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Low Inventories and What They Mean for Car Buying in 2021

Chris Kaiser

Inventory levels fell significantly in 2020 and have yet to fully rebound. We offer some car buying tips to take advantage in 2021.

What To Know About Car Buying in 2021

A breakdown of financing options
A breakdown of financing options

The idea of a new year flies in the face of the actual continuity of world events. This year is less about the “aftereffects of 2020” and more about the continuation of those challenges. Amid the tumult, the automotive market has seen a rapid evolution in response to events. For consumers, it can be a confusing time. With unprecedented financing offers from manufacturers and low inventory raising prices at the same time, it can be hard to know whether 2021 represents unique opportunity or circumstances warrant careful deliberation before making a new car purchase.

In an effort to help, we wanted to take a look back at the automotive market in 2020 and the continued challenges and opportunities for the industry and offer some helpful car buying tips for 2021.  

2020 Car Buying Hindsight

2020 Toyota 4Runner - pressroom.toyyota.com
2020 Toyota 4Runner - pressroom.toyyota.com

The past year was disruptive for many industries and not least for the automotive industry. March and April of 2020 saw an over 40 percent dip in car sales and presaged a disastrous year to come. But the worst-case scenarios largely failed to materialize. Generous incentives, economic stimulus, and the rapid adoption of digital sales strategies meant that by the end of 2020 sales were only down 14.5% year-over-year.

Demand remained surprisingly robust despite the overall downturn with segments like full-size pickups, SUVs, and sports cars overperforming the rest of the market. The pandemic stoked consumers’ desires for safe (large), outdoorsy, and fun-oriented vehicles as people sought an escape from the lockdown doldrums. In fact, the pandemic seems to have accelerated the existing trend of new car prices nudging steadily skyward. According to Edmunds, the average new vehicle purchase price crested $40,423 in December of 2020.

Inventory shortages

Family looking at a new vehicle to buy
Family looking at a new vehicle to buy

A big reason that new car prices were hitting historic highs is the continued lack of inventory. The production disruptions that began back in March of 2020 are yet to be fully ironed out, with many manufacturers struggling to meet demand thanks to lockdown related production pauses and supply issues.

The reduced inventory has been a double-edge sword for dealers. On one hand, a lack of inventory has meant buyers sometimes can’t get the cars they want, especially not in the timeframes they might be accustomed to. On the other hand, limited supplies and robust demand have allowed dealers to raise prices for vehicles they do have available.

2020 Kia Telluride - kiamedia.com
2020 Kia Telluride - kiamedia.com

In the face of the new vehicle inventory shortage in 2020, many buyers shifted to the used car market for greater options (and lower prices). This resulted in a latent but equally profound pressure on used car inventories as demand for those cars rose. But, late in 2020 and now in 2021, the used market has returned to a more typical equilibrium with dealer inventories averaging a 55-day supply as of Oct. 2020 (actually up from a 53-day supply in 2019).

Vehicles under $10,000 are, however, an exception. Their supply remains depressed, with dealers reporting an average supply of just 43-days.

What Does Low Inventories Mean for You?

Couple discussing their options
Couple discussing their options

Experts estimate that new car production isn’t likely to return to pre-pandemic levels until late into the second quarter of the year. That means at least some makes and models will continue to be hard to find. Any new direct-to-taxpayer stimulus will only raise demand as more consumers decide a “free” down payment is a great excuse to get a new vehicle.

Given this state of affairs, new car buyers will need to be patient in their search for the right vehicle at the right price. If you have a specific color or trim level in mind, it may take time, in some cases considerable time, to get the car you want. Currently, many manufacturers are still offering historically low interest rates (much lower than traditional lending institutions) at anywhere from 0 to 4 percent APR. Those low rates do help, to a degree, mitigate the inflating sticker price of new vehicles.

2021 Ford F-150 - media.ford.com
2021 Ford F-150 - media.ford.com

Brands including Toyota/Lexus, Land Rover, Subaru, Mercedes-Benz, and BMW are all currently running significantly lower average inventories compared to the rest of the industry. Detroit’s Big Three have seen strong demand for full-size trucks like the 2021 F-150, 2021 GMC Sierra only to be stymied in meeting that demand. The release of the new Ford Bronco has been delayed from the spring to summer (and the already released Bronco Sport is currently a rare sight on dealers’ lots). GM’s electric hummer has also seen significant delays. Very desirable vehicles like the Kia Telluride and the new Chevy Corvette are also hard to find.

Some sub-brands are having a little easier time, with Lincoln, Buick, and Jaguar all reporting normal (pre-pandemic) inventory levels. So if you’re looking for a new vehicle, you might benefit from expanding your search across multiple brands.

Car Buying Tips for 2021

Customer trying out a new vehicle
Customer trying out a new vehicle

Here’s are a few car buying tips for 2021: if you’re buying new, be patient, flexible, and shop around. You may need to concede on the details like features and color if you want to capitalize on low interest rate offers. Those rates are likely to be phased out over the course of the year as the economy recovers.

If you’re looking to buy a used vehicle, the good news is inventory has largely returned to normal levels and our general advice on buying used applies. Do your research, time your purchase to holidays if possible, and be diligent in evaluating any prospective vehicle.

All of this will go double if you’re shopping at the lower end of the used market. That sub-$10,000 category is still experiencing depressed inventory and finding the perfect vehicle for you could require extra work and deliberation.

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Chris Kaiser
Chris Kaiser

Chris’ greatest passions include topiary, spelunking, and pushing aging compact cars well past 200,000 miles on cross-country road trips. His taste in cars runs from the classic and esoteric to the deeply practical with an abiding affection for VW Things, old Studebakers, and all things hybrid-crossover.

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