Tags: time | buy | car | auto

Why Detroit's Auto Glut Makes Now the Best Time to Buy a New Car

Why Detroit's Auto Glut Makes Now the Best Time to Buy a New Car

Tuesday, 04 September 2018 10:02 AM

On a good day, car dealers can bend time.

Ever wonder why you start seeing ads for next year’s models several months early? Thanks to creative release dates, the industry has historically sold tomorrow’s more profitable vehicles today as summer turns to fall. But that chronological magic is starting to fail, and they’re increasingly being forced to sell yesterday’s cars tomorrow.

In the decade since the recession, dealerships have started to find themselves in a pickle come September, leaving them struggling to get rid of current-year models as the next-year iterations arrive. The inventory glut is largely a function of misplaced optimism as American automakers ramped up production over the past few years. And in the coming months, that imbalance will worsen, as demand for new vehicles dips for the first time in almost a decade.

“I don’t think they understand the gravity of the situation,” said Edmunds.com analyst Ivan Drury. “This is becoming a chronic, real issue.”

In the fourth quarter of 2017, only 46 percent of new vehicles sold in the U.S. were a shiny new 2018 model, compared with 73 percent a decade ago, according to Edmunds.com. To make matters worse, the stale products spilled over. In the first quarter of this year, almost one in five vehicles sold in the U.S. was an older model—a 2017 or even 2016. That’s almost double the level from 2008.

Matt Jones, senior consumer advice editor at Edmunds.com, knows the challenge well; he spent 12 years selling sedans and SUVs. These days, as he drives past dealerships on his way to work in Santa Monica, Calif., he counts the share of old vehicles on the lot. The results haven’t been encouraging. “Some of these cars could potentially have been sitting there since 2016,” he said. “I’ve seen dealers sell brand new cars at used-car auctions just to get them off the lot.”

The glut is corrosive to the auto market in a number of ways. Most directly, consumers find themselves with more power at the negotiating table. That leverage comes at a cost, trimming the profit margin for the dealer, the manufacturer or both. Eventually, an excess of inventory can also sour relations between those who make the cars and those who sell them.

“It’s a complete boondoggle,” Drury said. “You’re causing competition among your own vehicles.”

Next year’s cars tend to show up in August, adding to the current year’s inventory which dealerships rush to sell before Dec. 31, according to Truecar, an online shopping platform matching buyers with local dealers. “There’s a challenge in managing the overlap,” said Truecar Senior Vice President Eric Lyman. “Especially when you don’t have a major product change, it becomes messy.”

This year, the crush will come as consumers grapple with rising interest rates and gas prices. They’re also starting to keep their vehicles on the road longer. New tariffs on aluminum and steel thanks to the trade war launched by U.S. President Donald Trump complicate the quandary for car companies, forcing them to choose between smaller profit margins or price hikes that could further cool sales. All of these factors will add to the industry’s existing inventory problem, spelling bad news for manufacturers and dealers.

The year-end inventory collision may be particularly brutal at Nissan, which declined to answer questions for this story. In December of last year, only one out of five vehicles Nissan sold was a 2018 model. Even by spring of this year, the automaker was still selling 2017 cars and trucks.

Overly optimistic production decisions are just one piece of the puzzle, though. Sales of multiple model years are overlapping also because automakers roll out new product all year long. Gone are the days when the dealerships in town would close for the same week in late summer, put newspapers over the windows and prep the showroom floor with next year’s machines.

“There is no typical anymore; we launch throughout the year,” said General Motors spokesman Jim Cain. “Everything is based on the timing of engineering and manufacturing readiness.” The 2017 Chevrolet Bolt EV, for example, didn’t hit dealerships until December of 2016; meanwhile, next year’s iteration of the popular Chevrolet Silverado pickup started selling last month. 

Cain said GM is pleased with its inventory levels going into the busy holiday quarter. “If we have two model years on the ground in the first quarter, but sales are strong … we don’t have a problem,” he said.

When all goes well, a little overlap between model years is beneficial—the older vehicle draws a more frugal buyer. “When we do it well … it’s almost like having two separate models,” said Ray Mikiciuk, Honda’s assistant vice president of sales. That said, Honda doesn’t like to have any of its current cars around come New Year’s Eve. “Certainly, that’s not a strategy,” Mikiciuk said. 

In 2017, several of Ford’s critical models launched relatively late in the year, including its “Super Duty” pickup. Still the company thinks the Edmunds data, which captures a sample of retail transactions, makes the model-year turnover challenge appear worse than it is. Ford’s internal data, which also captures sales to rental-car fleets and government agencies, show less overlap between model years, according to Erich Merkle, the company’s head of sales analysis. 

Ford declined to share that data, but the company is sanguine about the holiday sales season, having already trimmed production capacity on some of its least popular vehicles. Most importantly for the company, its 2019 F-150 pick-up is already on the road and carrying momentum. Next year’s Lincoln Navigator is also picking up sales speed. “We’re in great shape,” Merkle said.

Still, some companies have been more disciplined going into their fattest sales season. In recent years, both Audi and Subaru had sold off almost all of their current model-year vehicles by November, giving dealers and consumers open access to only the newest, most profitable iterations of product.

Come November, those in the market for an Audi or an Outback won’t find many bargains. At neighboring dealerships, however, incentives are likely to be generous. Jones, at Edmunds, suggests that buyers start casually shopping this fall and watch for 2018 vehicles that still seem to be abundant as the new year approaches. If the holiday is too hectic, don’t worry; there will be plenty of leftovers in January—brand new, old cars. 

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Optimistic dealers already have too much inventory on the lot, and 2019 models are starting to arrive.
time, buy, car, auto
Tuesday, 04 September 2018 10:02 AM
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