It’s a car buyer’s market all right, but if you think you’re going to have everything go your way when you walk into a showroom, forget it.
- Buyers are usually sellers
- Average credit’s not enough
- Leasing deals vanishing
- Prices up on small, used cars
Yes, 2009 is likely to be a lousy time to be an auto manufacturer. Sales will be abysmal, credit probably tight, and dealers won’t have buyers lining up to buy those big, profitable sport utility vehicles.
Usually, when sellers get desperate, buyers benefit.
But it’s not that cut-and-dry when it comes to the current automobile market. Uncertainty in the credit market and shifting vehicle preferences will likely impact you if you’re going to be shopping for a new or used car in the next year.
Here are some of the problems buyers face and how to possibly mitigate them:
Buyers are usually sellers
Since most people move from one vehicle to another, at some point they are faced with having to get rid of their current cars so they can get the new set of wheels. Usually that means trading in the old vehicles for the new ones, but dealers, facing a huge backlog of some types of vehicles — mostly big pickups and SUVs — are getting picky about what they will take in trade.
Even if they take that 2003 Suburban, you’re not likely to get anywhere near what it would have been worth last year. The key to getting top dollar is to try to sell the vehicle yourself. But that means engaging in some sharp marketing — cleaning the car up, advertising it far and wide, and pricing it below what else is for sale. And if you owe more than the vehicle is worth, your best bet is to stand pat until the loan balance falls.
Average credit’s not good enough
Because of the mortgage mess and the tightening economy, more car loans are going into default, and banks and finance companies are ramping up their standards for borrowers, especially on large loans with terms of more than 60 months. Borrowers who put substantial amounts of money down as part of the deal will be more likely to get favorable credit terms. While the days of zero-down, sign-and-drive deals are not gone, far fewer people will qualify.
Leasing deals vanishing
Manufacturers and their finance subsidiaries have been burned by the sharp drop in residual values for vehicles — mostly SUVs — that are now coming off lease. That means they are dropping lease plans for some vehicles, or, as is the case with Chrysler, getting out of the leasing business altogether.
Japanese and European manufacturers have not been so quick to abandon leases, but lease payments are likely to rise because the deals will involve lower residual values — the amount the finance company estimates the vehicle will be worth at the end of the lease: The lower the residual value, the higher the monthly payment. For consumers used to leasing expensive vehicles for monthly payments far below what it would cost to finance and buy outright, there are few options. You can bring down the monthly lease payment by paying what essentially is a down payment at the start of the lease — called a capital cost reduction. But that’s money you’ll never see back in the form of equity in the vehicle because you don’t own the car — you’re essentially renting it.
The best advice is to shop around for the lease deals that are still out there and expand your shopping to include a wider range of vehicles. If you like the vehicle and want to hang onto it, you’re in a good bargaining position with the leasing company. Unless your leased car is a Toyota Prius or other fuel-sipping vehicle, chances are the leasing company doesn’t want to take it back because it’s likely worth far less than the residual value stated in the lease contract.
Normally, the leasing company would let you buy the car for the residual stated in the lease, but since values have fallen, you may be in a position to offer far less than the residual and the leasing company may jump at it.
Prices up on small, used cars
If you’re after something that goes a long way on a gallon of gas, you’ll pay a lot more than you might have in 2007. But a glut of SUVs on the used-car market means those vehicles are going at what would have been considered bargain prices not so long ago.
So what you save on a gas hog may cover the additional cost at the pump. And if gas prices fall even a little bit, it could be a good buy.