In May 2019, the 13 largest global car manufacturers sold nearly 1.6 million vehicles in the U.S. A year later, as dealerships began to reopen from the coronavirus shutdown and fewer consumers were in a position to buy a car, TrueCar forecasted a 32% decline in monthly sales. And that’s actually an improvement: April sales were 52% lower than a year earlier.
With a glut of cars, here’s how to car-shop smart:
• Gotta have new? Focus on 2019 models clogging lots. With automakers shutting down production during the eye of the coronavirus storm, there may not be a huge backlog of unsold 2020 models. But excess inventory of 2019 models that would have typically been worked down early in 2020 is still sitting on lots.
That suggests your negotiating leverage may be strongest with 2019 models. The consumer car-buying website Iseecars.com recently took a spin through the marketplace and identified models with the highest inventory: 66% of 2019 Dodge Grand Caravans remain unsold (in part due to the model being phased out after the 2020 model year). The average unsold inventory for 2019 models is 10.8%.
More than half of 2019 Chrysler 300s remain on the lot. Other 2019 models where more than 40% of inventory remains unsold include the Dodge Journey, Nissan Titan, Ford Ranger and Audi Q7. More than 30% of 2019 inventory remains unsold for the Ram Pickup 1500 Classic, Volkswagen Atlas, Alfa Romeo Giulia, Chevrolet Impala and Dodge Challenger.
If any of those models are on your radar, you’re likely going to find a dealer more eager than usual to negotiate. Not a born negotiator? Lean on websites such as Edmunds, Kelly Blue Book or TrueCar to arm yourself with negotiating power. Being willing to walk away never hurts. Invite the dealer to call you when they come up with a better offer. A lot full of cars, especially as the month wears on, is a powerful motivation for dealers to budge.
• Don’t let a zero-rate deal cause you to overborrow. Dealers are dangling an alluring deal for qualified new-car buyers: no interest loans. According to Edmunds, more than 25% of new-car sales made in April that involved a loan had a permanent rate of 0%. Some also offered to waive payments for a few months. Paying no interest is obviously a great opportunity, but if it entices you to spend more on upgrades, then you’re not really gaining much.
Edmunds also notes that in April, more than four in 10 new-car sales involved a trade-in where the buyer still owed money on the loan for the car being traded in. If you are essentially rolling the money into a zero-rate loan, that can be a nice move. Or not. If you are a serial new-car buyer, you’re setting yourself up for having more unpaid debt on your next trade-in.
• Consider the smarter move: Buy used. As good as the deals for new cars look, they are collectively a lousy financial move. One of the most expensive blind spots that can hold back your household’s security is insisting on buying new cars. It’s not uncommon for a new car to lose 40% or so of its value within the first three years. Buy a used car that’s a few years old, and you won’t pay for all the depreciation.
Paying less for a used car frees up valuable dollars to stuff in retirement accounts.