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.
Gregg Hall is a business consultant and author for many online and offline businesses and lives in Navarre Florida with his 16 year old son. For great car care products go to carcarewizardsdotcom