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Lexus, General Motors vie for shoppers

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Lexus, General Motors vie for shoppers

by usiscc
November 23, 2019
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Lexus, General Motors vie for shoppers
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‘Tis the season to save money on a new car. If you’re mulling that big purchase, experts advise scooping up Black Friday sales and holiday promotions while they last. 

Car shoppers are benefiting from two things this year: an inventory glut and cheaper financing offers. Older models from 2018 and 2019 are piling up on dealer lots. That means bigger discounts for shoppers. You can take advantage of sales promotions as dealerships clear out inventory to make room for newer models.

There’s high inventory of outgoing model-year vehicles. About 27% of all vehicles sold in October were 2020 models, down from October 2016 when roughly 37% of all vehicles sold were 2017 models, according to car-buying advice site Edmunds. Car dealers struggled this summer to sell 2018 inventory to make room for 2020 cars. About 3.5% of all July car sales were 2018 vehicles, the largest share of that month’s sales for previous-year models since at least 2005, J.D. Power found. 

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Lexus launched its “December to Remember” event earlier this month, which offers incentives through Jan. 2. Meanwhile, General Motors is promoting a 0% annual percentage rate for some 2018 and 2019 Chevrolet models during Black Friday, or no monthly payments for 90 days if you finance through GM Financial, the company’s financing arm, according to Kelley Blue Book.

“The end of the calendar year is a popular time for expensive vehicle purchases,” Jessica Caldwell, executive director of industry analysis at Edmunds, said in a report this month. “Shoppers in the market for a large truck or SUV, or a new luxury vehicle, can look forward to taking advantage of lower financing rates.”

Financing factors

Lower rates are giving car buyers a reprieve. Auto-loan rates, which often follow the federal funds rate, have crept lower in the second half of 2019. The interest rate on a 48-month new car loan averaged 5.27% in the third quarter, down from 5.35% in the second quarter, according to the Federal Reserve.

The central bank has lowered its benchmark interest rate three times this year to the current range of 1.5% to 1.75% to help cushion the economy. Those rate cuts have pushed down the cost of borrowing for a variety of consumer debt, from car loans to mortgages to credit cards.

The Fed has also signaled little need to cut borrowing costs further – for now. Rates for auto loans will likely move higher if borrowing costs rise down the road, experts caution, which is why some car shoppers are looking to purchase a new vehicle now. 

Black Friday car sales and holiday promotions are just around the corner.

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New or used?

To be sure, the average cost of owning a new vehicle hit an all-time high this year. Finance costs on new car purchases jumped 24% in 2019, according to AAA, pushing the average annual cost of vehicle ownership to $9,282, or $773.50 a month.

Shoppers feeling the pinch from rising new car prices could turn to the used car market, analysts say. In the second quarter, car shoppers could have saved $14,443 on average if they purchased a three-year-old used vehicle instead of its new equivalent, according to Edmunds.

Do your homework

The best practice, according to analysts, is to get preapproved for a loan before heading to the dealership. While a dealer may offer better terms, you should still have a backup plan.

“It doesn’t hurt to get preapproved or look at financing options in advance,” said Erin Klepaski, executive director of strategic alliances at Ally Financial.

You might have a financing offer, but there are multiple variables to consider, including whether you’re leasing or buying a new or used vehicle. If you’re planning to lease your next vehicle, experts say you’ll likely get a better deal through the dealership. 

“Typically you can’t get preapproved by a bank in advance for a lease,” Klepaski said. “The dealer is probably going to help you with that transaction.”

Buying a used car is typically the most cost-effective option because you get to keep it after you’ve paid the loan off. Leasing gives you the flexibility to upgrade to a newer model if you want the latest features and gadgets. 

When to buy 

Experts suggest waiting until the end of the month, quarter or year to snatch a promising promotion as dealerships try to meet sales quotas. Year-end deals could even extend into next year due to an inventory glut, analysts say. 

“Dealers are looking to move a lot of inventory in December so they can meet their targets for the year,” said Tendayi Kapfidze, chief economist at LendingTree. “If they’re promoting aggressively, then prices can be more beneficial for buyers compared with other months.” 

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