2016 will be a banner year for car sellers – but also a great time to buy a car and save money – for smart buyers.
“The US economy continues to expand and the most important factors that ealerrive demand for new vehicles are in place, so we expect to see a second consecutive year of record industry sales in 2016,” said Mustafa Mohatarem, GM’s chief economist.
When industry sales are strong, you’d expect auto manufacturers and dealers to make a lot of profit – and they are. General Motors, whose Q3 profit was up 55% (not including special charges) is expected to have strong profits in Q4, as are other manufacturers.
Similarly for auto dealers. Autonation Q3 profits were a record $119 million, up 12% over the prior year. Dan Nagel, general manager for Dayton, Ohio auto dealership White Allen-Honda, said his new car sales were up 27.2 percent for the year.
So if the industry is doing so well, why is this a good time to be a buyer? Doesn’t supply and demand say that strong demand leads to high prices?
The first answer has nothing to do with economics. 2016 cars are the best vehicles ever produced. They’re safer, smarter, more convenient, and more efficient than any time in history – and there is a big selection of models for every need.
But economics also favors the smart new car buyer. In 2016 more than ever, manufacturers are incentivizing dealers to sell vehicles in volume. For instance, Chevrolet dealers who sell over 20% more than their target for certain cars will receive $1,000 cash from General Motors. A dealer who sells 100 cars a month gets an additional $100,000 profit – that’s a lot of money!
Dealers understand that they will sell vehicles at a range of prices. Sometimes they can sell at MSRP, but sometimes they have to sell at near their cost. And they are willing to do so because of these volume incentives and also because they make more money on financing and repairs than they do on the new vehicle sale.
Then there are consumer rebates. You might think incentives would go down in a strong market, and you would be – wrong. In October, average rebate/incentives were over $3,000 per vehicle!
So if you want to be a smart and satisfied shopper, buy a 2016 vehicle. But negotiate the price and take advantage of all available rebates and incentives.
You may not like to negotiate, but in what other purchase situation might you be able to save hundreds or thousands of dollars compared to other buyers – and all you have to do is prepare.