The question of Should I Buy A New Car Right Now, isn’t always something we ask ourselves before we go and buy a new car because there are more considerations beyond timing. Still, it might be one of the most important questions to answer for yourself, especially as the global economy climbs out of a period of high inflation that brought high interest rates. Adding to the cost of automobiles beyond inflationary interest rates was a supply disruption resulting from the pandemic.
WHAT’S ON THE LOT
It was clear from the empty spaces on auto dealership lots across all brands that the supply was extremely low and, in some cases, certain models were on backorder waiting lists. With a low supply and high demand, it was a seller’s market and the dealerships had little incentive to show loyalty, customer service, or empathy for price negotiation.
Some auto lots started to show some pre-pandemic volumes in late 2023, but the prices and interest rates remained high as the overall inflation rate had not shown signs of coming down. In early 2024 the lots have not only shown signs of recovery, but dealerships have started to run some of those, “please come see us” ads that haven’t quite reached the begging stage but are showing signs of the market shifting to a more balanced buyer-seller relationship.
TRUST TOOK A BIG HIT
The relationship between customers and car sales representatives, one always based on trust has eroded during the past few years. Customers tell stories online where prices were readjusted after contracts were signed and waiting lists were compromised or repurposed.
In early 2023, I had one sales representative tell a family member that if they didn’t buy the car on the same day, that it would probably be gone within a few days. He also added that while no one else was looking at it, that he could not hold it for them. The car was gone the next day, and he didn’t even bother with a courtesy call.
In another case, someone’s contract was nullified because the dealership said they made an error on the model they quoted and that it was on back order for months. The deposit the customer had made over a year ago was returned to them. That same car and model was later listed and sold at $10,000 more within days.
As the market changes back to a buyer’s market, customers are going to remember these experiences.
THE CUSTOMER OUTLOOK ON A NEW CAR
As customers look into buying a new car, 53% consider the total price, 20% consider the monthly payments, and the remaining 27% consider both. Almost 30% of Canadians are said to be interested in buying a new car in the next 12 months, but 47% say they’re unlikely. 40% of Canadians say the cost of a new vehicle is too high and 59% say the cost will delay their next new vehicle purchase.
While new car prices peaked in December 2022, they have since fallen an average of 3.5%.
IS IT A GOOD TIME TO BUY A NEW CAR NOW?
Given some of this information, the signs are pointing to the idea that if you don’t need a new car, you might want to hold off a little longer. The prices and interest rates are still higher than they need to be and with less people buying, those lots are going to continue growing their stock. Plus, interest rates are expected to fall in consecutive quarters as the inflation rate has slowed beneath 3%.
With a growing inventory, real auto incentives should start to return, finance interest rates and overall costs should fall or stabilize.
WHAT IF YOU NEED A CAR NOW!
If you can’t wait because you need a car more than want one for any number of reasons like getting to work, getting the kids around, or your current one has simply lived its last days, perhaps consider a used car. Even under normal purchasing circumstances, a used car might always be a fair option to explore.
WHY YOU WOULD BUY A USED CAR
While new cars smell great and have that nice shiny look, they depreciate by about 20% in their first year. Over the next four years, you can expect to lose about 15% of its value each year. That means that after 5 years, your car will be worth 40% of its purchases price. So, as an example, if you paid $40,000 for that new car, in five years it will be worth about $16,000.
That means that in five years you lost $24,000 just from purchasing that car. If you took $16,000 and bought a used car and then assumed your annual repairs fell in the Canadian average of $1,500 annually, your maintenance cost in five years would be $7,500. The total cost of owning that used car would be $23,500. That’s almost the equivalent of the money your lost in depreciation, plus you would have $16,500 in your pocket and none of those estimates included finance interest costs. Plus, considering new car payments can be $500 to $1,000 monthly, $1,500 in estimated annual repairs for a used car doesn’t sound so bad.
WHERE TO BUY A USED CAR
Of course, there are other considerations when buying a used car, especially where you’re going to buy it. If you do a private sale purchase, you should always get it looked at by a mechanic and look for the car report to learn about its history. You can also look for reputable used car sales dealerships like Lee’s Fine Cars, who provide you with all the documentation, various warranty options, and a nicely detailed vehicle.
BUT IF YOU REALLY WANT A NEW CAR
None of this was meant to discourage you from buying a new vehicle, but only to provide you insights on the current market trends and alternative options as part of your decision-making. Many love that new car smell and the idea of being the first to drive the new car. Plus, if purchase cost isn’t a concerns, depreciation might be worth the experience to you.
This is an opinion article by Guido Piraino of The Monthly Social Podcast. It may also be heard on The Path Radio Mix Online. You can read other opinion articles on the blog page. You may also enjoy video content of The Monthly Social Podcast on YouTube or The Path Radio Mix on YouTube. For sports content, please consider The Coach's Call YouTube Podcast.