We often hear commercials where dealers are excitedly claiming they must clear their current inventory for all the new models arriving. As a result, they are pricing their cars to sell fast. Is this just a marketing gimmick, or can you really get a deal on the vehicles dealerships can’t otherwise seem to get rid of? We'll give you a behind-the-scenes look at how dealerships handle the slow-moving inventory, whether you really can get a good price and what to be aware of if you want to buy one of these laggers.
Where the Unsold Cars Go
Dealerships are franchises that purchase their inventory from the auto manufacturer and sell it for a profit. When a dealership buys a car from a manufacturer, it becomes theirs regardless of whether it sells or continues to sit on the lot. Just like most consumers take out a car loan to finance a new vehicle, dealerships do the same and pay down the loan every time they sell a vehicle. When a car doesn't sell, they have to continue paying interest while forgoing profit. This forces them to think of other ways to move the vehicle and make space for new inventory.
In some cases, the automaker may help the dealership by offering some incentives or rebates. If the vehicle still doesn't get sold, the dealer can choose to sell it to a car auction, use it as a dealership employee vehicle or loaner, or trade it with a dealer in another market. The dealer will have to pay a fee to the auction house or lose profit by keeping the vehicle in-house so they will be motivated to price the car low enough to sell it to a customer instead.
Can You Get a Good Deal?
Even though the manufacturer won’t directly take the vehicle back, they will usually help the dealer sell it by offering special customer incentives or financing offers. If a car has not sold in a long time, the manufacturer will offer a clearance rebate on it. Typically, this amount is given directly to the dealership and isn't promoted to the public. Although the rebates vary, you can expect a few thousand dollars off the sticker price. The fall is a good time to be on the lookout for reduced new cars prices because dealerships need space for the influx of next year's vehicles.
What To Be Aware Of
In theory, buying a new car at a discount sounds like a smart idea. You'll get the benefit of being the first owner without paying the new car price tag. Before committing to one of these 'misfits', however, you should be aware of the drawbacks to purchasing a vehicle that has been sitting on a dealer's lot for a long time.
The less obvious risk is the fact that the vehicle has been sitting idle while exposed to the elements which may include rain, heat, and snow. It's important to make sure the battery is still in good shape and there is no rust or weather-related damage anywhere on the vehicle. If the condition of the vehicle checks out, you can proceed with the purchase.
A second consideration is the age of the vehicle and the features available. Dealerships will usually hold onto a vehicle that isn't selling for two years before pulling out the deep discounts in an effort to sell it to customers. If the vehicle is last year's model or goes two model years back, you will likely not get all the features you've found in your research. Make sure you carefully review what the vehicle model does and doesn't offer.