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The same thing that happened with toilet paper last year — shortages and panic buying — is now happening with cars.
"In my 28 years in the business, I’ve never seen anything like this," says Oren Weintraub, president of Authority Auto, a concierge car-buying service in the Los Angeles area. Microchip shortages, pent-up demand and a used car market that "is on fire" are driving up prices and fueling a buying frenzy, he says.
Used cars will be pricey for a while, as shortages of new cars today mean fewer used ones down the road. But chip production will ramp up and new-car demand will be sated; the Federal Reserve estimates six to nine months before chip shortages ease and inventories rise. Dealer lots won’t be empty forever.
If you’re considering a new car, the wisest thing you can do is wait. Still, many people may be jumping into the market right now — a lease ending, an accident or a new model they just can’t resist.
Here are some common situations you might face.
You need a new car
Don’t count on new-car discounts. "I tell people that they have to recalibrate their idea of what kind of a discount they can get," says Ron Montoya, senior consumer advice editor for car-buying site Edmunds.com.
Know the market, he adds. If you shop around and all dealers are charging the sticker price, then that’s the price you’ll have to pay. But don’t make assumptions, Weintraub says. While one dealer is asking sticker price, another might even sell the same car at invoice, a difference of at least $1,000.
Look for savings dealers don’t control, like factory rebates, low-interest financing, loyalty and conquest programs and even discounts through family and friends plans.
Get in line early. Inventories are so low you might have to make an offer on a car before it even reaches the dealership from the factory. Find a responsive salesperson and ask what cars are inbound (often this is noted on the dealer website as well). Then, get your deal in writing, noting the vehicle identification number, or VIN. Leave a deposit and be sure to get a receipt.
Be flexible. With limited inventories and multiple buyers bidding for the same car, you may not get the candy-apple metallic red with a leather interior and moonroof. Instead, choose several colors to search for and figure out your must-haves.
Watch out for extras. With fewer vehicles to sell, dealers may try to maximize their profits by adding pricey extras to their cars such as wheel locks, paint protection, mudguards and antitheft devices, Weintraub says. Often, these dealer add-ons are listed on an addendum, a supplemental sticker next to the factory sticker in the window of new cars. Find out early in the process what is included in the quoted price.
Your lease is ending
You have three options in addition to simply turning the car in:
Extend your lease. If your lease contract ends soon, you can usually extend it at the same monthly payment. This means you don’t have to re-lease or purchase a car while prices are high. Manufacturers' rules regarding lease extensions differ slightly, but Scot Hall, executive vice president of Swapalease.com, says they will usually allow you to continue driving the car for the same monthly payment for several months.
Weintraub cautions that if you extend your lease you might be outside the car’s bumper-to-bumper warranty coverage. Plus, you might have to pay expensive registration fees for an entire year.
Buy out your lease. If you like your leased car, consider buying it outright. You know its history, and in the current market, the buyout price may be much cheaper than a comparable car on a dealer lot. You’ll need to find a lender that does lease buyout loans.
Trade in your car. You’ll get more because the market is hot, but pay more because the market is hot. "It will be a push," Hall says.
You want to turn a profit
Many people don’t realize they can sell their leased car and keep any remaining equity. If you can wait a few months until the market cools off to buy another, you’ll have a nice down payment to go shopping with.
Weintraub says he got one of his clients $17,000 when he returned his Chevrolet Tahoe because its worth had skyrocketed above the lender’s predicted residual value at the end of the lease.
In the current market, values on average are about 25% higher than a year ago, according to the Manheim Used Vehicle Value Index. Some cars may have increased in value much more than that.
Dealers and online retailers eager to fill their inventory may offer to buy out your lease and give you the difference, greatly simplifying the process of mining your equity. But these sales divert vehicles that would have been returned to new-car dealerships for sale on their lots — a major source of profit. Several manufacturers have put restrictions in place that make these third-party buyouts more difficult.
Of course, lessees can still buy their cars, then sell them outright, but that would mean arranging financing as well as paying sales tax, which could cut the potential profit significantly.
Finally, there's the issue of how to get around until you buy another car. Consider riding out the bubble by picking up the end of someone else’s lease on Swapalease or LeaseTrader. You might even just call taxis or rideshare services until prices drop. While rental car agencies are also pricey these days, you might find something on Turo that meets your needs for a few months.
Your car was totaled
If your car has been totaled in an accident, your collision coverage (or the at-fault driver’s liability policy) owes you the car’s fair market value immediately before it was damaged. That figure has always been negotiable, and it’s not uncommon for the settlement to be adjusted if the owner can demonstrate their car’s higher worth.
Double-check any figure you are offered by getting buyout offers from online retailers (for the car’s pre-accident condition, of course) or talking to the used-car buyer at local dealerships.
Then, if you have to buy another car, you'll at least start with a totaled-car settlement that reflects the current climate.