Tips to buy a car in today’s market, where a used vehicle might cost more than a new model

Used Car prices have skyrocketed during the coronavirus pandemic. Supply chain issues, altered Buying patterns and a limited supply of new cars drove sale prices up 30% nationwide and 36% in Tennessee from January 2020 to June 2021, according to Kelley Blue Book.

“Just like stocks and everything else, you don’t want to buy at the top of the market,” Karl Brauer, an Auto industry analyst and president of iSeeCars.com, told The Tennessean. “The problem for a lot of people is, they need the Car now.”

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Brauer and Tracy McMurtry, owner of Franklin Motor Co. in Madison and chair of the Tennessee Independent Auto Dealers Association, offered advice on Buying a vehicle in today’s market.

Buy a vehicle you’ll keep

McMurtry and Brauer recommended Buying long-lasting models with a clean vehicle history whenever possible. That will reduce the likelihood of expensive repairs and rapid depreciation down the road.

“Study a Car‘s history, and try to purchase a Car that has a good longevity of life,” McMurtry said. “If I’m going to have to pay too much for a Car, I want to pay too much for a Car that can run 200,000 or 300,000 miles versus a Car that can only run 150,000 miles.”

Used Car values, which are abnormally high because of supply shortages for new cars, are likely to drop rapidly once new cars return to dealer lots. That makes it even more important to hold onto your vehicle as long as possible: Buying a Car in today’s high-value market and then reselling in a low-value market means greater potential to lose money or go underwater on a Loan.

Buying used might not save as much

Buying used is usually thought of as a surefire way to save money on a Car, but with so few new cars available, used cars have risen in value. iSeeCars.com found that a lightly-used Honda Accord, for example, costs 5.6% more on average than the MSRP of a brand-new Accord in Nashville.

Buying new means either waiting for a Car to be available or paying marked-up prices for an immediately available model.

Expand your preferences

If you’re set on a very specific Car, you’ll likely spend a long time looking for it and a lot of money Buying it.

“If you have to have this year, make, model, trim and color, you’re very specific on what you want,” Brauer said. “You’ve just reduced a lot of your negotiating power.”

Checking multiple dealers online and comparing value also can save money, even if that involves widening the geographic area of your search.

“If you could go 230 miles instead of three miles and save $1,000, do the pay rate on the drive time to go and from getting that Car,” Brauer said. “You’re probably doing OK.”

Check your lease

Leasing a Car isn’t usually the best value for getting a vehicle, but leaseholders could save thousands if their lease is set to run out while used vehicle values are peaking.

A vehicle’s lease contract sets a residual value at which a buyer can buy the vehicle outright once the contract expires. Since that residual value is set at the beginning of the contract, it does not fluctuate with the market afterward.

That means the residual value of a Car might be significantly lower than its current market value. 

“There are people who made lease deals two years ago that had a three-year depreciation curve on their vehicle,” Brauer said. “Their vehicle’s going to be worth way more than that.”

Some common advice holds

Even in an unprecedented Buying market, common pieces of advice have held true.

  • Car sales are still projected to be hot in the summer and cold in the winter, which means waiting to buy can save consumers money.
  • Borrowers will still get more value out of a Loan the more money they are able to put down and the shorter Loan term they are able to afford.
  • It’s still important to know the market value of a Car before going to a dealer to avoid overpaying.
  • And having a high-value Car isn’t that helpful if you sell it and need to replace it immediately.

“It’s just like when your house goes up in value, and you’re excited until you realize that to sell your house, unless you want to live under a bridge, you’ve got to buy another one,” Brauer said. “All the other houses are more expensive too.”

Cole Villena covers business at The Tennessean, part of the USA Today Network — Tennessee. Reach Cole at [email protected] or 615-925-0493. Follow Cole on Twitter at @ColeVillena and on Instagram at @CVinTennessee.