How to Buy a Car in 2021

March 16, 2021
Written by: Ray Shefska
Categories: Car Buying , Used Cars

Are you thinking about buying a car in 2021? Understanding how to buy a car goes beyond just a few simple tips. To be successful (and get a fair deal), you’ll need to be aware of current market conditions, know how to find the right car, and understand what to expect during negotiations and at the end of the sale.

Today, we’re going to dive into the details of how to buy a car in 2021. We’ll examine what makes buying a car in 2021 unique, and we’ll teach you exactly how to navigate the entire used and new car buying process. We’ll take you from searching for a vehicle to signing all the paperwork so you can buy a vehicle with confidence unlike ever before. Let’s get moving!

How to Buy a Car: The 2021 Special

There are a few notable trends taking shape in 2021. Each of them will impact your car buying experience, whether you’re buying a used car or buying a new vehicle. Let’s take a look at two distinct trends that you need to be aware of.

The Semiconductor Shortage

Right now, there is a shortage of semiconductors and it’s impacting every industry that manufactures electronics, including the auto industry. Manufacturers are not currently able to keep with demand, which is creating supply chain problems for nearly every automaker. Brands are having to choose which models to build and which ones to put on the back burner.

The Semiconductor shortage is impacting prices. Learn more from our Chip Shortage guide.

Forecasts from AutoForecast Solutions project the anticipated loss in production for 2021 to be between 1.5 and 2 million units. Considering that the average number of new units built each year is 16 million, we’re talking about a significant impact to the supply of new vehicles. Semiconductor manufacturers are doing everything that they can to increase production, but there isn’t a “flip of the switch” solution at their disposal — they simply can’t ramp up semiconductor production as quickly as needed.

What does all of this mean for you? It means that people who are buying a new car will have fewer options to choose from. Dealers will have decreased inventory, but the same amount of demand. This will greatly impact your car buying experience, as the relationship between supply and demand has shifted.

What affects the new car market often affects the used car market, and that’s definitely true today. With more people looking at used cars as new cars are becoming harder to find, used car prices are going up. While this makes it a perfect sellers’ market, anyone looking to buy a used car will need to know how to navigate an under-supplied market.

The chip shortage has impacted used cars as well. Check out our trade-in guide to get the best deal.

Instead of heading into the dealership expecting them to bow to your requests, you’ll need to be aware that they have plenty of customers to work with. Still, tips for buying a car still apply and you should research, prepare, and practice before heading to the dealer. Understanding how to buy a car in 2021 means that you may just need to adjust your expectations for the experience.

The used market has been highly impacted by the semiconductor shortage on the new market. Surprisingly, we’re seeing some used cars go for similar or even higher prices than the MSRP would be if the cars were brand-new.

What about certified pre-owned (CPO) vehicles? As they are the perfect middle ground between used and new, CPO vehicles will become increasingly in demand. The more thorough inspection process is exactly what many people will want if they can’t buy a new car.

Thinking of buying a certified pre-owned car? Read about each manufacturer’s certified pre-owned program.

Overall, the semiconductor shortage is the biggest thing that’s affecting the new and used car buying markets this year. It’s a great time to sell your car, but if you’re looking to buy a new one, you need to know how to navigate this unique situation.

The One-Price Marketplace

While this trend has been in motion for a few years, we anticipate that we’ll see “no haggle” and “one-price” dealerships continue to become more popular. These dealerships won’t haggle with you (even if you wanted them to), since they do what’s called market-based pricing. This pricing model doesn’t leave any room for haggling. Instead, you pay the requested price or move on. Simple as that.

Examples of one-price marketplaces are Carvana, Vroom, CarMax, and AutoNation.  Each of these dealerships sells used cars that are worth investigating, but you won’t be able to haggle whatsoever with them, at least on the front end. You may still be able to negotiate with them on the back end, referring to finance and insurance.

One of our best car buying tips is that if you’re trading your old car in to a dealership when you buy your used car, obtain quotes for the trade-in. Most “no haggle” marketplaces will provide binding quotes that you can leverage when you’re at your chosen car dealership. It’s a great way to secure more money for your trade-in. For many people, this is an early lesson in learning how to buy a car.

Adjust Your Expectations

Whether you’re buying a new car or a used one, every car buyer needs to reset their expectations for the types of large discounts that they may have heard about before. You should still expect a discount and you still deserve a fair price; it’ll just be harder to secure both this year.

You’ll need to put in plenty of research on the true value of the used car that you’re hoping to buy in order to understand what a fair price might be right now. Many of the price books out there, such as NADA Guides and Edmunds, use historical data to help predict prices. While that’s usually fine, you may see dealerships asking for more than usual due to the unpredictable shortage of semiconductors.

All of this is also true for specialized models that are coming out, such as the new Mustang Mach E. The more specialized the car is, the more people there will be to line up to buy it. If you’re buying an in-demand car this year, it’ll take even more work than usual to land a good deal on the vehicle.

Buying a Car: How to Locate Inventory

Odds are if you’re reading this you know (or at least have a sense of) what vehicle you want to purchase. Scouring CarGurus, Autotrader, or manufacturer websites for hours can be a thankless task. How can you find what you’re looking for at a car dealership? Whether you’re buying new or used, locating the car you want to pursue purchasing can be quite the challenge.

There are other tools that you can use when buying a used car, but we suggest using our Market Price Report to locate inventory at dealerships that are near you. Not only will you find out what they have cars listed for, but you’ll also find out how many days those cars have been on their lot and their “negotiability score.” The “Market Summary” will show you the breakdown of vehicles to examine.

Due to the increased demand for both new and used cars, you may need to expand your search parameters or consider other makes and models. If you’re set on one specific car, you may need to be willing to drive further in order to get it.

Take note that since there is a shortage of used cars, fraud may be on the rise. Make sure to get a pre-purchase inspection, look at every car’s vehicle history, and carefully look over the vehicle’s service records. If you’re looking at CPO options, make sure to check the repair sheet to understand what has been fixed on the vehicle.

Buying a Car in 2021: How to Negotiate 

Negotiating is one of the first things you need to learn when you want to know how to buy a car in 2021. While negotiating a used car purchase is always going to be a little challenging, negotiating in a seller’s market will likely be much harder than usual.

You can start off on the right foot by contacting dealerships with our email templates. Within the Market Price Report, after you run a car, you’ll see a section called “Email Templates.” These templates are hand-crafted to help you negotiate the price of the car before you even step foot in the dealership. They’ll help you to come off as someone who knows what they’re doing and set you up for success.

Use our email templates with multiple dealerships. While there is no such thing as two used cars that are exactly the same, obtaining quotes from multiple dealerships will allow you to start a bidding war between these dealerships. Look for comparable cars and request quotes for them.

You will be negotiating what is called an out-the-door price, also known as OTD. Your OTD price is the exact amount that will be financed or paid in cash for the car that you desire. It’s a final figure and should be the only focus of your negotiations.  

Once you’ve started things off the right way with our email templates, had multiple car dealerships sending you quotes, and decided that one of them is the clear winner, it’s time to head into the dealership.

You only get to buy a car once every decade or so, whereas the car salesperson gets to sell a car several times per day. This puts them on an uneven playing field with you. You can level the playing field by practicing what you’re going to say while you’re at the dealership. You should also practice how you’ll say it. Stand in front of a mirror and talk to yourself. Rehearse your negotiation skills and you’ll be well-rewarded with a better deal on the car.

Once you’re satisfied, head to the dealership and put that practice to work. Show them that you know exactly how to buy a car. Let the car salesperson know that you’re aware of the semiconductor shortage and its impact on the auto industry. Tell them that you know they are in a position to make a profit and that you’ll gladly pay them the profit that they’re due. You just don’t want to be the one paying them the most profit.

Car Buying Tips:  Navigating the F&I Office

After you’ve finished negotiating with the salesperson, you’ll be whisked away to the F&I office. This office is intended to be the place where you finish the paperwork, but it’ll also be the setting of another round of negotiations.

There will be three specific areas of negotiations:

  • Rate
  • Term
  • Product

Negotiating your rate is going to be the most important part. You’re going to want to ask them a series of rate-related questions, which include:

  • What’s my rate?
  • How does that rate compare to the buy rate?
  • Is the rate that you’re charging the best rate available?

Let’s break this down. The first question is clear-cut and the manager will answer the rate that is being offered to you.

The buy rate is the rate at which your loan was offered to the dealership. Dealerships have special agreements with lenders that mean that they’ll be able to buy your loan for a “buy rate” and then mark it up to offer it to you. For example, your buy rate might be 2%, but it might be marked up to 4% when they present it to you.

As such, the second question might be a surprise to the F&I manager. Some managers will not disclose your buy rate and they don’t have to. If they refuse to disclose the buy rate, it might be time to walk. One of our best car buying tips is to walk away from people who are being dishonest when they’re trying to sell you a car.

For the last question, you’ll acknowledge that they need to make a profit and ask if the rate they’ve offered is the best they can do. Remember, you can say no and walk away at any point.

One of the best things that you can do for yourself is to get pre-approved for a loan from your financial institution. Having this pre-approval will mean that you’ll be able to hand the pre-approval offer over to the F&I manager and ask them to beat the offer. The worst-case scenario is that you go with the pre-approval offer.  

After the financing is discussed, the dealership will likely go over a suite of product offers. Some of these products include:

  • Extended warranties
  • Tire and wheel warranties
  • GAP insurance
  • Wear and tear coverage (for leases)
  • Interior protection

It’s completely fine if you want to buy any of these types of products. In many cases, they’re worth having. However, you should negotiate each individual product one at a time. If you want GAP insurance, ask how much it costs specifically and understand that the price is negotiable (which is true for all of their products).

Be aware that some F&I managers will say that you have to buy the offered products today. This is only true if you are going to be rolling the cost of the product into your financing. If you’re fine with buying them later, you can. You can even obtain quotes for specific products, like vehicle service contracts, and take those in with you.

How to Buy a Car in 2021:  Plan Ahead and Be Prepared

A great car deal is usually the result of planning ahead, preparation, and negotiation. Put in the time to reach out to multiple dealers about the used cars that strike your interest. Request quotes and then use those quotes against other dealerships to secure a better price. 

Understand what you’re going to say when it comes time to negotiate and practice beforehand. Stand in front of your mirror and negotiate with yourself. This is one of the best ways to learn how to buy a car:  Practice negotiating.

After you’ve prepared, you’ll be ready to head into the dealership and put everything into play. Acknowledge that you’re aware of the current market conditions that put you at a disadvantage and say that you’re simply looking for a fair deal.

Next, you’ll head into the F&I office. This is where you’ll really put all of our car buying tips to work. You’ll nail down the details on your used car and negotiate the price of any products that you’re purchasing. You’ll drive away knowing that you got a good deal. How can you know that you got a good deal? If you and the car dealership were both able to leave the transaction feeling good, that’s a win!

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1 Comment

  1. TE

    Guys, in your YouTube video entitled “How much should you offer for a car?”(May 18, 2020) you say it’s easy to find the invoice price online. Pardon my ignorance, but where do I find that? Also, you’ve spoken about how the spread between invoice and MSRP is about 6% for cars in the $35-55k range. Using some algebra and that 6% spread you mentioned, could you solve for x (the invoice price) by using this formula: x + .06x = MSRP? Using an MSRP of $34k and working the formula, I get $32,075. Does that sound like the invoice price you’d expect? So a fair price would be somewhere between $34k and $32k, give or take something for holdbacks, incentives? You’d negotiate the price, then move on to the taxes and fees (California DMV has a calculator on their site that uses the zip to produce the tax and fee breakdown. Helpful!) to get the OTD. Would you agree with this approach?

    Reply

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