prices may be soaring, but Hudson Valley Credit Union continues to deliver exceptional savings you can really bank on.
1 As an example, an 84-month new auto loan with a fixed rate of 4.79% APR would result in a payment of $14.04 for each $1,000 financed.