It has been a long recovery for the auto industry and 2015 represented the sixth year of overall U.S. sales growth since 2009. Manufacturers have recovered and their ability to forecast vehicle sales has improved as the economy becomes more stable. However, there are many factors at the manufacturer level, dealership level and personal level that really determine when the best time is to buy a vehicle.
Since the economy has somewhat stabilized, the unemployment factor has created an increase in vehicle sales. In 2015, the demographic groups that purchased the most vehicles occurred with people who had the highest credit scores and those who had the lowest credit scores. The high credit score demographics (700 plus credit score) is no surprise. This segment had the resources and income to take advantage of low interest rates and manufacturer incentives. They often prefer vehicles with lower mileage and often lease vehicles every two to three years. One reason the lower credit segment buyers purchased at a higher rate was because their vehicles were becoming aged and worn. However, the biggest reason for the increase in purchasing occurred because the banks and financial institutions loosened the purchasing policy for lower credit customers (625 credit scores and below). The financial institutions increased their risk with more marginal credit customers. Many banks still have good reserves and are willing to securitize these loans to Wall Street investors, who subsequently sell off these bundled loans to investors. Sound familiar? This may or may not be a good thing in the long run for investors. In the meantime, there is a reasonable amount of pent up demand for vehicles in the middle credit market segment with scores between 625 and 700. This should lead to a relatively stable auto industry in 2016 while interest rates are still attractive.
Manufacturers recognize this demand and ideally match their vehicle production to market demand. Larger rebates and more incentives occur when production commitments and vehicle inventories exceed demand. The competition among manufacturers is great, and leadership for market share in each vehicle segment is crucial. Therefore, how a manufacturer is positioned is important in understanding when the biggest incentives occur. Rebates and incentives are lower today than years past because manufacturers have become better at forecasting and managing vehicle production.
In the old days, customers would wait until fall because that is when new models arrived and older models were on sale. In today’s market, a manufacturer may introduce a new model at any time. For example, on Jan. 1, 2016, a manufacturer could introduce and sell a 2017 model. Therefore, knowing the model introduction dates of your favorite model could save you money.
At the dealership level, competition is still great but the perceived margin of discounts the customer believes the dealership has may be unrealistic. Typically, a dealer combines the manufacturer discounts with the dealer discounts, which may confuse the customer as to where the discounts are really derived from. If a customer does his due diligence by shopping, comparing and going through a detailed description of the cost line by line, I believe he will be surprised how close the selling price is between one dealer and another.
Focusing just on the “selling” price of a vehicle may be a buyer’s mistake. A buyer really needs to know the “out the door” price of that particular vehicle. Does the vehicle have vehicle additions or dealer additions, accessories, applications, non-manufacturer warranties, etc., that the buyer didn’t expect to purchase but has to purchase to receive that lower selling price? That is not to say those products don’t have value, but remember you really want to compare apples to apples and maybe save yourself some money or at least have a choice of additions.
For most people, the biggest mistake is not comparing the monthly payment. Monthly payment incorporates the selling price, dealer additions, sales tax and your personal interest rate, which may vary greatly. Manufacturer financing or incentives vary greatly so it is very important to know the offer to you given your own personal credit score and profile. I have seen payment differences of $50 per month on the same model vehicle.
So, the best time to buy a vehicle is after the buyer has an understanding of the market, interest rate comparisons, manufacturer and the dealer’s reputation. A dealer’s transparency will become apparent when you ask questions and ask for the “out the door bottom line” monthly payment. The best time to buy is when you have done your homework and have built a relationship with your dealer. FBN
By Alan Chan
[…] When's the Best Time to Buy a Vehicle? chan It's been a long recovery for the auto industry and 2015 represented the sixth year of overall U.S. sales growth since 2009. Manufacturers have recovered and their ability to forecast vehicle sales has improved as the economy becomes more stable. Read more on Flagstaff Business News […]