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How (and when) to get the best car deal

The holiday shopping season usually includes some of the best days of the year to buy a car.

By Stacy Johnson Nov 29, 2010 6:31PM

This post comes from Michael Koretzky at partner site Money Talks News.

 

New-car prices are down, but used-car prices are way up. Leasing is also up -- but so are defaults on those leases.

 

Oh, and young people want to drive less. Holy Chrysler, what's going on?

Well, experts say this uncommonly long recession has put the brakes on what we long considered common car sense. So before you buy, read on.

 

New-car prices dropping

Black Friday was the perfect time to score a good deal at the mall, and last year it was also a good time to shop at the  dealership. But not this year.

Keep in mind that six of the 10 best days to buy a car last year were in December. Also, the savings may not amount to much versus other days of the month. For example, last year automotive researcher Truecar.com said the average discount on the best day in November (Nov. 27 -- Black Friday) was 7.5%, while the average discount on the worst day (Nov. 16) was 5.2%.

 

But whatever day you choose to hit the showroom, there are some deals to be found. One example? According to TrueCar, a 2010 Mazda 3 is selling, on average, for $10,087 -- 37% less than its $16,095 sticker price.

 

Not only that, but the cost of financing a new car actually dipped slightly. "The average total cost of buying and financing a new car decreased by $300 to $27,600, a 1.4% decrease from the second quarter," declared financial services company Comerica.

What you should do: If you're interested in a new car, hit the dealerships in December (TrueCar will soon identify the best days). And if you're looking for the deepest discounts, see the complete list from TrueCar here.

 

Used-car prices are rising

The average overall price of a used car today is $18,570, according to automotive website Edmunds.com. That's up from $17,986 a year ago.

 

One reason, according to Fortune magazine, is obvious: The recession has driven up demand for used cars among cash-strapped buyers. But there's another reason: "There are fewer used vehicles available because manufacturers are selling less to fleets and therefore have fewer to recycle back to the market," Deirdre Borrego, a vice president at J.D. Power & Associates, recently told Fortune.

 

Bottom line: This economic downturn has lasted so long that for years fewer new cars have been sold, and that reduction has now trickled down to impact the number of used cars for sale.

 

What you should do: While this may not be the best time to buy a used car from a dealership, you can still get good deals from private buyers. You can find lots of leads online from established brokers like AutoTrader. Before you buy, check out the Federal Trade Commission's used-car advice.

 

Leasing -- and losing

Leases now makes up more than 20% of all new-car deals, Edmunds.com says. Leasing has been popular with Americans who can't afford to buy expensive cars but still want to drive them.

 

But when the recession hit, leasing dipped, too. Now it's back, but with a new marketing twist: Car dealers are hyping leases as a way to lock in a low monthly payment on modest vehicles. So instead of appealing to vanity, they're targeting frugality.

 

There's a catch, though. "In a struggling economy people tend to be fixated on the car's monthly payment and nothing else," says Sergio Stiberman, CEO and founder of LeaseTrader.com. Some who opt for a lease, often first-timers, don't realize a newly leased vehicle requires more insurance -- and higher premiums -- than the clunker they used to own.

"Some people go into a dealership with the intention of financing a car with a certain monthly payment, but switch to a lease program at the last minute because they can get a better car for the same money," writes Carroll Lachnit for Edmunds.com's blog.

 

LeaseTrader.com predicts the number of people escaping a lease because they can't afford it will jump to 4.5% of transactions this year -- more than double the 2% annual rate in previous years.

 

What you should do: Don't lease a car unless you really do your homework. Once again, the FTC has some sage advice on this topic.  If you're in a lease you can't afford, check out "3 steps to break a lease without getting rear-ended." If you're shopping for new wheels, check sites like LeaseTrader.com to see if you can scoop up a bargain by taking over a lease from someone who can no longer afford it.

 

Young people lacking drive?

Finally, and most shockingly, the complications of car ownership have apparently turned off 18- to 34-year-olds -- an age group  known as "millennials" -- from even wanting a car.

 

The thought of a teenager not wanting to drive would shock any baby boomer. But a study by car-sharing service Zipcar claims: "Almost half of all 18- to 34-year-old drivers are driving less, and nearly two-thirds would drive less if alternative transportation options were available."

 

One reason for this? Oddly enough, it's social media. The Zipcar survey says more than half -- 54% -- of millennials said they'd rather spend their time interacting with friends online than driving to visit them.

 

"Millennials recognize the limited value of paying so much for something they use so little," says Scott Griffith, chairman and CEO of Zipcar. "They want the freedom to drive, but reject the financial burden of car ownership."

 

Of course, Zipcar has a dog (or car) in this fight, since their business is renting cars by the hour. Still, given the way the car market is going these days, maybe they're onto something.

 

What you should do: Maybe someday, we'll all be doing what millennials are doing now -- sitting at home typing to our friends and family instead of driving to see them. In the meantime, while the car market is changing, it's still a buyer's market. Do what you can to drive a hard bargain.

 

More from Money Talks News and MSN Money:

2Comments
Nov 30, 2010 12:03PM
avatar
The smartest spending is to not spend. Save. The entire auto industry is in a state of change right now and because of the 2016 MPG rules new more efficient engines and models are starting to appear. Smart buyers will wait to see better choices appear soon.
Dec 1, 2010 6:33PM
avatar
Your point with millenials driving less is true, and social networking is certainly part of it.  (After all, why would we want to drive 10 miles to visit friends when we can Skype them from home?)

However, you missed 2 other key points:

The first is obvious.  Baby boomers grew up in an era of cheap gas.  Millennials?  Not so much.  We grew up with OPEC and Middle East conflicts.  For the younger ones just getting their licenses now, do you really think they're going to drive that much when gas is $2, $3, $4 a gallon?

The second takes some research/critical thinking.  Millennials are urbanites.  Look at the trends, especially since the Great Recession began.  Suburbs aren't growing as fast as they used to.  Sure, Gen Xers still tend to live there, but the Millennials are moving to the inner city.  "Urban revitalization" is the hot thing now, even more so than planned communities.  Heck, even the aging Baby Boomers are starting to downsize to urban condominiums or (for the older ones) retirement homes.  Why's this important?  Urbanites drive less.
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