Considerations to make in the current market
In many parts of the USA, UK, and Europe, the AUTO industry is on FUEGO. Meaning that it is a “seller’s market”, where DEMAND is outstripping SUPPLY. As such, car buyers are paying RECORD prices for both NEW & USED cars.
In fact, some models are going for more than $10,000 over the sticker price.
Yikes is right!
The current PRICE FRENZY is due to a few different elements resulting from the pandemic. One of them being a psychological shift in the minds of many consumers, whose preferences for personal transportation sky-rocketed the demand for vehicles, due to the perceived notion that it is “safer” vs public transportation.
Additionally, there has been a MASSIVE shortfall in vehicle production.
With production plants not being able to operate at full capacity due to Covid restrictions, shutdowns, and/or staff shortages, the production volumes of new cars has decreased sharply globally. To make matters worse, there has also been a global shortage of computer-chips, which added a significant layer of complexity to the industry.
There is also some truth to the fact that Auto dealers suffered major losses in 2020, especially during the peak of the pandemic. As such, they have some catching up to do to make up in lost profits and now with a shortfall in production, their sales volumes are lower in 2021. So, they have to squeeze whatever they can from each and every sale.
This means that they are making every penny count.
How Car Prices Work:
Although auto manufacturers usually set a suggested retail price, known as MSRP (or to you & me it is called the “sticker price”, it it not a mandatory price. This means that it is the auto dealers who actually own the vehicles because they purchase them directly from the factory.
As such, AUTO DEALERS have a say in the FINAL PRICE, which we pay as consumers.
However, in the past, the MSRP or sticker price was a starting point for “negotiations”. As such, we would use the sticker price and use it as a gauge to bid lower.
If you are also fans of the show “This is US”, you will likely remember the scene where Jack & Rebecca go with the kids to buy a used car at a local dealership. However, they end up buying a new family car – the Jeep Grand Wagoneer – thanks to Jack’s superb negotiating skills. “That car is going to tell my family’s story just by looking at it,” he told the salesman, who caved in and gave them a fantastic deal (vs the sticker price).
*Hold on whilst I get a tissue please.*
However, that element of negotiation is pretty much GONE in the current market and auto dealers are now charging thousands of $ above MSRP. So, if you are in the market for a car I suggest you take a pause and ask yourselves a few questions:
Q. 1 – What is your MOTIVATION to buy a car now?
Is buying a car CURRENTLY an actual NEED or WANT? For instance, will purchasing this car help you to actually make money and/or save you time (drive to work, etc)? Or, is it that you want a car instead of taking public transportation (if that is an option)?
Q. 2 – Number Two you REALLY have to buy now?
Could you actually wait awhile to see if things stabilized in the future?
Q. 3 – Do your FINANCES allow you for this extra spend?
Remember, you not only have to take into consideration the fact that prices are sky-high at the moment, but you also have to purchase insurance, gas, parking, etc. Remember that in general, a car is a depreciating asset, so do not overextend yourself & stay within budget. Also, consider the pros/cons of NEW vs USED.
If the answer is, “YES, I need a car NOW,” then make sure to still give negotiating a “try”.
However, keep in mind that it now means finding a middle ground on how much MORE you are willing to pay OVER the sticker price vs below it.
Also, try to see if the dealer can throw-in some special “add-on” for free, since you are paying a premium.
Finally, because of franchise laws (particularly in the USA), you cannot buy direct from a manufacturer.
However, remember that you can order from the Factory via a DEALER!
That’s right & this has certain benefits, such as:
1. There is no mark up.
2. You can decide what add-on’s to have.
3. You know what you pay.
To wrap it up, buying a car in the current market is completely YOUR DECISION & should be based on your personal circumstances, but choose wisely & be smart – for your current & future financial self.
Speak soon friends & remember to Wear Your Money Crown!
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