Between now and the end of the year, car buyers might find the greatest deals not in dealer showrooms but in the parking lots outside. As automakers flood the market with 2004 models, car dealers are pushing hard to clear out their 2003 inventory.
Typically, customers can snag the best prices on new cars during year-end closeout sales, said Jesse Toprak, an analyst at Edmunds.com, an independent, California-based Web site that provides advice to car consumers.
Although U.S. auto sales dipped in October, local car dealers are hoping the fall’s near-record-high manufacturer rebates will stimulate auto sales through the end of the year. Car buyers in September scooped average discounts on new cars of more than 18 percent off sticker prices, Edmunds.com said. People who bought a new ’03 or ’04 model vehicle in September paid an average of $24,510 for vehicles listed at $30,000.
“They’re as good as I’ve ever seen them, and I’ve been in this business a long time,” said Ken Redders, general sales manager at Machens Ford in Columbia.
Redders said incentives could shrink next month but still should remain high through the end of the year, depending on how fast Ford sells off its 2003 inventory.
“My understanding is that rebates across the board are going to back off significantly,” he said.
While manufacturer rebates have been around a long time, high incentives often signal a sluggish domestic economy, Toprak said. Domestic manufacturers have pushed incentives because they have lost market share to foreign cars while battling a perception that U.S. automakers produce inferior vehicles, he said.
“It takes time to change consumers’ perceptions,” he said.
While 2003 has been a “scary year” for dealers in general, cash rebates have been climbing gradually since the early 1980s and aren’t necessarily tied to a weak economy, said Tom Nick, general sales manager for University Chrysler in Columbia.
“It’s been going on a long time,” he said. “Nobody can stop it.”
Manufacturers don’t just drop sticker prices because they prefer to offer discounts, relying on consumers’ perceptions and expectations to bargain with dealers, Toprak said. The manufacturer’s strategy, what Toprak called “psychological pricing,” makes consumers feel like they’re getting better deals, he said.
For example, a $35,000 Cadillac DeVille would be classified as luxury car even though the transaction price after rebates and incentives may drop the car into a lower price category.
Larry Cornell, who owns Cornell Motors in Columbia, agreed that cars are defined by their price, and he expects incentives to remain high through the end of the year. Cash rebates on Lincolns and Jeeps are topping out between $3,500 and $4,500, he said.
“I think manufacturers don’t want to drop the price because there is a perceived quality,” Cornell said. “Every manufacturer is looking for a pull — a draw — and if you just drop the price, you don’t have the draw that brings customers in.”
Additionally, customers have grown accustomed to haggling over prices, Toprak said. Prices set too low leave little room for negotiation.
“The whole U.S. car market is based on negotiations and making deals,” he said.
Foreign auto makers, on the other hand, are able to sell cars at higher prices because of lower supply and higher demand, he said.
“Domestics have had no choice but to utilize heavy incentives to get rid of their excess inventory and battle to keep their market share,” Toprak said.
Big incentives do affect dealers during year-end closeout sales, Nick said, causing stringent competition for customers as automakers offer surprise rebates in efforts to sell remaining inventory on older models.
“It’s so competitive with rebates between manufacturers,” said Nick, the University Chrysler manager. “I don’t see an end to it. Once one manufacturer jumps on the bandwagon, they’re all afraid to get off of it.”