Should I buy a used car now? I’ve been told to just buy new, but I don’t want a car payment.
Dear Needing Transportation,
My perspective is that neither is a good option right now. I suggest you try to hold off until market conditions change. Some context will help.
A unique time for vehicles
Prices in used-car listings are up significantly over the same time last year — some as high as 30%. Remember, most often used-car prices drop! I have never seen a time in my life that used-car prices went up!
It’s a great time to sell a used car, but the reality is that you will have to pay more to replace it. Dealers are buying used cars, but they will pressure you to finance a new one. That’s why I advise you to step back and wait.
In June, Bloomberg reported that higher prices for used cars contributed to the rise in U.S. inflation. Used cars and trucks were up 10% in April and 7.3% in May and were responsible for one third of the rise in consumer prices. The reason is due to a lack of supply.
Several factors are involved. When Covid-19 hit our nation, people fled cities to work remotely. Without the convenience of public transportation, they needed to buy vehicles. Also, rental companies sold their inventories when travel dropped. Once restrictions were lifted and travel resumed, they purchased used vehicles to meet the demand. But, the primary reason affecting the prices and limited supply is a semiconductor chip shortage.
We used to lead the world in making chips. Now? We produce zero. According to a Wall Street Journal report, 92% of the world’s most sophisticated chips are made in Taiwan. America has a serious chip problem that not only affects the used car market, but it is also a national and economic security risk.
According to Techxplore.com, the tension between the U.S. and China contributed to the shortage. Chinese tech giant, Huawei, began stockpiling semiconductors before sanctions due to espionage allegations prevented selling to them. Other companies followed their lead, further reducing supplies. This summer, the Senate voted through $52 billion in subsidies for chip plants. But it typically takes two-and-a-half years to build one. MarketWatch predicts that vehicle inventory due to the chip shortage will not recover until 2023.
Tim Healy of TheTruthAboutCars.com said, “If someone came to me right now and said they wanted to buy a car, I’d advise them to wait … And if my hypothetical acquaintance insisted on buying used, I’d tell them they’re crazy (unless, of course, they couldn’t wait to get a car).”
How to buy a car
Hopefully, the market conditions are temporary. When it comes time to buy, consider my guidelines:
- Find a car for sale by the owner before it is traded in, to snag a better price.
- Rule out cars that were purchased at an auction.
- Don’t buy cars from known flood zones. Recognize signs of flood damage.
- Look for vehicles with a clean Carfax report. (That means no “rebuilt titles” showing that the car was once totaled and has since been repaired.)
- Ask for maintenance records, history of use where the car was serviced, when tires were last replaced, etc. Do this by email to save time.
- Check the value at National Auto Dealers Association before inspecting and test driving.
- Have a trusted mechanic do an inspection. The cost will grant you peace of mind.
It is possible you can buy a good used car from an individual or family member who is not concerned about getting top dollar. Just remember to buy a car you can truly afford. Doing otherwise is one of the main mistakes that lead to debt.
While waiting, save your money, be grateful for what you have, and do your research. Ask the Lord for patience, wisdom, and discernment so that when the time comes, you can make the right purchase. Be smart so you can buy smart.
“An intelligent heart acquires knowledge, and the ear of the wise seeks knowledge.”
(Proverbs 18:15 ESV)
Also while you wait, if you need help getting your credit in order, Christian Credit Counselors is a trusted resource that seeks to free individuals and families from credit card debt.
Chuck Bentley is CEO of Crown Financial Ministries, a global Christian ministry, founded by the late Larry Burkett. He is the host of a daily radio broadcast, My MoneyLife, featured on more than 1,000 Christian Music and Talk stations in the U.S., and author of his most recent book, Seven Gray Swans: Trends that Threaten Our Financial Future. Be sure to follow Crown on Facebook.