Monday, September 28, 2009

“Post-Clunker” Era: A Buying Opportunity?

The trade journal for auto manufacturers and dealers, Automotive News, predicted that September 2009 will be the worst retail month for retailing automobiles in 28 years. Nevertheless, virtually all manufacturers have increased their output of new vehicles based on the huge response to “cash for clunkers” in late July and most of August.

Adding these two facts together, very low demand and very high inventories, translates into a “buyer’s market” for new automobiles. Inventories are building rapidly after being severely depleted in August. The manufacturers are gambling that the 700,000 new vehicles that were sold by trading in a clunker were mostly plus business. They want to believe that most of those sales were to buyers who would not have bought a car if the US government had not given them $4,500 or $3,500 for their clunker. What happened in September, an absolutely terrible retail month for car dealers, suggests otherwise. It suggests that the cars dealers sold in late July and August were to people who would have bought anyway but moved up their purchase to take advantage of the “cash for clunkers” program. Car sales were very bad before “cash for clunkers” and they could get much worse afterwards. Add to that the overreaction of the manufacturers of building and shipping too many new vehicles to dealers and car-buyers may have a great buying opportunity even if you don’t own a clunker that the government can give you $4,500 in taxpayer’s dollars for.

If you are in the market for a car, just remember that time is on your side. New vehicle inventories will build for the next 30 to 60 days. Car production is not like a faucet that you can turn on and off. If the manufacturers guessed wrong two months ago, which I believe they did, it’ll take them another two months to “shut off the faucet”. Meanwhile, they will increase their advertising, rebates, special lease rates, and generally do whatever they can to move that excess inventory. The dealers will be doing the same thing.

Please remember that “dealer desperation” can work against you as well as for you. Expect to see deceptive advertising increase in direct proportion to the size of dealers’ inventories. When shopping for a car expect to be told “if you sign in now and drive the car home today, I will give you a special price” or “this price is good today only”. Never, ever buy a car on the first day that you begin shopping. It should take you at least two weeks of due diligence and competitive price shopping before you can make an intelligent decision.

Please refer to my blog, for hundreds of articles written on “how not get ripped off by a car dealer”. Here are the basics that you should commit to memory: (1) Research the right car for you in Consumer Reports or on the Internet, or (2) Always get at least 3 competitive bids on the exact same year, make, model car you want. If leasing, be sure all terms and condition of the lease are the same, not just the monthly payment. (3) Likewise get 3 bids on your trade-in price and on the interest rate on your financing. (4) Be sure you know the “out the door” price. Most dealers add dealer fees/doc fees/dealer prep fees, administrative fees/transportation fees etc. to the price they quote you.

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