New car sales were up last month. Part of the blame goes to Hurricane Sandy as many consumers on the East Coast were forced to replace ruined cars. But at the same time, automakers may have cranked out too many vehicles this year — with some inventory backing up on dealer lots — which has created something of a perfect storm for consumers.
“December is typically one of the best months to buy a car because this is the time of year when manufacturers are trying to eliminate their previous model-year inventory,” says Alec Gutierrez, a senior market analyst at Kelley Blue Book.
The inventory for gas-guzzlers is particularly large, resulting in the best bargains.
“If you’re a consumer in the market for a large truck or SUV, a lot of times you’re able to find anywhere from maybe $3,000 to $5,000 in terms of cash rebates,” says Gutierrez.
In the past, U.S. carmakers offered the biggest incentives. According to TrueCar.com analyst Jesse Toprak, Chrysler used to spend upwards of $4,000 on incentives, while Honda only offered $1,000.
But, “the gap has narrowed,” says Toprak, “In fact, Chrysler is spending around $2,000 and Honda and Toyota are spending around $2,000. Only a few hundred dollars difference in incentive spending levels now.”
Nissan and Chrysler currently offer the biggest cash incentives.
But Gutierrez says carmakers don’t like cash discounts because it hurts the resale value of the car. That has a ripple effect that ultimately makes it harder for manufacturers to sell cars down the road.
Yet even with the cash incentives, carmakers aren’t losing money.
“For certain vehicles like full-size trucks there’s enough profit margin where they can discount the vehicle heavily and still make a decent amount of money,” says Toprak.
But given low interest rates in the U.S., manufacturers prefer to offer deals on financing. Many new cars can now be financed for five years at zero percent interest.