Chris Taylor

NEW YORK, (Reuters) – Justin Soffer enjoyed car buying. There were many back and forth negotiations which led to great discounts.

But seven dealers and three months later, the marketing consultant from the Berkshires emerged shellshocked last year – and a lot lighter in the wallet.

Many scenes were reminiscent of classic farces, such as salespeople trying to grab keys or jacking up prices, and running to the dealerships to pick up cars.

You are now able to buy a car in this pandemic era.

“It’s unusual and dysfunctional,” says Soffer, who ended up buying a Toyota RAV4 in December – at the Manufacturer’s Suggested Retail Price, which he considered a win. “I gave up hope that I would find a good deal.”

American custom is to wheel and deal on the car price. However, the dealer has taken the reins lately. The problem is due to a mixture of chip shortages as well as slowing supply chains and high consumer demands.

According to Kelley Blue Book, the average price of a new American car in December was $47,077. This is a record. That is $5,742 more than the previous December – and up over $800 in a single month.

Jessica Caldwell is the executive director for Edmunds’ insights and car shopping site Edmunds. She says that “the average price people pay for cars at this time is far above sticker.”

This lack of negotiation power is reflected in auto loans. Experian’s (OTC) credit agency reported that the third quarter 2021 average new car loan balance was $37746, an increase of 617 per month. Used cars come with large loans at an average of $26,230, and $471 per month.

What should a buyer do if they are looking to buy a vehicle? These are some tips to help you negotiate in the new age of car buying:

MAINTAIN FLEXIBILITY

You have to test drive certain models, trims and colors in order to negotiate. You can make deals easier if you have fewer essentials.

Matt Degen is editor at Kelley Blue Book. “Flexibility” is the key phrase here. “You need to allow for some discretion.”

It doesn’t matter where you shop. You can shop online for car buying, so expand your reach beyond local dealers.

Used cars will not make you save

Personal finance advice has been to nearly always purchase used vehicles, as cars lose much of their value when they are driven off the lot. These days, you may be surprised.

Caldwell says that used prices have risen almost 30% annually. “As those prices get higher, buyers are pushed further out in age – so if you were considering a three-year-old car, now you might have to go to five or seven years old.”

INTEREST RATE RATES STILL LOW

A bright spot for buyers is the fact that historically speaking, interest rates remain low. This means that even larger loans could still be feasible on a monthly basis. Caldwell also says that many automakers “subsidize” rates to make it attractive, offering deals like 1.9% financing.

The average loan rate on new cars in last year’s fourth quarter was a modest 4.2% – although the Federal Reserve has signaled its intention to raise rates in coming months, so expect pricier loans in future.

You can get financing from any bank you like, but not just the dealership’s.

MAXIMIZE TRADADE-INS

The good news is that the current trade-in price for your car is likely to rise. You have some leverage in this area. Do not feel pressured to buy from the dealer. A competitor dealer could offer a higher price or you can sell privately.

You can use your time to maximize your potential

You can drive your car today if you don’t need it tomorrow. But if you can wait – continue driving your old car for another year or two, for example – then you should consider doing so. Red-hot car prices must start normalizing as the current supply-chain crisis will end soon.

Degen states that you may also be able to consider Degen’s “European Model of Building Your Car To Order” if time is tight.

More American automakers are moving in this direction, which expands your options beyond whatever dealers happen to have available – which is not a lot right now.

Degen states, “The upside of this vehicle is the ability to choose exactly what you need.” However, you’ll have to wait.