Buying a Car During the Current Diminished Inventory Market

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Buying a Car During the Current Diminished Inventory MarketBy Will Estell

By this point, most everyone who drives, or keeps up with current economic and supply chain trends, is well aware that the current automobile market in our country (and most others) is facing a problem we haven’t seen to this degree in our lifetimes.

In a nutshell, the current lack of new and used vehicle inventory is partly due to supply chain issues first affected by the pandemic, and later catapulted into more problems with a fire in a major supplier facility in China, leading to a worldwide shortage of microchips used in the new car manufacturing process.

Buying a Car During the Current Diminished Inventory MarketThis new car shortage is, by association, also responsible for the diminished number of used cars on the market, since dealers depend on new car trade-ins for much of their used inventory, that then flows down the chain to supply the major auto auction houses, local wholesale dealers, and the smaller non-dealer pre-owned car lots. Meaning right now, the demand for new and used cars is far outweighing the availability. Thus, making it harder to find the particular new or used vehicle you may be looking for, and increasingly difficult to get a good deal on the pre-owned automobiles you do find to purchase.

So, what do you do if you find yourself in need—or want—of a vehicle during these tumultuous times?

We all know that anytime supply for anything is less than the demand for the same tangible product —be it real estate, automobiles, building supplies or high-end watches—the result is usually a temporary adjustment—repeat after me, “inflation”—in the said commodity. Read that again, “temporary.” Meaning that If we pay too much for something just because there is less of that something in a current market, we often still paid too much! That’s basic economics, but it’s surprising how many people get caught up thinking they have to have something and let their emotions talk them into paying too much for it.

In the case of used cars especially, we are seeing a number of vehicles selling at retail establishments for a good percentage over what the true retail value for that same vehicle is. Remember, this shortage is real, and the supply of vehicles available may not catch up with normal auto purchasing demand for up to another two years (once the chip shortage is overcome and new manufacturing resumes to a normal pace), however (the BIG “HOWEVER”) this doesn’t mean it’s smart to pay over the retail book value for any car or truck you are considering buying.

If you are paying over the NADA (National Auto Dealer’s Association) or KBB (Kelly Blue Book) retail value for the vehicle, you are simply paying too much. And, that will come back to haunt buyers who do this. As the vehicle you purchase is only worth what the books say it is worth when it comes time to sell or trade it in later on. And that time will come. You can do a simple internet search to find those values for any car you are thinking about buying, keeping in mind that dealers still want to sell cars, perhaps needing to more now than ever. So, push for that best deal or walk away.

So far, the “real” values of the used (or new) vehicles on the market hasn’t changed much at all in the real world, even though some dealers are asking more, and some consumers seem willing to pay more than the book values. This means some people (a lot of people) are likely to find themselves way upside down when they try to sell or trade that car or truck they paid thousands over value for, just to get it. Remember, like most consumer goods, the majority of cars and trucks (other than particular collectible, rare, and antique ones) are depreciating assets. So, unlike the home or condo you buy that generally will continue to go up in value, the car you buy –even at fair market price—will almost always go down in value from the day you buy it. That’s why it’s so important to buy it right in the first place.

One way to buy smart is to really educate yourself on the real value of any vehicle you are considering. Just because lot A is selling their vehicle $2,000 less than lot B doesn’t mean either one is a good deal. Use the NADA and KBB book values and make it a rule not to pay over the retail book value, no matter what the dealership or seller may tell you about supply and demand, or current values. If you pay too much today, you will most definitely owe way too much tomorrow.

The good news is that reputable dealers know this supply issue will even out in time, and they also know that the book value is the real value. Make it a point to do business with those dealers and sellers only. In fact, being sort of auto aficionado myself, having owned over 35 various cars, trucks and SUV’s over the years, my hard rule when purchasing anything (Yes, even in this current market.) is to never pay one dollar over the NADA clean trade-in book value for anything. Whether on a car lot or from an individual, I stick to that rule. This way I always know that I can drive most of those cars for even a year or less, keep the mileage at or below the national average, and still be able to trade or sell the vehicle for what I owe on it or more. The good news is, I have even been able to do this twice (for my pre-owned BMW and my fiancée’s Mercedes) in the past few months, even during the current automobile market. So, just know you can do it; it just might take a little more shopping around and tougher negotiating skills to make this happen.

Will Estell is a writer and magazine editor, with hundreds of published articles in various publications, as well as numerous additional online articles in an array of genres. He’s been instrumental in founding 11 magazine titles from concept to fruition, both for other publishing companies and his own partnerships. He actively partakes in freelance media projects for an array of local, regional, and national publications, such as this one. Will is a father of three who splits his time between Destin and Navarre, along with his fiancée, ABC news anchor, Laura Hussey. When he isn’t writing, creating or consulting, he enjoys attending live musical events, hanging out with friends and playing with cars…real ones.