When it comes to automobile purchasing these days, sticker price can be a source of sticker shock for many people.
Prices of new and used automobiles continue to rise as a result of high demand and limited supply of vehicles. While the production slowdown has slowed marginally, automobile purchasers should not expect things to return to normal anytime in the near future.
In the words of Tyson Jominy, head of data and analytics at J.D. Power and Associates, “the typical dealership experience that consumers are familiar with — walking dealer lots with rows and rows of cars, negotiating over price, and getting many incentives — is not likely to return this year because there are 4.5 [million] to 5 million consumers on the sidelines waiting for cars.”
Automobile insurance is predicted to rise by 5% in price in 2022, according to Personal Finance magazine.
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“This accumulated demand will keep stocks low and prices high for the majority of the year 2022,” Jominy said.
Since 2020, there has been a global scarcity of microchips, which are critical components for today’s automobiles to function properly. This has resulted in manufacturers’ manufacturing of new vehicles being slowed, resulting in demand outstripping supply.
According to Ivan Drury, senior manager of analytics at Edmunds.com, “it’s marginally better in the sense that there is no more drop-off in inventory — it’s not getting any worse.” “However, we’re still talking about many months until things start to seem more regular.”
According to the most current statistics from Edmunds, the average transaction price for a new automobile is now greater than the manufacturer’s suggested retail price, or MSRP: $45,872 vs $45,209, for a total of $45,872 versus $45,209.
According to Jominy, an estimated 89 percent of customers spend more than the retail price or within 5 percent of the sticker price.
Part of the rationale for the record-high transaction costs is that automakers have reduced their discounts since, generally speaking, they do not need to give significant incentives to sell vehicles at the current time of year.
In other words, once a new automobile arrives on a dealer lot, it doesn’t stay there for very long: According to J.D. Power, an estimated 57 percent of automobiles were sold within 10 days of being delivered in the month of December. The average time it takes for a new automobile to sell off the lot is 17 days, a record low and a significant decrease from the previous year’s figure of 49 days.
Demand has also spilled over into the used-car market, where buyers are paying an average of $29,011, a 27.9 percent increase over the previous year, according to Edmunds statistics.
For example, a 9-year-old vehicle costs an average of $14,124, while a 3-year-old vehicle costs an average of $30,334.
One bright light, according to Drury, is that the demand for old automobiles has driven trade-in prices well over the average range of values.
“Look into that trade-in,” he said. You should avoid making assumptions about mileage or depreciation since all of it has been thrown out the window.
In addition, while you should expect there to be limited wiggle space on the price of the automobile, you may be able to haggle on the value of your trade-in vehicle.
Furthermore, borrowing rates are currently at historically low levels.
If you hunt hard enough, you may still find low-interest financing packages, such as 0% or 0.9 percent finance, depending on the vehicle’s make and model. Aside from that, according to Bankrate, the average interest rate on a new auto loan is less than 4 percent each year.
If you have some flexibility in terms of when you want to make your purchase and are unable to locate what you want on dealer lots, it may be worthwhile to order your vehicle.
It may take four to eight weeks for the car to be delivered, but Jominy said it will be made to your exact specifications, including the trim and color you choose. “And now some automakers will give incentives to buyers who pre-order vehicles that are not accessible to those who purchase vehicles that are already in stock.”