With inventories low, dealers are paying more for car trade-ins. Is it time for you to capitalize? That depends.
In case you haven’t heard, cars, new and used, have become harder to come by. Pandemic related supply chain crunches, including a global microchip shortage, have put the squeeze on manufacturers, slowing, and in many cases halting, production. Thanks to government stimulus payments and a recovering economy, demand has remained robust just as the supply of new cars decreases. A concomitant shift among consumers to used cars has meant inventories are low across the board.
This makes it a seller’s market, for good or ill. The question many car owners have is this: is now, when demand is high, the time for a car trade-in? The answers may surprise you.
Currently, there are around 500,000 fewer cars on American dealer lots than this time last year. As a result, prices have risen. This is a double-edge sword for those looking to maximize the value in their current vehicle by trading it in. The old dictum of “buy low, sell high” will work well on the first portion of your transaction. Certain particularly hot segments like full-size trucks, large SUVs, and crossovers hold the promise of thousands of dollars in positive equity you can take into your next vehicle purchase.
The flipside of course is the whole point of trading in your current vehicle is to get something else. With prices up, that extra equity you’re trying to wring out of your trade-in just might get gobbled back up by the higher market premium of its replacement. Used vehicle prices have risen an average of 12% over recent months, and with demand as high as it is, dealers have less of an incentive to negotiate prices.
The microchip shortages and other supply chain issues are likely to persist for many months to come, depressing the supply of new cars and by extension those of used cars. If you’re looking to buy a vehicle this year, the next few months might be your best bet for getting the most from your car trade-in. That’s because many of the biggest sales days of the year, including Memorial Day and the Fourth of July, are fast approaching and dealers are on the lookout for used inventory to help fill out their depleted lots.
The best chance you have of beating the dealer and getting more value out of your trade-in than you’re giving up in the higher price of a new vehicle is to have a desirable trade-in. As I mentioned above, full-size trucks like the F-150, RAM 1500, and GMC Sierra are highly sought after. Jeep’s Wrangler and Gladiator also hold their value well and will return that value when it’s time to trade them in. The same is true of Toyota products like the RAV4, Tacoma, and 4Runner. Other valuable trade-ins include Subaru’s Forester, Outback, and Impreza, the red-hot Kia Telluride, as well as premium vehicles like the Porsche Macan, Chevrolet Corvette, and Volvo XC40. If you own any of these vehicles, now might be a good time to consider trading them in.
To maximize what you can get out of your trade-in versus your next purchase, consider downsizing. Let’s be honest, we as Americans often buy more car than we need. Going from a GMC Yukon to a Honda CR-V often isn’t the sacrifice we imagine it to be. It’s important to be clear-eyed about how much is more than enough, especially if you’re really trying to maximize your car-buying dollar. If you’re in a compact crossover like a Forester, consider a subcompact like the Kia Soul or even the gone-before-its-time hatchback Honda Fit. If, like most Americans, 95 percent of your driving is commuting and ferrying the kids to T-ball practice, a Toyota Camry will serve you just as well as that F-150.
Another way to maximize the value in your used car is to sell it yourself. Yes, this is a hassle but for the most frugal among us, selling it yourself means you stand to retain most, if not all, of a dealer’s profit margin were you to trade it in (we’re talking thousands of dollars).
Yes, now can be a good time to get a good trade-in value on your used vehicle. Just make sure you’re getting a good deal on its replacement at the same time.