New car prices are down, but used car prices are way up. Leasing is also up – but so are defaults on those leases.
Oh, and young people want to drive less. Jesus H. Chrysler, what’s going on?
Well, experts say this uncommonly long recession has put the brakes on what we long considered common car sense. So before you buy, read this …
New car prices dropping
Black Friday was the perfect time to score a good deal at the mall, and in the past it was also a good time to shop at the car dealership as well. But not this year. A survey by automotive research firm TrueCar claims the best day to buy a car is … tomorrow.
“Last year, TrueCar.com had identified Black Friday as the best day to buy a vehicle,” the company said. “This year, TrueCar.com has identified Tuesday, November 30th, as the best day of the month to purchase a new car.” They also said it’s one of the top ten days to buy a car all year.
TrueCar doesn’t provide the details on how it arrives at this date, and the savings may not amount to much versus other days of the month. For example, last year TrueCar said the average discount on the best day in November (the 27th – Black Friday) was 7.5 percent, while the average discount on the worst day in November (the 16th) was 5.2 percent.
If you miss the savings tomorrow, you’ve still got time for holiday deals. Last year TrueCar said 6 of the 10 best days of the year to buy a car were in December – in order, they were December 24th (7.25% discount), December 21st (7.13% discount), December 31st (7.04% discount), December 28th (6.90% discount), December 14th (6.86% discount) and December 16th (6.74% discount).
But whatever day you choose to hit the showroom, there are some deals to be found. One example? According to TrueCar, a 2010 Mazda 3 is selling, on average, for $10,087 – 37 percent less than its $16,095 sticker price.
Not only that, but the cost of financing a new car actually dipped slightly. “The average total cost of buying and financing a new car decreased by $300 to $27,600, a 1.4 percent decrease from the second quarter,” declared financial services company Comerica.
What you should do: If you’re interested in a new car, hit the dealerships tomorrow. And if you’re looking for the deepest discounts, see the complete list from TrueCar.com here.
Used car prices are rising
Meanwhile, used car prices are going up. In fact, the Mazda 3′s manufacturer’s suggested retail price is $16,095 new – but the average overall price of used cars today is $18,570, according to automotive website Edmunds.com. That’s up from $17,986 a year ago.
One reason, according to Fortune Magazine, is obvious: The recession has driven up demand for used cars among cash-strapped buyers, driving up the price. But there’s another reason: “There are fewer used vehicles available because manufacturers are selling less to fleets and therefore have fewer to recycle back to the market,” Deirdre Borrego, a vice president at J.D. Power & Associates, told Fortune last week.
Bottom line: This recession has lasted so long that for years now, fewer new cars have been sold, and now that’s trickled down and impacted the number of potential used cars for sale.
What you should do: While this may not be the best time to buy a used car from a dealership, you can still get good deals from private buyers. You can find lots of leads online from established brokers like AutoTrader. Wherever you buy, check out the Federal Trade Commission’s objective advice first.
Leasing – and losing
Leasing now makes up more than 20 percent of all new car purchases, Edmunds.com says. Leasing is popular with Americans who can’t afford to buy expensive cars but still want to drive them.
But when the recession hit, leasing dipped, too. Now it’s back, but with a new marketing twist: Car dealers are hyping leases as a way to lock in a low monthly payment on modest vehicles. So instead of appealing to vanity, they’re targeting frugality.
Problem is, “In a struggling economy people tend to be fixated on the car’s monthly payment and nothing else,” says Sergio Stiberman, CEO and founder of LeaseTrader.com.
Some leasers, who are often first-timers, don’t realize a newly leased vehicle requires more insurance – and a higher premium – than the clunker they owned.
“Some people go into a dealership with the intention of financing a car with a certain monthly payment, but switch to a lease program at the last minute because they can get a better car for the same money,” writes Carroll Lachnit, features editor for Edmunds.com’s blog.
LeaseTrader.com predicts the number of people escaping a lease because they can’t afford it will jump to 4.5 percent of transactions this year – more than double the 2 percent in previous years.
What you should do: Well, here’s what you shouldn’t do: Don’t lease a car unless you really do your homework. Once again, the FTC has some short, sage advice on this topic. Check sites like LeaseTrader.com and see if you can scoop up a bargain by taking over a lease from someone no longer able to afford it. If you’re in a lease you can’t afford, check out our story Three Steps to Break a Lease Without Getting Rear-Ended.
Young people lacking drive?
Finally, and most shockingly, all these car conundrums have apparently turned off 18- to 34-year-olds from even wanting a car.
That age group is often known as “Millennials,” and the thought of a teenager not wanting to drive would shock any Baby Boomer. But a study by car-sharing service Zipcar claims: “Almost half of all 18- to 34-year-old drivers are driving less, and nearly two-thirds would drive less if alternative transportation options were available.”
One weird reason for this? Social media. The Zipcar survey says more than half – 54 percent – of Millennials said they’d rather spend time online with friends instead of driving to visit them.
“Millennials recognize the limited value of paying so much for something they use so little,” says Scott Griffith, chairman and CEO of Zipcar. “They want the freedom to drive, but reject the financial burden of car ownership.”
Of course, Zipcar has a dog (or car) in this fight, since their business is renting cars by the hour. Still, given the way the car market is going these days, maybe they’re onto something.
What you should do: Maybe someday, we’ll all be doing what Millennials are. We’ll be sitting at home typing to our friends and family instead of driving to see them … but in the meantime, while the car market is changing, it’s still a buyer’s market. Do what you can to drive a hard bargain.