Thinking of buying a new car? This time of year is typically a
great time to do it: The period from mid-October through December
is when automakers start to roll out the next year's models, and
that means discounts -- sometimes
discounts -- on the last of this year's cars and trucks.
That's how it usually works. But this year is shaping up to be
an exception. Sure, there are some great deals out there, and
there are still some
good ways to save big
on your next new car. But for several different reasons,
automakers are being much more selective about where and when
they offer those big discounts this year.
That means you might end up paying more than you'd like for
your new ride -- unless you can turn things to your
giving you those deals
It's true that fall and early winter are usually the season for
, as those "cash back" or "zero percent financing" deals are
called in the auto industry. From
) lavishly advertised "Annual Sales Events" to the big cash-back
deals traditionally offered by
) , incentives have long been a key consideration for savvy car
But they've long been a big problem for the automakers. Brutal
global competition means that margins in the auto business are
pretty thin in the best of times -- some types of vehicles are
more profitable than others, but an overall average of something
5% or 6% is typical
. And that's in good times. In tougher times, or when an
automaker's products are not quite competitive with the class
leaders, the need to use incentives to keep sales going can eat
up most of that margin very quickly.
The Detroit automakers have long had the highest incentives in
the industry, but they've all been under immense pressure to
reduce incentives spending following a difficult period of
restructuring. And they have each made great progress, in large
part because their cars and trucks keep getting better -- and
more able to compete head-on with the best imports.
According to industry analysts at Edmunds, Ford's incentives
were 13% lower in October than they were a year ago -- and a year
ago, they had already fallen considerably from the levels that
were normal a few years back. GM and Chrysler have also managed
to roll back their incentives somewhat, following a similar
pattern. That's likely to continue in coming years -- there will
still be deals here and there, but they'll be more limited, like
the discount offer GM announced on Thursday for those who buy
certain Chevy or GMC trucks and SUVs through
. The big across-the-board sales blowouts seen in years past will
be less and less common.
But what makes this year unusual is that the import brands are
Deals are especially hard to come by right now...
The pattern of U.S. car sales this year has been mostly shaped by
the major production disruptions that hit Toyota and
) in the wake of the
in Japan, and the more recent
disruptions caused by flooding
in Thailand -- a hub of suppliers to the Japanese automakers.
Shortages of key components produced in the ravaged areas have
led to very tight inventories of popular fuel-efficient models
like the Toyota Corolla and Honda Fit.
That's had three big effects that are relevant to car
shoppers. First, while production is finally coming back up to
speed, you aren't going to see the automakers offer incentives on
Corollas or the other affected models anytime soon, because
there's not much excess inventory to clear out. Toyota and Honda
have traditionally had much lower levels of incentives spending
than the Detroit automakers, but this year it's been lower still
-- Toyota's incentives were down over 20% in October versus
year-ago totals, according to Edmunds.
Second, it means that competitors' offerings like the Ford
) Elantra -- which are much,
better cars than they were a few years ago -- have been in high
demand as longtime Toyota and Honda buyers have looked elsewhere
and liked what they found. That in turn means that Ford, Hyundai,
and other makers of popular alternatives -- including GM and
(NSANY) -- aren't looking at lots of excess inventory either. In
fact, Ford has been reporting that its average transaction prices
significantly, partly because of lower incentives, and partly
because its very competitive model lineup has been able to
command premium prices.
Put those two together, and it's clear that it's a tough time
for new-car shoppers hoping for a great deal. But there's
good news in all this -- that third effect is one that you might
be able to use to your advantage.
...unless you use this to your advantage
The third effect of the tsunami is that used-car prices have
continued to rise. This is particularly true of Toyotas and
Hondas, because of the shortages of popular new models, but it's
also true to some extent across the board. 2009's Cash for
Clunkers program took a lot of used cars out of circulation, and
more frugal-feeling consumers have been looking to save money by
buying used -- reducing supply and driving up prices.
The upshot, if you're interested in buying a new car, is that
your trade-in might be worth more than you think -- maybe even
enough to offset the lower incentives being offered right now.
That, plus continued low interest rates mean that this might be a
good time to buy a new car after all.
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