CAR FU: End-of-the-Year Car Buying Hazards

There are good reasons to purchase products at the end of significant time periods, including the end of the month, end of the quarter, and the end of the year. But unlike buying say, a couch, buying a car –any car– at any time, exposes us to potentially massive financial risk through the inescapable effects of depreciation.For car dealers, the end of the year is their last chance to qualify for manufacturer allocations. Typically, the more new cars a dealer sells, the more they will be able to acquire the following year. Additionally, it is their last chance to qualify for dealer, sales-team and individual bonuses.

Because the above factors are understood by many buyers, families often schedule their buying for this time of year, and dealers and manufacturers spend additional advertising monies to play up this buyers’ ‘advantage’. But this is not the simple equation that it seems to be, and there are many potential dangers awaiting the overconfident buyer.

The cash incentives or discounts that dealers offer at the end of the year generally apply only to the outgoing model year. A 2009 model car was likely available for purchase midway through 2008. Now, as we head into 2010, your dealer needs to move these out before they age any further.

The depreciation profile of a car so young is far heavier on the model-year side of the scale than it is on the mileage side. As time goes on, a model year can begin to be the depreciated-value equivalent of 20000 miles or so. But by purchasing a ‘new’ year-old vehicle, you are accepting the massive first-year depreciation without ever driving the car.

Be sure that the deal you are offered accounts for this factor. Do some quick research on what the previous year of the same model is selling for now, and make the comparison.

If you require a brand-new car, you will nearly always be in a better position buying next years model, even at full price. Just compare the depreciation to the incentive and don’t forget that with the 2010, at least you will be driving it while it absorbs it’s first year dip in value!

Of course, you will always be far better off buying a one year old lease turn-in, demo, or even a previous rental. This way, someone else has taken that first year hit, which is significant in all cases.

Consider this: A new 2009 Cadillac Escalade will cost $60k on December 31st. If you decide you don’t like it, you can trade it in the next day for $38,500. Or sell it yourself for $44k. Whichever you prefer. Peter W. Robinson