Lots of new and used car buyers are finding out the hard way that this spring’s auto sale environment really isn’t a buyer’s market. Now, a new L.A. Times story has gotten into many of the details around why it is probably a good idea to hold off on making your next purchase unless you have planned well for car financing and costs of ownership.
Cited in the L.A. Times article, a lot of auto sale experts are getting into the mix. Those speaking to the new market realities include staffers at TrueCar.com, a big auto valuation company, and Edmunds, a very familiar auto review site that provides tons of useful data on new and used cars online.
As for the reasons behind the huge price spikes in today’s auto market, experts are citing the earthquakes in Japan as a major interruption in supply that has created something of a demand bubble. The L.A. Times found that industry researchers estimated Japanese auto makers Toyota and Honda to be responsible for a full quarter of the whole U.S. auto sale industry. The tragic natural disasters in that country have led to a big shortfall for U.S. customers, and, in the words of industry experts, a “loss of leverage” for the customer.
Why does low supply pump up price so much? One reason is that auto sales are always a delicate dance, a negotiation of subjective cost, that can rely much more on thoughts, ideas and opinions than a concrete price tag. The loss of “leverage” at the lot can have buyers paying much more than they should. The recent report cites an improbable doubling of sale price for a used Ford Explorer and other great price increases for other popular vehicles like the used Honda Civic or Toyota Corolla.
Some of what’s happening involves higher sticker prices, but more of this punch to the car buyer’s wallet revolves around the “extras” that car makers offered as recently as 2008 to entice the shopper. For example, as manufacturers reduce cash-back offers and cut incentives, buyers find that they can no longer rely on these cushions to bring down final sale prices which can be pretty steep for new or late model vehicles, considering how much these depreciate in a short period of time.
The bottom line is that many drivers are keeping their older rides and waiting for the immediate factors in today’s price bubble to break. As posters on the L.A. Times comment area point out, it’s cheaper to maintain yesterday’s ride than it is to finance a new car. However, if you do want to buy, the experts have some tips: shop around for lenders with low interest rates, get pre-qualified before driving to the lot, and drive a hard bargain with your dealer. If that means offering a big down payment as “cash up front” this kind of painful concession may actually help you quite a bit in the long run. Otherwise, it may be wise to take the advice of those reporters.