Why The Year End Sale Might Not Be A Good Deal
Auto dealers love to hype up their year end clearance sales by
trying to convey the idea that you are getting HUGE savings but
you really have to look a lot deeper to see if the "great deal"
is a deal at all.
Although it may be a fact that you are getting a brand new car
at a reduced price, the real truth of the matter is that you are
also buying a car that is a year old and according to the
auction reports and the books that value vehicles your car has
already depreciated several thousand dollars. "But it's new!"
you say, it doesn't matter and that is why you want to look at
some other issues to be sure that you really are getting a
benefit by buying a year old car.
The best deals on last year's models will be found on car's with
the manufacturer's carryover allowance which is an incentive
given to the dealer so he will order more cars even though he
still has a lot full of last year's cars. GM and Ford for
example, usually have incentives as high as 5% of the sticker
price of the vehicle while some imports can have incentives as
high as $6,000 to $10,000 on certain luxury cars!
Let's look at an example of a domestic car like a Ford or Chevy.
If the car has a window sticker of $20,000 then the auto dealer
is going to have the 5% carryover which in this case would be
$1,000, plus their usual dealer holdback of around 3% or $600
and any factory to dealer incentives which are usually pretty
large these days. We'll use $1,400 for this example. So before
we even get started negotiating we have $3000 that is not going
to show up on the dealer's invoice. Now if we factor in that the
cost of the vehicle is probably around $18,000 and we subtract
our $3000 from that, we see the actual cost to the dealer may
only be $15,000!
Some dealers may not want to sell the car at this figure, but
keep this in mind for ammunition. Almost every dealer has his
inventory "floor planned" or financed which means he is paying
interest on every car on his lot for as long as it is there.
Trust me he doesn't want to do that. I was in the business for
15 years and at the end of the year when the new models were
coming out I wanted to be able to transition out of my old
inventory as soon as possible without losing money. The longer
they keep the vehicles the more likelihood there is of losing
money.
Another big issue to consider is if there has been a model
change. This can drastically affect the value of a vehicle. I
can remember when the body style of the Dodge Ram pickup truck
was changed in 1995; the 1994's were practically worthless. The
new Ram was bringing sticker price at the auctions!
Shop around and find a dealer with a ton of current models on
his lot as well as last year's he may be more willing to
bargain. And remember that if there has been a big change you
may want to pay the extra for the new model unless you can just
flat out steal last year's model.