What you need to know before trading in your car

You’ve likely heard the news on TV, on social media, or at your local dealership—there are very few vehicles available in certain categories right now, and the prices offered for used models are at an all-time high. Which means that now more than ever, it’s best to take a step back and look at the big picture before deciding to replace your car.

Seven thousand dollars more than the residual value in the lease—that’s what a dealership in the Capitale-Nationale region offered the owner of a popular mid-size SUV who was returning it at the end of their four-year lease this summer. This motorist found a similar replacement vehicle right there in the showroom, so he jumped at the opportunity and will use the extra money to reduce the monthly payments of his new lease, one by one.

But not everyone will have this kind of luck. Stories of fantastic offers for used vehicles have been pouring into CAA-Quebec’s Automotive Advisory Services, but many members are dismayed when they learn that they will have to wait months to get the new model of their choice.

Don’t let greed get the best of you

You might feel tempted to buy a more expensive vehicle or one that doesn’t really suit your needs, just to save a few bucks. But this is precisely what Automotive Advisory Services agents are warning against, especially if the vehicle has to be financed over a long period of time.

Loan terms are now up to 10 years (!) for high-priced models like full-size pickup trucks. When a consumer with a vehicle that was financed over an extended period tries to resell it after a few years, they’re likely to end up with debt in excess of the market value. They then have to pay the difference out of pocket or, worse, add it to the loan for a new purchase. And so begins a negative equity spiral, often called the “balloon” in the automotive world.

The market is not always going to be on fire. Prices will eventually drop again, and so you don’t want to buy just any vehicle on a whim.

Some vehicles are rarer than others

A few dealer associations have confirmed our observations—there is indeed a shortage of new vehicles, but not in all categories. Full-size pickup trucks like the Chevrolet Silverado, Ford F-150 and RAM 1500 are particularly hard to come by, as are many electric vehicles. Certain crossovers are also missing from dealer lots. In all segments, this phenomenon is more prevalent among manufacturers in the US and Germany than those in Asia, according to Denis Dessureault, Executive Vice-President of Corporation des concessionnaires d’automobiles de Montréal.

But you shouldn’t have much trouble finding a sedan, a hatchback or the luxury model you’ve been dreaming of. Like pickups, these cars cannot operate without semiconductor chips, the scarcity of which is currently putting the brakes on production at many manufacturers. But these more “traditional” cars are less popular than pickup trucks of all kinds, and they’re produced in greater numbers than most electric vehicles, which ensures an adequate supply.

More shopping around, less negotiation

So it’s still quite possible to replace your car, but preparation and planning are more important than ever. Manufacturers’ websites are an important first stop before visiting a dealership.

“Check out the build and price tools on the sites to get familiar with the different models, versions and optional packages available,” said Maxime Dubois, an agent with CAA-Quebec’s Automotive Advisory Services. “This will help you determine which features are essential and which you could do without, as well as give you an idea of the monthly payments.”

This research is all the more advisable since the scarcity of some models greatly reduces the possibility of negotiating with the dealer. They know very well that if one customer doesn’t want to pay the asking price, the next customer or the one after will do so happily. Dealers may also be reluctant to trade a model with one from another dealer to clinch the sale.

“To maintain a certain bargaining power, you have to be flexible about things like colour, the choice of certain options and the installation of accessories like running boards,” said Dessureault.

Some manufacturers and dealers post their inventory online. “Try to find the information you need and then go directly to a dealership that already has the model you want,” said Dubois.