Need a new car? Now might actually be a good time to buy.

As the pandemic has impacted many parts of the economy, the one area I seem to hear a lot about lately is car prices.  With used car prices up about 31% and new car prices up 11% in the last year, you may think I’m crazy to say right now might be a good time to buy.

My wife and I had been considering getting a larger vehicle for our growing family in a few years.  When our daughter was born 4.5 years ago, we replaced my wife’s 19-year-old Jeep with something more reliable, but it was starting to feel small for our family of four.  As I did some research in December, I found that we could sell her car back to a national used car dealership for more than we paid for it 4.5 years ago.  It needed new tires, some regular maintenance, and the car seats had left indentions in the leather.  Per the dealership, none of those issues impacted their offer.  I was blown away.

Meanwhile, the vehicle she wanted to purchase had been selling at the MSRP price or more through what is called an Additional Dealer Markup (ADM).  I knew my work was cut out for me if I wanted to try and find a decent deal, especially with such low inventory for new cars.

Using web search engines such as cars.com, I searched for every vehicle within a 300-mile radius of our home that contained the options we wanted.  What seemed to be some great offers online usually turned out to be borderline false advertising once I spent the time to contact each dealership and get offers in writing.  After many hours of searching over several weeks, I found a dealership about 90 miles from our home that had just received a large shipment of the vehicle we wanted.  After a few phone calls and negotiating between dealerships, I was able to get their advertised $2k ADM waived and receive almost 6% off of the MSRP if I drove there and purchased it before they closed.

After making the two-hour drive in traffic, the trade-in price they offered for my wife’s old car wasn’t close to the offer I had received from the national used car dealership.  Fortunately, there was a branch of the used car dealership right across the street.  So we purchased the new vehicle for about 6% less than MSRP, drove two blocks, and sold my wife’s old vehicle for about 38% more than it was worth about a year earlier.

Will this be the same for every trade-in scenario out there?  Absolutely not.  If you’re in the market for a new vehicle, here are some things to consider:

• Is your current vehicle new enough to benefit from the inflated used car prices? For example, if you’re trading in a 20-year-old car that was worth $1,000 and is now worth $1,300, that’s not going to do you much good.  But if your car was worth $30,000 last year and is now worth $40,000, that’s a huge difference.
• How much more is the car you want to purchase compared to the last year or two? Are there any incentives or room for negotiation?  Using the same logic as above, if the vehicle you want to purchase was $35,000 last year and the lowest price you can find is now $37,000, that’s not a big increase.
• Compare your results in the first two questions. If the increase in value of your old car is more than the increase in value of your potential new vehicle, then now may be a good time to purchase a new one.
• Other intangibles:
  • Is this new car more expensive to insure?
  • Will your property taxes be higher?
  • How does the total cost to own estimate compare to your current vehicle? This factors in things such as reliability, fuel mileage, depreciation, etc.
  • Do you even need a car? In some cases, your family may be able to take advantage of the current inflated used car market if you’re no longer using one or more of your vehicles very often.  If so, now may be a good time to sell it.

While everyone’s situation is unique, there does appear to be an arbitrage opportunity if the numbers work in your favor.  I’ve even noticed that in some situations, you may be able to trade in a one or two-year-old vehicle for more than the same model cost new (albeit with some effort on your end).