Key Takeaways
Labor shortages and supply chain disruptions continue to limit the supply of new and used vehicles on the market.
Can’t find what you want at a reasonable price. Consider leasing, switching brands or even a sedan short-term until the car and truck market corrects.
There are still tremendous incentives for purchasing hybrid and electric vehicles.
Trade-in values have never been better. Just make sure your vehicle is appraised correctly.
The pandemic has affected vehicle production worldwide through factory closures, labor shortages and a global dearth of semiconductor chips, which are essential components in a modern vehicle. As a result, there are far fewer new vehicles on dealer lots. This gives dealerships tremendous leverage to sell cars without having to haggle or discount.
As a result, used car prices are at unprecedented highs. According to Edmunds research, new vehicle inventory at dealerships nationwide was down by two-thirds in June compared to a year ago. Average transaction prices for new vehicles are up 8.6% to $42,431 while prices for used vehicles have increased by a whopping 27% to an eye-popping $26,457.
These are unusual times in terms of both the selection of cars available and the discounts you may receive. Analysts expect the chip shortage to continue affecting pricing and inventory for the foreseeable future. For car buyers, this means less selection and less room to negotiate a discount.
Best time of year to buy? According to Edmunds, the best times to buy a car in general are:
While these rules of thumb still hold true, you may not be in a position in which you have much choice. Your current lease might be ending, or your current vehicle may be badly damaged or nearing the end of its life.
Other tips and incentives
1) Wait it out. Edmunds analysts estimate that vehicle shortages might last well into 2022. If you're not in an immediate rush to buy a car — perhaps you're working from home — you could give the market a few months to cool down. In the meantime, if you have a car you're not driving much, you might want to take advantage of the seller's market for used cars by trading your vehicle in for cash while the market is still hot. Then use Uber, Lyft or Turo (for rentals) during those occasional times when you need car transportation.
2) Try a sedan in place of an SUV or truck. Trucks and SUVs are by far the most popular vehicles today, which means they’ll will be more expensive and harder to find. Modern sedans offer more space than ever and, in theory, should be easier to find on a dealer lot.
3) Shopping new? Consider used. Shopping used? Consider new! In today's market, it's best not to leave any stone unturned. There may be situations in which a new car might be a better value than a used car, or vice versa. Make sure to explore all your new car or used car options.
4) Get the most you can for your trade-in. Good news for those of you with vehicles to trade in: Valuations are at an all-time high. This will help take the sting out of sky-high prices for new vehicles. Just make sure to appraise your used vehicle on Edmunds or other reliable resources to help you get the maximum value for your current ride.
5) Consider a lease as a temporary solution. Are you brand-loyal, but unable to find a good car from your automaker of choice? Consider leasing from another brand that might have a better selection. I’m not suggesting you change brand allegiance permanently, just give yourself two to three years of breathing room, so you have a reliable vehicle, before returning to your favorite brand under more normal times.
6) Extend your lease. Some leasing companies allow you to extend you current lease by up to 12 months. If you simply have no good alternative for a new car, extending your current lease could be a temporary solution. You can contact the leasing company to find out details.
7) Get into a hybrid or electric vehicle (EV). As electric and hybrid vehicles continue to gain market share, they are earning their rightful place on the road. There are tremendous incentives at both the federal and state level for leasing or purchasing new hybrid or EVs. If you live in New Jersey, you can receive up to $12,500 in tax credits when you lease or purchase a hybrid car or EV and you will also be exempt from paying sales tax. Keep in mind, the federal rebate of up to $7,500 is a credit, not a rebate, so you must pay at least $7,500 in taxes for the year to receive the full benefit as it does not roll over to the following year. Married couples in New Jersey that pay at least $15,000 a year in taxes can get into a new hybrid or EV and receive $15,000 in federal tax credits -- plus up to $10,000 in additional credits from the state of New Jersey. Pennsylvania residents can also earn substantial tax credits for purchasing hybrid or EVs.
My Vehicle Story
If you’ve made it this far in today’s post, thank you for reading. In case you were wondering, I too was in vehicle limbo a few months ago. My car lease was ending, and every potential replacement vehicle I considered was impossible to get, or too expensive for me. I had never even considered a fully electric car, but after learning about the incentives, I decided to take one for a test drive. After five minutes behind the wheel, I was sold!
Between rebates and credits, I received $12,500 off the $50,000 sticker price, which made lease payments extremely low. One caveat to buying an EV, is you’ll want to have a garage with a 240-volt outlet (installed by a licensed electrician). Budget $500 to $700 for that depending on the distance from your breaker box. It’s well worth the investment, however, since a full charge of your vehicle will cost you around $10 in electricity as opposed to $70 at the pump. To make my deal even better, I made a hefty profit on my existing lease, by buying the car from my leasing company, and then selling it to a third party for significantly more than I paid.
Considerations for business owners
If you are a business owner, you can purchase a heavy SUV, and depreciate up to 100% of the cost in the first year, provided you use the vehicle more than 50% of the time for business-related activities. The SUV must also have a gross vehicle weight rating above 6,000. This may be beneficial if you are in certain industries like construction, landscaping, plumbing, electrical, etc. This incentive is available until the end of 2022. Get more information here.
Conclusion
If you or someone close to you has concerns about leasing, buying or tax incentives for new and used vehicle, please don’t hesitate to reach out. We’re happy to help.
DAN SATZ MS, CFP® is a Wealth Manager at Novi Wealth