With supply chains stabilizing and interest rates elevated, new-car discounts are back on the table.
While new-car prices remain high, they’re starting to slide as interest rates remain sharp and demand is waning.
The average transaction price of a new vehicle in the U.S. in January 2023 edged 0.6%, or $310, lower to $49,388, noted Cox Automotive in a recent research note. The figure fell from December’s record high. The January figure was 5.9%, or $2,768, higher that the year-earlier figure, Cox reported.
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In January 2023, new-vehicle buyers paid, on average, about $310 more than the sticker price. That’s relatively good news for buyers since they paid $900 over the sticker price in January 2022.
Additionally, inventories of new vehicles have risen as the pandemic-prompted supply-chain disruptions abate.
“The transaction data from January indicates that overall prices are no longer increasing like they were a year ago,” said Rebecca Rydzewski, research manager of economic and industry insights for Cox Automotive. “Both luxury and non-luxury prices were down month over month.”
Car Dealers Are Ready to Discount
As auto prices nudge back toward the buyers’ direction, some industry observers see discount opportunities for savvy shoppers. So-called “affordable” vehicles – think compact cars and midsize sedans – are seeing price discounts of 3% to 4% right now, Cox reported.
But buyers must make the right moves before signing on the dotted line.
“Some original equipment manufacturers and dealers have more supply, and with rising interest rates, a few manufacturers have introduced new rebates or adjusted interest rates through their captive finance arms to help move vehicles,” says Patrick Roosenberg, director of automotive finance at the consumer-intelligence and analytics firm J.D. Power.
“OEMs are offering rebates or better interest rates for shorter-term loans to help stimulate sales on certain makes and models.”
Supply-chain improvements are also leading to lower auto-dealership prices.
“The pandemic created a backlog of supply-chain issues and a shortage of microchips,” said SuperMoney.com Managing Editor Andrew Latham. “As the microchip-supply chain recovers, car production is catching up, which means dealerships have more inventory, allowing them to offer deals and discounts to attract buyers.”
In addition to the microchip-supply chain, dealerships are also facing stiffer competition from online auto retailers. “This has forced traditional dealerships to become more creative in their offerings, including discounts and perks, to stay competitive in the market,” Latham told TheStreet.
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What kinds of deals and discounts can consumers expect at the dealer these days?
“Consumers can expect to see additional discounts and perks such as extended warranties on new cars,” Latham said. “It’s also possible, but still rare, to find 0% financing offers if you have excellent credit.”
Auto dealers may also see dealer incentives for trading in older models and discounts on preowned or certified preowned vehicles.
“Dealerships may also offer package deals that include services like free maintenance for a certain period, discounted insurance, or complimentary roadside assistance,” Latham noted.
Tips for Negotiating Auto Discounts
To get the best deal from auto dealerships over the next few months, leverage these tips from industry insiders.
Take advantage of dealerships’ need to “move metal”: As the chip shortage wanes, car inventories are returning, and manufacturers and dealers need to quickly move their inventory.
“The OEMs are also now realizing that late March and April historically was a strong time for car sales; however, the government has signaled that tax refunds will be lower this year, so an impact is anticipated,” said Bob Child, chief operating officer at Origence, the Irvine, Calif., provider of lending-technology solutions.
“With that said, dealers know the seasonality, and with some discounts from the manufacturing side, they can prepare to move metal over the coming months.”
For dealers, the key to moving inventory is getting the monthly payment back to a level close to where it was in 2022.
“In an effort to achieve lower monthly payments, we’re seeing OEMs place discounts $2,500 to $7,500 on select vehicles to get consumers motivated to buy once again,” Child told TheStreet. “I’ve also been seeing more credit unions working with dealers to adjust loan terms and offer some promotional rates.”
Negotiate and don’t overpay: Auto buyers should be willing to negotiate, but also be prepared to walk away if the deal isn’t right.
“You’ve got some things to consider first,” SuperMoney’s Latham said. “For example, always be aware of hidden fees and extras that dealers may try to add to the price. Also, be flexible with the type of car you want and consider multiple dealerships in the area. This gives you more leverage when negotiating and allows you to compare offers from different dealerships.”
One common mistake is getting too emotionally attached to a particular car. “That can lead to overpaying or settling for unfavorable terms,” Latham added. “It’s important to be willing to walk away if the deal doesn’t meet your needs and expectations.”
Do your homework: The best tip is for consumers to do their research on vehicles and financing options.
“It’s also important for consumers to have a realistic view of their financial health in order to make the best decisions on the payment, loan term, interest rate, and the vehicle they ultimately choose,” Roosenberg said.
“With the prices of new vehicles at historical highs, buying a vehicle requires due diligence to better understand the financial commitment of a five-to-seven-year loan.”
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