New or Used, Buying a Car Gets More Expensive
The reason is supply, supply, supply.
By Brendan Moore
If you’ve been shopping for a car lately, you may have noticed that deals and discounts are almost nowhere to be found.
The reason on the new-car side of the equation is that the manufacturers, particularly the domestic manufacturers, have finally been able to more or less match production to market demand.
What this means to the public from a practical perspective is that there are less cars on the blacktop from consumers to pick from, and far less incentives being offered on the cars available.
What this means to the auto manufacturers is that their profit on a per-unit basis is up, way up from previous levels. In the past, the constant state of manufacturing over-capacity meant that the manufacturers were always running some sort of fire sale to shed themselves of excess vehicles, and that meant a lot of incentives doled out to consumers.
According to J.D. Power and Associates, the average retail price of a new domestic vehicle has risen approximately $2000 USD since the same time last year.
Yes, it used to be all about market share for the Detroit Three, but no longer. It is finally about a profitable existence, no matter how the volume shakes out. This new discipline should manifest itself in their marketing programs as well, since the companies can no longer trumpet “the deal”, and will instead have to pitch the car itself.
Good news for the advertising agencies as some of the money previously allocated to rebates and incentives will now go towards marketing the vehicles and the manufacturers thereof.
On the used-car side, the dynamic is more straightforward; there simply are not enough used vehicles to go around. Even the recent surge in new-car sales didn’t replenish the inventory of used cars as it usually does, since a high percentage of the trade-ins were crushed under the Cash For Clunkers program.
Prices are up at every large wholesale used car auction company that the dealers use, and still climbing. The practical effect of this diminished supply of used vehicles is that there are fewer cars to pick from on used-car lots across the U.S., and, that the retail prices of those used vehicles are less flexible than in the past.
Consumers have certainly taken notice.
Usually, just some waiting on their part will see the buying public through these moments of market restraint.
Unlike previous periods of inventory drought, however, this one may have real legs, and show some staying power. This could conceivably be the “new normal” at least until the end of 2010, given the economic indicators now in play.
There is the chance that one or more of the manufacturers will mistakenly over-produce between now and then, starting the vicious cycle of sales incentives again, but it seems unlikely in this overly-cautious environment. Good for them, but not so good for consumers that are looking for deals.
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