There are good reasons to purchase products at the end of significant time periods, including the end of the month, end of the quarter, and the end of the year. But unlike buying say, a couch, buying a car --any car-- at any time, exposes us to financial risk through the inescapable effect of depreciation.
For car dealers, the end of the year is their last chance to qualify for manufacturer allocations. Typically, the more new cars a dealer sells, the more they will be able to acquire the following year. Additionally, it is their last chance to qualify for dealer, sales-team and individual bonuses.
Because the above factors are understood by many buyers, families often schedule their buying for this time of year, and dealers and manufacturers spend additional advertising monies to play up this buyers' 'advantage'. But this is not the simple equation that it seems to be (shocking, in the car business), and there are many potential pitfalls awaiting the overconfident buyer.
A 2008 model car, for instance, was likely available for purchase midway through 2007. If it was a midsize upscale domestic sedan, and it was priced around $30,000, the invoice was around $25,500, and they could be readily had for $27-28k. Now, as we head into 2009, your dealer needs to move these out, so he is offering additional incentives to buyers. Just business, right? But the pitch that these are a 'steal' at these prices is simply not true.
The depreciation of a car so young is far heavier on the model-year side of the scale than it is on the mileage side. As time goes on, a model year can begin to be the depreciated value equivalent of 15-17000 miles or so. But by purchasing a 'new' year-old vehicle, you are accepting the massive first-year depreciation without ever driving the car. Be sure that the deal you are offered accounts for this factor. Do some quick research on what the previous year of the same model is selling for now, and make the comparison. You will often be far better off buying a one year old lease turn-in after the 1st of the year. This way, someone else has taken that first year hit, which is significant in all cases. In fact, you might be better off buying the 2009 model if you require a brand-new car. The difference in selling prices may not account for the depreciation. At least this way, you will be driving it while it depreciates!
Also, beware of the model-year style change. Nothing will take the wind out of the sails of a new car owner than to see next years model, dramatically improved, visually different, parked next to them. Now your 'new' car might as well be 4 or 5 years old...who would know?
The Holidays are a time for family and togetherness. Unless you really need a break from Aunt Edna (not your side of the family...) and want to spend untold hours wandering around in car dealerships, just find your vehicle through online ads and confirm availability with the dealer over the phone. Make an appointment with an individual and be ready to buy. You have secured your own financing, right?
If it is pre-owned (as it really should be) do your own due-diligence before you leave the house. Run a Carfax or Autocheck and call the service department at the dealership to check on the service history.
If your choice is not 'certified' (manufacturer- or dealer-provided warranty to 100000 miles), why not? Find one that is. Alternatively, call the manufacturer's customer line and see if the first owner bought an extended warranty. If so, it will transfer to you. Dealers do not generally check on this.
Got $18000? The proverbial '$320/month' car payment? Do a search for 2005-2007, under 30000 miles, under $20000 at Cars.com or Autotrader.com. Choose the style of vehicle(SUV, sedan, coupe...) and select Acura, Audi, BMW, Infiniti, Cadillac, Lexus, Jaguar, etc. You will likely be surprised by your options.
For 2009 and beyond...Think big. Spend small. Drive happy!
Peter W. Robinson is the founder of Movinmetal, Inc. and the author of the CAR FU: Self-Defense for Car Buyers system. Learn more at http://www.car-fu.com
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