Because of the ongoing supply chain issues affecting everything from groceries to everyday consumer goods, many of us have started planning our purchases more carefully. This involves budgeting, prioritizing what we really need, checking inventory for in-stock items, and even upgrading shipping options to avoid USPS delays. Now, cars are joining the list of essential items that require this kind of careful, pandemic-era shopping strategy.
The U.S. is currently facing a temporary shortage of new cars, driven by a surge in demand and a slowdown in production. If you've been considering buying a new car—whether for family use or as part of your emergency preparedness plan—it might be best to stick with what you have or wait until the fall when the market may stabilize.
**What does the shortage look like?**
Back in April, after much of the economy came to a standstill, many news outlets predicted a drop in used car prices. People were cutting back on spending in anticipation of an economic downturn, and it seemed like no one would be buying anything soon. Then, auto auctions closed, leaving thousands of used cars stranded without buyers or sellers.
This led to a flood of used cars on the online market. When dealerships reopened in May and June, prices dropped. But over the past 60 days, used car prices have risen sharply as new vehicle supply has dwindled. Joe Akers, Director of Operations at Cowles Nissan, noted that this means a noticeable shortage of new vehicles during the summer.
We're now in a new phase of pandemic-related shortages. There aren't enough used cars for several reasons:
1. New car manufacturers had to shut down earlier this year due to the pandemic, leading to lower new vehicle supply.
2. To clear out the initial surplus of used cars, dealers offered aggressive incentives—some even sold cars with 0% APR for years.
3. The used car market usually includes cars that people lease and return. However, many dealers extended leases during the shutdown, so those cars aren’t available yet.
4. Parts and components from other countries are delayed due to global supply chain issues. Lauren Fix of The Car Coach said it can take up to 12 weeks to get a new part right now.
Akers also warned that used car prices will remain high in the near future due to low new vehicle supply. Plus, strong new vehicle incentives make it a bad time to buy used. The best opportunity was early in the pandemic, when auctions closed—unfortunately, that window has passed.
For consumers, this is a tough situation. While the auto industry (and homebuilding) has rebounded strongly since the pandemic began, the combination of high demand and low inventory is pushing prices higher.
As one Twitter user pointed out: *“Why's the U.S. economy holding up as well as it is? Two sectors lifted by low interest rates are big reasons: homebuilding and autos.â€*
**The case of Carvana**
Carvana is a company built for the pandemic era. It’s essentially an online used car dealership where you can pick a car, buy it with a click, and have it delivered to your door. Think of it as Postmates, but for cars.
In its second-quarter earnings report, Carvana revealed that it sold 55,098 cars since April and saw growth in both profit and revenue compared to last year. However, the company also admitted it was "operationally constrained" and struggling to keep up with inventory.
Zach Shefska, CEO of Your Auto Advocate, explained that Carvana is a used-only dealership, and it's having trouble buying vehicles at auctions because wholesale prices have skyrocketed.
So why are used car prices going up so fast? Because new car manufacturers haven’t been able to produce enough cars to meet demand, which has pushed more people toward the used market, driving prices up.
**Wait until the end of September or early October to buy a new car**
If you're thinking about buying a car, now is not the best time. Demand is way higher than supply, and both dealers and manufacturers need time to catch up. However, the right time to buy could be coming soon.
According to Shefska, once manufacturers return to pre-pandemic production levels, car prices should stabilize. He believes the best time to buy will be in the fourth quarter of this year.
Pat Ryan, founder of the CoPilot app, agrees. He suggests marking your calendar for the last week of September or the first week of October, when car sales may ease into a buyer’s market. He also highlights two key factors to watch for:
1. Up to 560,000 extra cars could come off their leases this fall, as deferred leases begin to roll back.
2. With fewer people traveling, rental car companies are struggling, and up to 250,000 rental cars could enter the used market, including at least 175,000 old Hertz cars.
Akers added that while flexibility is needed when shopping for a car this summer or fall, this has become the norm in the pandemic era. So if you're in the market, keep an eye on these trends and consider waiting a little longer for better deals.
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