New car and used car prices soar, but here is how you can still get a deal

A chain reaction touched off by the coronavirus pandemic has pushed new-vehicle prices to record highs and dramatically driven up the cost of used cars. (Feb. 23) AP Domestic

Eric Young started shopping for a new vehicle in early January, an SUV high on his list.

But the features he wanted and what he could afford were two different things. He realized it meant looking at smaller vehicles if he wanted to remain in the new-car market.

“I told myself a number and that was the max I would go, $32,000, and the lower I could come to $27,000, the better,” Young said. “I thought about the used car market, but that’s tough because I don’t know how the previous owner treated” the vehicle.

On Feb. 6, Young, who works for a software company and lives in Orange County, California, bought a silver 2021 Toyota Camry sedan for $27,132. 

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Eric Young stands with the 2021 Toyota Camry he bought new on Feb. 6, 2021.

 (Photo: P. Ann Lu)

Young said he loves the car and he feels lucky that he got his deal just in time, noticing a rise in new car prices. In fact, new and used vehicle prices are soaring and show no signs of leveling any time soon as inventories for each remain skimpy, analysts said.

Tight inventory equals high prices. The accelerating prices have been creating a divide between the haves and the have-nots for at least a year now.  Wealthy people continue to buy pricey large pickups and SUVs, benefiting from low interest rates and robust markets in housing and stocks, analysts say.

But working class and poor people are being pushed into the used car market as affordable new small cars are increasingly scarce, especially from domestic carmakers who’ve opted to build trucks in recent years to meet changing consumer tastes.

“The (domestic) automakers have killed off the sedans that were affordable, so you’ve been funneled to different brands if you’re a sedan purchaser, you have to go to a Korean or Japanese automaker for one,” said Ivan Drury, Edmunds’ senior manager of insights. “A new car purchase, at this point, is a luxury purchase. If you are buying a midsized SUV from a mainstream brand, it’s $40,000 or more and that’s luxury territory.”

2021 GMC Terrains SLE for sale at Suburban Buick GMC car dealership in Ferndale on Feb. 26, 2021.

 (Photo: Kimberly P. Mitchell, Detroit Free Press)

As a result, data shows that there is more cross shopping between new and used vehicles this year compared with previous years as car buyers search harder for the vehicle they need at a price they can afford, Drury said. 

‘Buying a lot of car’

In January, the average transaction price for a new vehicle was $39,144 compared with the year-ago period when it was $38,259, Edmunds’ data said. Just four years ago, in January 2017, a new car sold for $34,898 on average.

For the month of January, the average transaction price for used cars shot up to $22,676 compared with $20,409 in the year-ago period. Four years ago, it was $19,085, Edmunds’ data shows.

Ivan Drury, Edmunds’ senior manager of insights.

 (Photo: Courtesy of Edmunds)

“The dealer is more in control of what you’re going to pay,” Drury said. “Your negotiation skills likely will not come into play. Paying full MSRP is not likely, but you’ll pay closer to it.”

New vehicle inventory for the week of Feb. 22 was 17% lower than it was in the year-ago period. In used vehicles, inventory is 12% lower, said Cox Automotive’s Charles Chesbrough, executive director for strategy, research and senior economist.

“We are looking at new vehicle prices growing at a 5% to 6% clip,” Chesbrough said. “The new car market will be tough for the working class folks.”

Besides low inventory, new vehicle sticker prices and average transaction prices are driven higher by other factors: Many new models are heavily loaded with expensive technology that commands fat sticker prices.  

F-150 trucks sit for sale at Suburban Ford in Ferndale on Feb. 26, 2021.

 (Photo: Kimberly P. Mitchell, Detroit Free Press)

“It’s crazy the acceleration we’ve seen in pricing because people are buying SUVs and pickups and those are very expensive,” Drury said. “People are buying a lot of car too, expensive trims and treating themselves. Once you get to that price range, it’s a lot easier to justify a $3,500 sunroof and other features.”

The average transaction price in January for a full-size pickup was $53,657, up 2.9% from the year-ago period, according to Edmunds’ data. For a full-size SUV, it was $68,859, up 5.5% from the year-ago January.

‘The unfortunate truth’

Another trend contributing to high prices is many buyers are keeping a car longer, Chesbrough said.

Those who opt to purchase rather than lease are keeping their cars seven to eight years now compared with five years or less in years past, “so they want those leather seats and sunroofs,” Chesbrough said.

Cox Automotive’s Charles Chesbrough, executive director for strategy, research and senior economist.

 (Photo: Courtesy of Cox Automotive)

There is also the pandemic’s impact. Last year, as the pandemic forced some businesses to shutter and many people lost their jobs, the lower-income people were pushed completely out of the new and used car buying market, Chesbrough said. Even middle-class people had to reconsider a new car purchase and instead look to used.

“Even a $35,000 vehicle is a really expensive loan payment when you have to pay it for six or seven years,” Chesbrough said. “A lot of American families can’t make that commitment of $700 a month for that long.”

It was mainly the upper-income folks who bought new, thus sales of expensive SUVs and pickups had a great year, Chesbrough said.

Expect to search harder in either market than might have been required in the past. Drury said that in January last year, consumers reported they were willing to travel 45 miles to buy a 2019 model year vehicle. This January, consumers have said they are willing to travel 65 miles to shop for a 2020 model year.

“Your local dealer will likely not have the vehicle you’re looking for in terms of color, trim and other options,” said Drury. 

Driving 100 miles

That’s what happened to Tyler Arciaga, a high school athletic director and head football coach who lives in San Diego.

Arciaga wanted to pay cash for a new vehicle in September, he said. His budget was $25,000.

“It was just too pricey and nothing fit in the price range for what we were looking for. We wanted an SUV with a third row and there was nothing new in that price range,” said Arciaga, a father of two kids with a third on the way.

So he started shopping in the used vehicle market. In October, he found a three-row, base trim 2017 Buick Enclave in black with 33,000 miles. He bought it for about $20,400 before taxes, a deal he considers fair. But he had to drive 100 miles to the dealership to get it.

Tyler Arciaga of San Diego stands by the 2017 Buick Enclave he bought used in October 2020 because new vehicles were too expensive.

 (Photo: Jake Arciaga)

“I do feel pretty fortunate I found it, but I had to search and I had to expand the search radius to 150 miles,” Arciaga said. “We wanted to avoid debt as much as we could and so the new car prices pushed us in this direction.”

Best to buy

Jake Fisher, Consumer Reports senior director of auto testing, is a bit of an outlier because while he knows the average price of a new car is skyrocketing, that doesn’t mean an educated consumer can’t get one for a good price. 

But it might require looking at different brands and maybe not getting the exact color or other features you want.

“The Toyota Corolla is a very affordable vehicle and the Camry, they have a lot of value, reliability and safety,” Fisher said. “The Mazda CX5 is under $25,000 and it’s reliable, fun to drive and good quality.”

Jake Fisher, Consumer Reports Senior Director of Auto Testing in June 2019.

 (Photo: John Powers)

There’s no shortage of Asian automakers’ compact SUVs and sedans if a person wants a new car for a good price and those foreign sedans are not going anywhere, he said. The imports, Fisher said, will continue to make sedans because of high fuel costs outside of North America.

“The market is changing so quickly. If you’re in the market today for a three-row SUV, you’re going to have a hard time negotiating because a lot of people are looking for that vehicle,” Fisher said. “But if you’re looking for a Corolla or a Camry, there are opportunities there.”

Consumer Reports tested 2021 new models across all brands for safety, comfort and reliability. They also studied owner satisfaction surveys and created these top picks by price category, Fisher said. 

Money in your driveway

Not all is lost if you’re looking for new wheels this year. If you have a car to trade, that’s an advantage. 

“You usually see upticks in used car values in the summer months, but it’s happening much earlier because of the new car shortage,” said Drury. “So the consumer might have a lot more negotiation ability in a used car value when you trade it in.”

Drury suggests shopping the trade-in value either online with dealers or listing it as a private sale because, “dealers are stocking up on used cars right now, so you have an edge. You have more money in what’s in your driveway than you do in getting a discount.”

A used Chevrolet Suburban for sale at Suburban Buick GMC in Ferndale on Feb. 26, 2021.

 (Photo: Kimberly P. Mitchell, Detroit Free Press)

But given the competitiveness among carmakers, there will still be some factory incentives on new vehicles, in some cases even on certified pre-owned rides, analysts said. For example, Honda and BMW have offered low financing and BMW has given cash back of up to $1,500 for buying a used vehicle, Drury said.

Cox’s Chesbrough agreed that consumers will get discounts but, “they’ll probably not be as aggressive as they would be because of the economy and tight inventory, so there are no fire sales happening. And to get the vehicle you want, the color you want and the trim, could be more of a challenge. We have 17% fewer vehicles out there so we have less to choose from.”

Tax season bounce

Spring is typically a hot time for the used market.

Most people get their tax refunds around this time and with the average down payment on a used car being about $2,500, that’s close to the average tax return, Drury said. On a new car, the average down payment is $4,500, he said.

Also this year, for people earning $75,000 or less, they should receive a $1,400 stimulus check, Chesbrough said, which might also provide a bounce in used car sales this spring.

Of course, that bounce could lead to even tighter inventories in used vehicles, inflating selling prices further.

On the new car side, prices are expected to remain steep and sales uncertain. 

“It’s a volatile year,” Chesbrough said. “We still have the vaccine distribution to address, the semiconductor chip shortage and inventory shortages … so there’s a lot out there that could disrupt a new vehicle sales recovery.”

Indeed, the auto industry has been confronting a massive global shortage of semiconductor chips that has disrupted vehicle production in recent weeks. The chips are used in a variety of car parts and are in big demand for personal electronics too.

Eric Young stands by the 2021 Toyota Camry he purchased on Feb. 6, 2021.

 (Photo: P. Ann Lu)

But if vehicle prices continue to climb, it does not discourage Young. He intends to keep buying new vehicles and is willing to downsize if he must.

“If one day I can’t afford a Camry anymore, I will go get a Corolla,” Young said. “Buying a used car for me is tough — if I knew the owner, that’s a different story.” 

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