The Wall Street Journal reports that (suprise!) transaction prices on new vehicles have fallen over the last six months. The average transaction price for a new vehicle is now $27,941. Why so slumptastic? With American consumers perceived to be in value shopping mode and the automobile industry in disarray, incentives are starting to pile up on new cars. And it’s not just OEMs offering factory cash. Dealer incentives are up as well. The WSJ cites TrueCar data showing that a full quarter of all 2009-model vehicles are being sold below dealer cost. And those aren’t all coming from troubled Chrysler dealers.
TrueCar data shows discount transactions clearing on relatively new hotness like Hyundai’s Genesis ($2,500 off sticker) and Honda’s Insight ($500 off). The Prius is the poster child, having attracted $3-$4K premiums nine months ago and now averaging less than $100 over invoice. High inventory levels plague nearly every dealer and OEM; 100+ day supplys have nearly become industry standard. The verdict: it’s a great time to buy (duh). But don’t jump too quickly. With massive dealer cuts due any day now from Chrysler and GM, the squeeze is just starting to be felt.
The WSJ cites TrueCar data showing that a full quarter of all 2009-model vehicles are being sold below dealer cost.
I’ve heard this type of talk before and I still don’t understand. Why would a dealer sell below cost (i.e. below what they paid for it). Or am I missing something?
No hope that the vehicle will ever be sold at cost, while the cost of the loan taken out to buy the car continues..?
jkross22:
“I’ve heard this type of talk before and I still don’t understand. Why would a dealer sell below cost (i.e. below what they paid for it). Or am I missing something?”
Because supply and demand determines prices, not what dealers want.
Every month that a dealership sits on a car it pays another month of interest on the car, and the car becomes another month older. Eventually the dealer has to get real and take the hit on an oversupplied or low demand car.
Unless the dealership plans on going bankrupt / getting its inventory bought out and no longer cares about selling cars.
That does not mean that when a dealer cries about how he is losing money on a deal he is telling the truth.
jkross22; manufacturers force dealers to purchase vehicles they do not want in order to acquire allocation of popular models. They try to dump these at/below cost as quickly as possible.
The lack of available financing and lack of leasing to a large percentage of the buying population is why sales are so low. Few people are prepared to put enough money down to get a reasonably low monthly payment. That means people need to buy cheaper cars. The $27,941 average transaction price on cars should continue drop just like exorbitantly high real estate prices will continue to drop due to lack of available financing schemes.
“The verdict: it’s a great time to buy (duh). But don’t jump too quickly. With massive dealer cuts due any day now from Chrysler and GM, the squeeze is just starting to be felt.”
That’s the problem with trying to catch a falling knife.
I have a sinking feeling that a lot of new (and new-old) cars are going to the shredder instead of being sold at a loss.
Think that might be true. I have a feeling that a lot of the overstocked auto factory output might be headed for the crusher. Might be financially cheaper to crush ’em & recycle the scrap than sell hundreds of thousands of cars for a loss.
AND; with the possible collapse of the parts supplier industry, wonder if a lot of replacement parts are going to be pulled off of these new cars before they get scrunched and sold as “new” replacement parts?
I looked at a Dodge truck a few weeks ago.
List of around $39k Canadian they dropped to $29k with no haggling required. That’s with 4 wheel drive, 4 doors and the Hemi. They can’t be making any profit. The’re already running it like a government business.
The $27,941 average transaction price on cars should continue drop just like exorbitantly high real estate prices will continue to drop due to lack of available financing schemes.
Yes, we’re going to see some nasty deflation.
I call BS as prices have go up on the cars Suburban, MB, G8 GXP in which I am interested.
What will happen to the inventory on the discontinued dealers’ lots? Will the bankrupt OEMs buy it back? Will the floor plan lenders seize it?
The reason why dealers are willing to sell a vehicle below cost is because they get money from the manufacturer. If they sell a certain amount of vehicles in a month they get incentives, in other words money. The dealer never looses. They also make money on the other end of the deal selling B/S accessories (i.e. spoilers, remote start, pin stripes) after you agree on the vehicle price.
Just wait if you want a new car.
Don’t get suckered into the mantra that prices won’t go any lower.
They will, and by a massive amount.
Supply & demand…there’s massive supply, and few buyers (whether by choice or circumstance [i.e. can’t get financed, past bankruptcies, laid off, wage cuts, etc.]).
And then there’s GM’s looming BK filing.
When Chrysler filed, used Chrysler prices, which were already surfing the bottom, fell an additional 32%.
Not everyone wants to take a chance on the existence or quality of warranty service of BK’d car companies, where the service department is backed by the fidelity of the government.
Ouch.
$28K average, and that’s a drop? Good grief – that’s obscene. Why would anybody spend that much money on a depreciating asset? I don’t get people who buy new cars, I really don’t.
Robert Schwartz
What will happen to the inventory on the discontinued dealers’ lots? Will the bankrupt OEMs buy it back? Will the floor plan lenders seize it?
I would imagine at some point the floor plan lenders will have the same problem as mortgage lenders have been having: what good does it do to seize collateral that you can’t sell?
$2500 off a Genesis is a below invoice price. Not much more room to get all the holdback, and there are no rebates or dealer cash on the car.
I actually had a customer email me today that my $1200 discount off the Genesis Coupe wasn’t low enough, she has a dealer willing to sell one for under $18,000. Um, if you are going to try and bluff your way to a bigger discount, at least make it believable people!! No, no dealer is discounting a $25,000 Genesis Coupe $7k to $18,000. Silly woman must have bought a Tiburon by mistake!
I would imagine at some point the floor plan lenders will have the same problem as mortgage lenders have been having: what good does it do to seize collateral that you can’t sell?
Won’t they just dump them at the auctions?
Transaction price dropped to $27,941? What was it recently?!
Last time I was shopping for a new car it was around $27K.
27K plus? OMG! I paid a little pocket change over 12K for my lease buy-back Civic, which trumps any other car out there in build quality, reliability and gas milage (non-hybrid). I got $2500 for my trade-in and put $2K down, so my loan is just south of $7500 for a car with less than 36K miles.
Do I sound like I’m bragging? I’m sorry.
Theodore :
May 13th, 2009 at 10:43 pm
$28K average, and that’s a drop? Good grief – that’s obscene. Why would anybody spend that much money on a depreciating asset? I don’t get people who buy new cars, I really don’t.
Because so few people actually take care of their cars. I was shopping for a particular used SUV last fall and I was amazed at how few owners had any proof that they did any maintenance to them. And by the look of many, I was sure they didn’t. I may have car payments longer on a new car, but since I take care of them, when it’s my used car I know it’s still in great shape and not been abused.
I’m not sure any loyal TTAC reader is your average consumer. Some of them are in the car business (dwford, Mr. Lang). Some are very wealthy.
Some are neither, just ridiculously in love with cars, like me, and average buying one per year over the last 10 years, until the driveway and garage are full (or something else pops up), or the insurance bills just get plain ridiculous. If I’m in love with a car, though…watch out (I’m looking at *you*, Mr. 1970 Chevelle – I see you every day parked at that retirement development…your owner can’t last forever). I don’t even care that you’re ugly green vinyl on green with a 307 – I just want that sweet, rust free metal wrapped around it.
Or it is very, VERY tough not to try and get in on a fire sale Pontiac G8 GXP after getting in one this weekend (the wife thinks it’s a practical car, too!). But I’m hoping that the downward trend continues, and a lightly used one about 18-36 months from now is even a better deal.
So being shocked about the average transaction doesn’t go far here, I’d imagine. Not sure how many average car buyers are here…
TrueCar has a blog post in the same topic on The Truth http://blog.truecar.com/?p=107