I have been talking on my radio show about December being a great time to buy a new car. In spite of that I hear from people who say “I am going to buy a new car right after the first of the year.” Generally, this will cost you more money than buying in December, let me explain why.
In December, you have a lot of positive factors coming together as a car buyer.
One big factor is automakers and dealers looking to pad their sales numbers to improve market share and rankings. Both dealers and car companies push for every sale they can get. Automakers push the dealers; the dealers push their people. It is an intense month for everyone in the car business.
To help the dealers sell cars, the automakers throw all sorts of incentives around-some visible to the public-many that are not, but either way it benefits consumers. Lease payments magically fall, especially on luxury cars. There is always a fight between Mercedes, BMW, Lexus, and some of the others for supremacy. These “fights” bring massive incentives.
The auto industry has been struggling to try to keep up this year with 2015, the best year in automotive history. The November numbers exceeded last year’s, but they came at a price. Incentive spending averaged right at $3500 per vehicle, an amount that is not sustainable. Everyone involved at auto companies knows this, but the marketing side continues to want to spend money to entice people to buy new vehicles.
This is what got the industry in trouble in 2008 and 2009, ultimately leading to the bankruptcy of Chrysler and General Motors, and almost Ford. Numerous car companies have announced production cuts starting in January. This is the only choice they have…build fewer vehicles and spend less per vehicle in incentives. It is a prudent business decision. Automakers are realizing that, as a group, they can be as profitable selling fewer vehicles and not cramming cars down the throats of the dealers. This is a huge factor in why this December, in particular, points to an exceptional time to get a deal.
Then there is the bonus factor. Auto executives at all car companies generally have big bonuses on the line for yearly sales targets, market share targets, and often both. The same is true inside dealerships, many General Managers, Sales Managers, and even the salespeople have big bucks riding on performance. The synergy of all these people working as hard as they can to sell cars is good for anyone in the market.
Dealers get aggressive with trade values, too, during December. They know that January new car sales will be down, making used vehicles scarce, and they try to stock up in December so they will have enough used vehicles to get them to the spring market. If you have a clean trade-in, not only will you get a great price on a new car, you’ll get top dollar for your trade during December.
So, why is January not the best time to get a bargain?
Bean counters, plain and simple. Inside every car manufacturer, there are marketing people, and there are the finance staff-these are the people counting dollars. These two groups of people see things very differently. January rolls around and the “beans” as they are affectionately known, try to test the waters to see how little they can allocate for incentives without freaking out the marketing folks.
Each new year, the marketers know this is coming, and don’t fight it hard. After all, they have all year to make up the lost sales, especially in the fourth quarter. When incentive spending is down, like in January, new car prices go up. There are exceptions of course, like the previous year’s models if any are left, but it is not uncommon to see rebates fall in a major way as soon as the calendar flips to a new year.
Also remember Dec. 31st is the deadline for the 2016 Tax Code 179 deduction.
Many people buy in December because their CPA or tax professional recommends they take advantage of some of the programs like Tax Code 179 for self-employed and business owners. If you fall into that category, be sure to check with your financial people to see if buying in December benefits you.
In the auto industry, some things change, while others do not. My 35-plus years of being a part of the industry tells me this year will be a huge month for the industry, before 2017 goes into a slower pace, with fewer incentives for the public.
December 2016 will be the best month of the year to buy, January the worst. So if you are one of the “wait until after the first of the year” people, rethink your strategy.