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With more than 3 million Americans filing for unemployment in just one week, we’re nearing the bleakest economic situation than most people currently alive have ever experienced. And things are likely to get worse. But for potential buyers who feel confident they won’t lose their paychecks in the future, now could be a good time to score a deal on a new car. However, it’s important for buyers to understand the difference between an awesome deal and an unrealistic one.
Many dealerships across the country are under a statewide mandate to suspend sales operations until further notice, although at some of them, it is possible to buy a car online or in-person while adhering to social distancing requirements. If you happen to be in an area where car sales are still permitted, there are a few things to keep in mind.
First, the deals right now may not be as good as you expect them to be. A dealer’s ability to discount a car partly comes from factory rebates and incentives. Those programs reset every month, and it is extremely rare for rebates and incentives to be put in place in the middle of the month. The Covid-19 situation started getting truly dire in America in mid-March, but automakers have only recently started to react with various programs to improve sales.
Some companies like General Motors, Ford, Fiat Chrysler, Nissan, Toyota, Volkswagen and others are offering cut-rate financing and/or deferred payment plans. However, most consumers want to know exactly how cheap they can get their desired car. As a professional car shopper, I’m already getting emails from folks asking, “So now that the market crashed, I can get the car I want at $10,000 off the MSRP, right?”
This is where understanding some numbers in context is helpful. There are two numbers that come up in conversation: MSRP, also referred to as sticker price, and invoice price. There are some “experts” on the internet that will tell you that “invoice price” is not a “real number,” but this is nonsense. Dealers buy the car from the factory and they sell that car to you. Their cost to purchase that vehicle is the invoice. It is absolutely possible to purchase cars at or below the invoice price, but the margin at which you can do that depends on a number of factors.
Dealers often are allotted some extra money via the manufacturer for advertising and what not. This is called “holdback,” and if a dealer is serious about moving a unit they can dip into this holdback to discount the car below the invoice cost. However, the holdback isn’t thousands of dollars—it’s usually a few hundred bucks. Sometimes dealers will sell a car below their invoice and take a loss on that unit to they can hit certain sales goals for the month.
Substantial discounts—and we are talking several thousands of dollars—below the invoice are usually the result of a rebate program often referred to as “dealer cash.” Dealer cash works like an advertised rebate that you would find on an automaker’s website, but instead, this is additional money from the factory given to the dealers that can be passed on as savings to you. The tricky part about this is that unlike the advertised rebates, consumers are often unaware that this dealer cash exists, and if it is available it may vary from region to region and even dealer to dealer.
In other words, if the automaker isn’t providing the upfront rebates or back-end dealer cash rebates to a dealer to blow out deals, those deals can’t be offered to you.
Recently, I had a client looking to buy a Chrysler Pacifica Hybrid in California. The margin between invoice and MSRP on the Pacifica Hybrid is razor-thin, only a few hundred dollars, so dealers can only go so deep. The best deal I found was around $2,000 off the MSRP. On a car that retails for $48,000 in a rough economic market, that isn’t a great deal. But the context of getting the car below the invoice price, it was a competitive offer. The problem is that currently, Fiat Chrysler was not offering additional dealer cash to move those cars.
Again, I am strictly discussing March pricing; things are likely to change in the coming months. So if the deals right now don’t seem appealing for the car you want, it pays to wait. And even with a lot of cash on the hood, there will come a point where you just can’t get a car any cheaper.
Negotiating these deals isn’t about throwing a lowball offer out there on what you think you should pay. It’s about finding the lowest price possible. How do you know what that price is? You need to shop around and compare quotes.
The second issue that buyers need to be cognizant of is the fact that most auto factories are closed. Right now, there aren’t tons and tons of cars pouring into the dealerships and collecting dust. If you are in the market for something specific, what is currently on the ground is what you have to choose from and if that car is in demand, prices might not be as competitive as you had hoped.
Furthermore, with hundreds of dealers in major markets such as New York, New Jersey, California and Michigan under sales restrictions or operating in a limited capacity, buyers may seek to purchase elsewhere—driving up demand within the markets that are still open.
For most people, the best course of action is to hang tight and conserve your finances before making a large purchase. Remember, you aren’t likely to miss out on a killer car deal if you don’t act within the next month or two. Often the best deals are found in the summer or early fall, and this will probably be the case as America eases its way out of this mess.
Tom McParland runs Automatch Consulting. His writing about car buying has appeared on The Drive, Jalopnik and more.
