November 30, 2022

Daniel Acker | Bloomberg | Getty Images

Car buyers looking to make money from Memorial Day weekend sales events may want to keep their expectations low.

In addition to reduced inventory levels due to the lack of microchips – key parts needed to power today’s cars – and continued consumer demand that is driving prices soaring, manufacturers and dealers are offering less incentive.

The average incentive is $ 2,957, down from $ 4,825 in May 2020 and $ 3,878 in May 2019, according to a new forecast from JD Power and LMC Automotive.

“People are going to get a little surprise,” said Ivan Drury, senior manager for insights at Edmunds.com. “There will be little to no price negotiations.

“We’re seeing more people paying sticker prices or higher.”

At the start of the pandemic more than a year ago, when dealerships and manufacturing facilities closed, chipmakers were focused on the consumer electronics industry – i.e. computers and game consoles – and there are still shortcomings in their ability to meet the renewed demand from automakers.

Some automakers have shut down manufacturing facilities or stopped producing certain models, or removed certain high-end packages – such as navigation systems or blind spot detectors – from vehicles that would normally have them, Drury said.

“The shortage is really kicking the industry,” said Drury.

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According to new estimates by JD Power and LMC Automotive, an estimated 33% of vehicles will be sold within 10 days of arriving at a dealer in May. This corresponds to sales of 18% in May 2019.

In addition, car buyers can struggle to find the car they really want. According to a recent survey by Cars.com, 40% of car buyers say they have faced this problem.

“If you are picky, this may not be the time to buy something,” said Drury. “But if you’re open-minded … you’re in a better position.”

Of course, it is uncertain when the pressure on inventory will ease.

“Things will improve by the end of the year,” said Drury. “But we’re not going to be anywhere near normal.”

The average price for a new car is nearly $ 40,000, according to Edmunds.com. It’s over $ 23,000 for used cars. Part of the rise in prices is due to the fact that consumer preferences have shifted to more expensive pickups and SUVs, and away from cheaper sedans and small cars, over the past decade. Improved technology and security features also increase the price.

The average discounts are 7% or 8%, said Kelsey Mays, deputy editor-in-chief at Cars.com. This is comparable to previous years when this average was 10% to 12%.

Among the incentives on offer: The Chevrolet Silverado 1500, which starts at around $ 29,000, has a decent discount of around $ 4,000 depending on the trim level, Mays said. Starting at around $ 25,000, the Toyota Camry may get a $ 1,000 discount depending on the specifics.

The silver lining for the higher cost of used cars is that trade-ins are worth more. And while there may be little price negotiation for the car you buy, you may be able to get more for your trade-in to lower the amount you pay for.

“There will be potential leeway for consumers with their trade-in,” said Mays of Cars.com. “Consumers should take advantage of these elevated levels and get the most out of them.”

There are other ways you can reduce the cost of your purchase as well. Depending on your credit rating, you might be able to find a 0% (or close to) financing deal on a new car. Otherwise, according to Bankrate, the average interest rate on a five-year new car loan is 4.12%. For a three-year used car loan, it’s 4.42%.

“Buy the interest rate,” said Drury. “Savings can be achieved here.”

If you are picky, this may not be the time to buy. But if you’re open-minded, you’re in a better position.

Ivan Drury

Senior Manager for Insights at Edmunds.com

If you are not paying with cash, you should get pre-approved for a loan from a bank or credit union. While there is no requirement to use pre-approval, you will at least be armed with a settlement if the dealership offers its loan terms.

Note that the longer you extend your loan – for example for 72 or 84 months – in order to be able to afford the monthly payments, the more interest you will pay (unless it is 0%) and the greater the chance that you end up trading in your car for a new one before you pay for it.

And in this scenario, consumers often roll the “negative equity” into the loan for their next car when the trade-in value is less than the value owed on the loan.

If you want a brand new car but can’t find exactly what you want, consider leasing it instead of making a purchase.

“It’s not a long-term commitment … and it could be better than funding something over six years that you don’t like,” said Drury.