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Are High Prices Good News for Car Buyers?

High prices have been scaring many car buyers out of the market, but that could be good news for car shoppers who are planning to buy soon.

“The safest thing for car buyers is to wait, but the good news is, the wait won’t be as long as originally thought,” says Jeremy Anwyl, CEO of Edmunds.com. When it comes to rising car prices, “May looks like it was the worst of it.”

“The marketplace isn’t really as unfriendly to buyers as it has been portrayed,” says Jesse Toprak, vice president, industry trends and insight at TrueCar.com. “It is actually a market where you can still get even many of the Japanese-brand vehicles at a decent discount. The shortages are really limited to a handful of models,” including the Toyota Prius, virtually all Lexus models, the Nissan Rogue and the Honda Civic.

The earthquake, tsunami and ensuing nuclear crisis in Japan crimped automotive supply chains. Problems with supplies combined with increased demand for cars with good fuel economy caused car makers to back off of aggressive incentive offers. That led to increased prices through April and May. But, Anwyl points out, as prices rose, consumer demand fell. “The good thing is that since people think prices are higher, demand has dropped. So, automakers have had to bring back some deals.”

Now prices are headed the other way. “In the past week, the Honda Civic has dropped $100 in price,” says Anwyl. “Prices are not back to normal, but it’s the start of a downward trend.”  

Toprak sees prices declining, but isn’t as optimistic as Anwyl. “For the rest of the year, particularly on the smaller cars that are solely built in Japan,” supplies could be tight, driving up prices “through the end of the year,” Toprak predicts. “Which means that for some vehicles consumers will continue to pay more and the selection of certain vehicles will be less than optimal. So if you’re looking for a Prius, be prepared to pay sticker, if not more.”

While deals are improving and prices are declining, new car buyers should still wait for the market to get back to normal, which Anwyl predicts will be in September. “No one wants to buy a car and find out a month later they could have gotten it for $1,000 cheaper,” Anwyl says. You may do even better on a new car deal by waiting past September, if you can. “By the end of the year, we may have the opposite problem. Automakers may have overbuilt,” Anwyl says, leading to an oversupply of new cars. That would be good news for consumers, as car makers would have to offer great deals and incentives to clear out the glut of cars.

Good News for New Car Buyers

Though waiting until prices decline further is smart, buying now isn’t the worst thing in the world, especially if you’re savvy enough to find the discounts and incentives that are out there. Remember that car prices are up overall, but they aren’t up on every car. Even if prices are higher on a given model, it may not make much of a difference in your bottom line.

Take the Honda CR-V, for example. According to pricing data from TrueCar.com, the average price consumers paid rose $388 from January to May. While that’s $388 more than any car buyer wants to pay, that’s a 1.7 percent increase on a car with a sticker price of $22,705. That probably won’t break the bank. And while Honda and Toyota incentives dropped off in April and May, Nissan, Ford and GM all had discounts that were better than the industry average. To counteract declining sales, Toyota has launched aggressive incentives for June, including zero-percent financing for up to 60 months.  

Before you buy, research the best available deals and incentives. “Do a little bit of homework that doesn’t cost you anything,” says Toprak. “With a few minutes of homework online, you can still get a very decent deal and find the vehicle that fits your needs the best.”

We cover the best car deals from most car companies, and give you real-time pricing data, so you can see what others in your area are paying for the car you want. Finally, don’t be afraid to negotiate. With most consumers staying out of dealerships because of reported high prices, if you arm yourself with research, you could get a good deal.

Bad News for Used Car Buyers

Used car shoppers who want to buy now don’t have it quite as good as new car buyers do. Anwyl says that the supply of late-model used cars is down 30 percent. Used car prices are up, which means some used cars are actually more expensive than new cars. “If you’re thinking about a used car, it’s a tough market that’s not getting better anytime soon,” Anwyl says.

As new car sales get back to normal, more used cars should become available. If you absolutely must buy a used car right now, make sure that a used model of the car you want will actually save you money over buying new. Beyond that, used car buyers should follow the same rules as new car buyers. Do your research, negotiate hard and try to get the best deal you can.