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Pandemic Auto Shortage Influencing Debate Over New vs. Used Cars

With vehicle prices skewing higher, thoughtful strategies can make purchasing decisions easier

woman looking at a new or used vehicle
Don Mason / Getty Images

Car buyers face a classic dilemma right now — should you buy a new or used vehicle? — but one that now comes with a decidedly modern twist. Current car shortages caused by the pandemic are affecting both the new and used car markets as well as the decision-making process when it comes to shopping. So what to do? Here are a few things to consider when weighing the options.

New car factors

Your new car loses about 10 percent of its value the minute you drive it off the dealer's lot. Nothing horrible has happened to it once you drive away, but it's just no longer considered a new car once it's out of the dealer's name. It's an instant used car, only worth what a dealer would pay at an auction or what a used car buyer would give you, rather than the retail price you just forked over.

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This year, you very well might have spent extra for that new vehicle — more than 12 percent of consumers forked out more than the sticker price for a new vehicle compared to last year. That's the highest since at least 2002, according to an April tally by Edmunds.com, an auto research and car-shopping site.

Blame it on a shortage of microchips needed to run many of the features and systems in today's vehicles. Automakers cut back production of vehicles when the pandemic started torpedoing demand, and chip makers found other outlets for their wares — computers, games and other items that became more popular as people stayed at home.

The result was a disruption in the production of cars and a spike in price.

"New vehicles — particularly new trucks and SUVs — are basically the 2021 equivalent of toilet paper and hand sanitizer a year ago,” according to a statement from Jessica Caldwell, Edmunds’ executive director of insights. In other words, in high demand. “Consumers seem to be a bit more accustomed to paying more for goods in the past year, and new vehicles are no exception.”

The value of used cars

So, is it better to go with a used vehicle?

Used cars generally are rising in value right now, not falling, so you might not find a bargain there either. In fact, iSeeCars.com analyzed its database of more than 470,000 “lightly used” 2019 and 2020 cars listed for sale in June 2021 and found some cars were actually listed at a higher cost than when they were new.

On average, the analysis found that the average lightly used car cost about 3 percent less than a new version.

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"Used car prices have risen overall, and prices have dramatically increased for certain in-demand models that may be harder to find on new car lots,” iSeeCars executive analyst Karl Brauer said in a company article about the analysis. “Dealers may think used car buyers are willing to pay more for the instant gratification of a lightly-used vehicle they can drive right off the lot rather than waiting for a new one.”

Brauer called the used car price increases “unparalleled,” adding that he expects costs to remain elevated for the foreseeable future.

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Silver lining of purchasing

So it's a tough time to be looking for a vehicle.

"It's a good time to sell, but not a good time to buy, new or used,” says Benjamin Preston, auto reporter at Consumer Reports.

If there's a silver lining, it's that whatever car you buy is “probably going to depreciate more slowly over the next few years. There will be a tightness in supply. People will need cars,” Preston says. But he cautions, “Depreciation is such a crystal-ball game.”

Though it's a difficult market, it's not impossible to navigate if you recalibrate your thinking. Here are a few pieces of advice:

  • If you have a second or third car, consider just selling it without buying another, and adjust your lifestyle accordingly.
  • Be flexible. “We've been telling people if price and availability are issues and you really need a car right now, do yourself a favor and get what you need, not what you want,” Preston says.
  • Try searching for new or used vehicles beyond your immediate area.
  • Wait it out. Not everyone can, of course, but if possible, try to outlast the shortages — though don't expect a fast resolution. Edmunds says that might take six months or so, and at least one other analyst forecasts the shortage will last into 2023.

Other strategies include settling for a less-well-equipped model to keep the price down, or choosing a different color or even a different model or brand. Or perhaps choose an entirely different type of vehicle. Trucks and SUVs are commanding the top prices, sedans less so.

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