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One of the best weekend in car buying is more holidays nowadays.
Amid the manufacturing challenges facing the auto industry due to ongoing supply chain issues, Memorial Day sales are generally little to none this year.
“It sounds very grim, to be honest about it,” said Evan Drury, senior director of Edmonds Insights. “It’s getting more and more difficult to get a new car with the features they want at the price they’re willing to pay.”
The average amount paid for a new vehicle was more than $45,200, up 18.7% from last year, according to joint projections from JD Power and LMC Automotive. Drury said buyers are paying about $700 above the sticker price on average.
Meanwhile, the average stimulus offered by traders has fallen to an all-time low of $1,034, compared to $2,996 a year ago, according to JD Power/LMC forecasts. In general, dealers don’t need to offer much incentive to sell cars these days.
In fact, even though the pace of sales is 23.8% lower than a year ago due to lower inventory, the average vehicle profit at dealerships is $5,046 compared to $2,733 last year.
“This high level of profit per unit more than offsets the decline in sales volumes,” said Thomas King, head of data and analytics at J.D. Power, in the forecast.
Meanwhile, faced with a limited inventory of new cars, an increasing number of buyers are turning to used car parts instead, Drury said.
“Lots of new cars you see [dealer] Drury said the sites marked “soon” or “on the way” have already been sold out. “So unless you can pre-order that car and wait three or six months to get it, you will end up with a used car.”
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Drury said 45% of buyers who traded in their cars ended up with a pre-owned vehicle, compared to 35% a year ago.
Of course, there is little comfort in the used car market. Average prices have increased 22.7% over the past 12 months, according to the latest data from the Bureau of Labor Statistics. Edmunds research shows average transaction amounts to be $29,948.
However, this means that the swap values are also higher.
“For your used car, get multiple quotes,” Drury said. “Take advantage of it.”
Another thing to consider is the cost of financing. The average rate paid on new car loans is increasing. It was 4.7% in April, up from 4.5% in March and 4.1% in December, according to Edmonds. With the Federal Reserve expected to continue raising the key interest rate affecting consumer loans, the interest rate for car shoppers is likely to rise in the coming months.
However, well-qualified buyers may be able to get a decent price, depending on the vehicle.
“You can still get zero funding or maybe 1.9%,” Drury said.
For used cars the average price is 8%. However, for approved used vehicles – which generally pass a rigorous inspection and come with an extended warranty – you may find special financing deals.
“It could be 1.9%, or 2.9%, or even a cashback,” Drury said.
And while those used cars may cost more, you can pay a higher interest rate on a loan for an unapproved version.
“Even if you save money up front with a non-certified pre-owned vehicle, you may end up paying more overall,” Drury said.