Why You Shouldn’t Buy a New Car

Now might not be the best time to buy a new car. In 2014, there were 16.5 million new cars sold in the United States producing an all-time record high. Then the very next year in 2015, another record-breaking year with sales topping out over 17 million. Additionally, in 2016 the numbers once again topped the previous years’ with another record –  17.5 million new cars sold. Although 2017 did not actually break the record, 17.3 million is a monster number of cars sold. It’s pretty amazing, but why are these records happening?

First off, the credit crunch of 2008 and 2009 was primarily to blame. Unemployment rates skyrocketed. Since you never knew if you’d still have a job, people feared using credit to purchase items. I had a Dodge Durango. Honestly, I did everything I possibly (yep, even duct tape) could keep it running because I didn’t want to spend the money on a new car in the middle of that crisis.

But after the economy began making a recovery 2014, unemployment rates started to drop, and everyone had a little bit of extra change in our pockets. Now people went out and started upgrading to a new vehicle.

There is the study done by LMC auto, a forecasting company for the automobile industry. They are actually predicting that 40 million used cars are expected to flood the market in the next 2 to 3 years.

Let’s look at simple economics. If supply increases and demand does not increase at the same rate, the prices drop. So if we get this major influx of used cars, naturally the supply increases and prices are going to crash. Morgan Stanley also did a very similar study predicting a future price crash too. They say there’s going to be a 25 to 50% price crash in the used car industry in the next 3 to 4 years.

So, as a guy who needed rid of my cobbled-together SUV I asked myself, why in the world would I want to go out and buy a brand new vehicle? You and I both know that as soon as I drive it off the lot, I can’t sell it for what I just paid for it.

Fast forward 3 to 5 years, with that 25 to 50% lower value than normal, buying a new car now that just makes even less sense to me.

However, if you’re in the market for a “new to you” car because your old clunker just isn’t going to last to see that supply and demand actions, then consider an off-lease vehicle.

Off-lease cars are where companies have leased or to rented vehicles, and that lease has now expired. The dealer is now trying to sell that off-lease car. Consider one of those instead of a new car. Off lease cars, according to the same LMC study, have doubled in the last couple of years. The volume has doubled, so again, supply vs demand. When supplies are high, the prices decrease. Currently, the off-lease prices are starting to drop.

So that’s why I’m not sure I would buy a new car today. Make your life at least financially simpler and let economics help you out.