Automakers Tying Discounts To Trade-Ins Amid Car Shortage

Manufacturers are offering thousands of dollars in incentives to entice new car buyers to trade-in their vehicles amid an unprecedented inventory shortage. While this could boost new vehicle sales and enable dealers to source more used cars, our analysis finds that these trade-in discounts can have some big pros & cons.

In the most extreme case, Ford recently axed just about every rebate and discount in favor of trade-in assistance cash on its 2021 lineup. While the amounts vary depending on the model and region, the discounts can range up to $4,000 and even be combined with 0% APR in the case of the full-sized Ford Expedition SUV.

Late last month, Kia nearly doubled discounts on select models with the "Trade-up to a Kia" event. The promo, set to end on July 6, offers buyers up to $1,500 in additional savings when trading-in a 2002 or newer car. On a 2021 Sportage, this can boost the maximum possible discount from $2,000 to as much as $3,500.

Although trade-in bonuses aren't new, the discounts come at a time in which dealers are having an increasingly tough time sourcing used cars. Wholesale prices are up, and limited supply has been wreaking havoc in the used car market. Unfortunately, there may be some built-in limitations that could hurt car buyers.

For example, Ford essentially doesn't have normal rebates anymore for buyers without a car to trade. While the latest offers are significantly more simplified than in the past, in-market shoppers may find themselves with no viable way to help bring down some of the high prices we've been seeing across much of the country.

There may be other drawbacks as well. For example, Kia's trade-in deal only offers half the savings when you lease rather than buy. In the case of a Kia Forte, that discount is worth just $375. That may not offer much of an incentive if you'd prefer to take advantage of high used car prices by selling your own vehicle.

Dealer trade-in values are often lower than what you can get when selling a car privately. In some cases, online startups have reportedly been paying top-dollar for used cars in an aggressive bid to increase market share. Anecdotal reports suggest these companies have been offering up to $2,000 to $3,000 more than dealers.

In a normal environment, a trade-in bonus could be an easy way to score a deal. However, with higher interest rates and fewer rebates in the new car market, the choices buyers make now could have significant consequences for years to come. We recommend weighing your choices carefully ahead of the 4th of July holiday.

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