If you're shopping for a new or used car in today's overheated market, you'll find that the game has changed. A variety of conditions have seemingly given sellers the upper hand.
"Skimpy inventories and sky-high prices have caused many buyers to postpone their purchases," says Michelle Krebs, executive analyst for Cox Automotive, a leading communication, media and automotive service company.
Postponing your purchase until the market stabilizes is the best option. But if you have to buy a car now, make sure you avoid these five common mistakes:
1. Being unprepared
This is a new car-buying environment and you may need to reset expectations. Here are the significant adjustments to be aware of before you can snag a car:
Pricing. Most buyers are paying sticker price or above, and "there is no end in sight for price increases," says Ivan Drury, senior manager of insights for Edmunds.com, an online resource for automotive inventory and dealer reviews. For used vehicles, "the ceiling keeps rising as new transaction prices reach all-time highs," he says.
Krebs says that the average transaction price for a new vehicle soared to more than $45,000 in September. And while this figure might seem exaggerated, it is not. According to Kelley Blue Book, while Americans bought 7.3% fewer cars in September than in August, the average price for a new car was $45,031.
Inventory. Since new-vehicle inventory is about 2.5 million units less than it was at this time in 2019, according to Krebs, you will have to conduct a broader search to find the car you want. It helps to be flexible when choosing a brand, color and options, as well as whether you buy a new or used vehicle.
Timing. With inventories so low, make sure you're ready to buy when you find a car that's available at a competitive price. "You snooze, you lose," Drury says. "The days on the lot are getting to the lowest levels we've ever seen." With today's high demand and low supply, cars don't sit on the lot and often sell before arrival.
If you can't find the car you want on the lot, ask what cars are being shipped to the dealership and reserve one. Be prepared to pay a deposit to hold your car as soon as you select one.
2. Losing money on your trade-in
Used car values have shot up and dealers are scrambling to beef up used car lots. This puts you in a stronger position when trading in your old car — if you follow a few simple steps:
- Using a pricing guide, such as Kelley Blue Book or Edmunds, look up your car's value, adjusting it for condition, options and mileage. Also, check automotive classifieds, such as AutoTrader, to gauge the asking price in your area.
- Get offers from used-car-buying sources such as Carvana or CarMax. Keep in mind that these prices might change after your car has been inspected.
- After you agree on the price for your new car, see if the dealer can beat the researched price or the online quotes you got for your trade-in. If it won't match it, sell your car to the highest bidder and use the money as a down payment on your new vehicle.
Keep in mind that, depending on the state you live in, even if the dealer's price is lower than other sources, a trade-in might reduce the amount of sales tax you will pay on your new car.
3. Not getting preapproved financing
Getting preapproved for a car loan will help you identify any credit problems before going to a dealership. Preapproved financing also provides other advantages:
- It offers you a chance to set up your own loan with the right down payment and loan term.
- It may simplify dealership negotiations by allowing you to focus on the "out-the-door price."
- It could serve as a bargaining chip in getting the dealer to offer a better rate.
4. Buying unnecessary extras
With low inventories and high buyer demand, dealers are loading up their cars with profit-boosters, according to Oren Weintraub, president of Authority Auto, a concierge car-buying service in the Los Angeles area. Such upsells include additional warranties, anti-theft devices and dealer add-ons such as mudguards and wheel locks.
You can flush out these hidden charges early by asking for the out-the-door price, which then empowers you to tell the dealer what you want and what you don't need.
5. Ignoring the out-the-door price
Given the likelihood you'll see some additional markups on most cars, it's essential to focus on the big picture: the out-the-door price. Does it matter if the paperwork includes $595 worth of anti-theft window etching you never asked for, as long as you hit the overall price you wanted?
The out-the-door price is a single, simple number that reveals the specific cost of everything — the car, registry fees, taxes, dealer-added extras. It's a number you can write a check for and drive away or take to the finance office to arrange a loan.
A similar and dangerous distraction is when the dealer focuses only on the monthly payments. But, if you've prearranged a loan or used a car loan calculator, you should have an idea of what you can borrow and what the payments will look like.