Buying a new car during the chip shortage: what you need to know
Car purchases? If you’re reading this article during the global chip shortage, we want to walk you through some steps you can take to find your dream vehicle.
Simply put, there’s never been a worse time to buy a new or used car. A perfect storm of factors pushed car prices to record highs and reduced the number of vehicles available for sale. You will find a small selection of cars and the highest new and used prices.
The conditions that created this tough market for buying a car could stay with us for much of 2022.
That’s why you’ll need these tips to help you through the crisis.
Best ways to buy a car right now
Average prices may be high right now, but some buyers are paying even less. You want to be one of them.
How? ‘Or’ What? We’ll walk you through nearly a dozen ways to buy a vehicle so you can get the best deal possible, even in a tough market.
1. Wait, even if it hurts
The first tip is the simplest: Want to save money on a new car right now? Don’t buy it.
The market will normalize. Most experts expect the microchip shortage to ease in the second half of 2022. Prices will start falling then.
So fixing your old car should be your first option.
Conventional wisdom tells drivers that sometimes installing new parts in an aging car is counterproductive. Something more expensive is always about to break. But economists at Kelley Blue Book’s parent company, Cox Automotive, say the average payment for a new car in December was $688 a month. At this rate, getting a few more months out of your old car can save you thousands of dollars and give you the flexibility to wait for prices to calm down.
2. Know what you’re getting into during the shortage
If you must buy, arm yourself with knowledge. Be aware that new car prices aren’t just at an all-time high – they’ve set a new high every month for the past nine months. Meanwhile, incentives are at their lowest in 20 years. In November 2020, the average buyer paid almost $3,000 below the list price. In December 2021, the average buyer of a non-luxury car paid $900 on the sticker. Luxury car buyers had it worse. On average, they paid $1,300 more than MSRP during the chip shortage.
3. Be realistic about your needs
Americans consistently make a costly mistake when buying a car – we buy vehicles that are impractical for everyday use. For example, a buyer might buy 7-seaters thinking about how the family comes to visit one to two weeks a year, and then only use the three rows of seats to carry the whole family on those days, but not the rest of the year.
Or you could spend thousands of extra dollars on all-wheel-drive (AWD) because it sometimes snows in your area.
Why not buy a 2-row vehicle and rent a car when people come? Why not work from home on snow days, if possible? Better yet, why not buy a set of inexpensive snow tires instead of an AWD one?
RELATED STORIES: Best Cars & SUVs For Snow: The Features You Need
4. Buy outside your usual segment
Consider switching to another class of vehicle with more realistic needs in mind. Americans bought more SUVs than cars and trucks combined in 2021. Dealers today have more large cars for sale than any other type of vehicle. You’re more likely to negotiate a good deal on a sedan because of simple supply and demand. A large sedan can carry almost as much as an SUV and is often more fun to drive.
5. Consider a different brand
News reports have touted a limited supply of new cars for over a year. But the chip shortage hasn’t affected all dealerships equally.
Some brands have faced shortages of new vehicles for sale. In December, Toyota dealerships had just 20 days of cars on sale. The story was the same at Kia dealerships. Honda dealerships had an average of 21 days of inventory.
Alfa Romeo dealerships, however, had a 103-day supply. Dodge dealerships had 72. Jeep dealerships had three times as much inventory as Toyota dealerships.
Our ideas about which brands build high-quality cars are often outdated. Quality and reliability studies tend to show that most new vehicles today are well built, with only a slight difference between manufacturers.
6. Think of a lease as a temporary solution
If brand loyalty is essential for you, this year could be a good time to temporarily change your allegiance. If you’ve been a lifelong BMW fan but can’t find the BMW you want amid chip shortages, consider taking out a lease on another brand. You can always buy the Bimmer later when supplies return to normal.
Leases come with mileage restrictions. But many of us are driving fewer miles than ever before during the COVID-19 pandemic. You may find it easy to meet the terms of a lease.
RELATED: Average Miles Driven Per Year: Why It Matters
7. Buy outside your region
If we offered to pay you $2,000 to travel to a nearby town and back, you’d probably take it. So why not go to a nearby town and come back to save $2,000?
Under normal circumstances, dealers can trade with each other. This makes it relatively easy for your local dealership to sell you a car that is on another dealership’s lot and arrange delivery. But, with every dealership running out of vehicles to sell, those trades are rarer this year. So use the manufacturer’s website to locate a car you want, even if it’s not nearby, and drive around to pick it up.
RELATED: How to Buy a Car Online
Note that buying out of your state can make taxes and registration a bit more complicated, but most dealerships should be able to help you with an out-of-state purchase.
8. Increase your purchasing power with your exchange
When used cars are in good condition, two dealers will likely offer you a similar amount for your trade-in. In this market, that’s not always true. Dealerships try to keep a good mix of used cars available for sale, and one of them might be worth your trade-in more than another. You can sell your vehicle to one dealership and use that money to buy from another.
So call and shop your trade-in so you can get the top price. It may add steps, but the savings are worth it.
POINT: Try our Instant Cash Offer tool and let the offer hit your inbox. You fill in your car details and the dealerships come to you with offers that you can take or leave as you wish.
9. Be flexible on color and options during the new car shortage
When new cars are in abundance, it’s easy to be picky about the color and options you want. Since new vehicles are rare, you may not find the exact model you want. Being flexible and accepting a different color or a few options you might not use makes all the difference in finding a vehicle.
You might even surprise yourself. One of our editors once “settled” for an orange car, only to discover a secret society of orange car owners who honk and wave to each other in traffic.
10. Can’t negotiate the price? Negotiate financing
When negotiating the price of a new car, you’re better off focusing on the initial price rather than the monthly payment. But, in this climate, many dealerships are not flexible with pricing. They know that if you don’t buy the car, someone else soon will.
They can, however, negotiate the financing conditions. Savvy buyers are eligible for outside financing before heading to the dealership. But you can always ask the dealership to try and beat your bank’s loan offer.
11. Consider ordering – but put it in writing
American car buyers like to kick their new car off the shelf the day they buy it, not months later. In Europe, car shopping rarely works that way. Most European car buyers first order the exact car they want, and only then does production of the car begin.
The US auto industry is increasingly looking like the European industry, with buyers ordering the car they want and delivering it later. If you can wait, it might be a good idea to custom order and endure the wait for your new vehicle. Just be sure to get the agreement in writing.
A lack of ethics
For any offer to buy a car you accept, get the final, firm price in writing with the dealer’s signature on the contract. Many dealership sellers operate ethically. But chip shortages and inventory issues are making unethical price hikes more common.
Ford and General Motors recently warned their dealers to remove sketchy markups. A signed purchase contract protects you from any last minute price inflation. Question all bottom line charges and report issues directly to automakers if you suspect price gouging.