May 17th, 2023 7:00am PDT
Unveiling the Truth Behind Memorial Day Car Shopping: Sales or Sales Pitch?
(PenniesToSave.com) – Memorial Day weekend is often known as a time when the automotive industry capitalizes on promotions and marketing campaigns to drive sales. However, does this holiday truly offer a favorable opportunity for consumers looking to purchase a new car?
Just like mattress companies and department stores, automakers and dealerships take advantage of holidays to attract buyers with special offers. While it can be difficult to differentiate genuine sales from marketing strategies, car buying holidays such as Memorial Day and Christmas often showcase enticing deals that are worth considering. Additionally, the appeal of upgrading to a new vehicle for the summer season is enticing for many Americans.
However, it is important to acknowledge that purchasing a new car during this time can still be expensive. The average cost of a new vehicle has increased from $46,531 to $48,275 in the past year.
Following recent rate hikes by the Federal Reserve, Cox Automotive reports that the average interest rate for new vehicle loans has soared to over 9.5%. Consequently, the typical monthly payment has surged to a substantial $766. Compared to a year ago when the average monthly payment was at a comparatively lower $698.
Shifting Car Buying Landscape: Challenging Times for Buyers
Historically, May has been considered a prime time for purchasing cars. However, the traditional rules of finding car deals have been upended since the summer of 2021 due to several factors: increasing demand, decreasing supply, and pervasive inflation. As a result, prospective car buyers are encountering limited options and the necessity of paying prices higher than the sticker price for new vehicles.
In previous years, Memorial Day promotions would often include attractive deals on leftover cars from the previous model year, as dealerships sought to increase sales by month-end. However, this year, it is difficult to find older model year vehicles at this stage of the cycle. This scarcity is primarily due to ongoing production challenges and historically low vehicle inventories.
As Memorial Day approaches, buyers are facing additional challenges due to high interest rates. In order to secure the lowest APR special financing deals, customers often have to opt for shorter loan terms. This means higher monthly payments that many buyers simply can’t afford. While the average duration of a new car loan is around 70 months, the promotions mentioned earlier typically only apply to 36-month loans. According to Edmunds, there has been an increase in the number of buyers, approximately 12.3%, who are choosing these shorter loan terms in order to avoid excessive interest charges. However, it’s important to note that most customers are still opting for longer loan terms in an effort to reduce their monthly payments.
The current state of the new car market demonstrates a growing disparity that favors financially well-off buyers. Those with good credit have an advantage, as they can secure lower loan rates, which ultimately saves them a significant amount of money over time. By making larger down payments or opting for shorter finance terms, these buyers can greatly reduce their overall loan costs. Conversely, individuals with poor credit scores may find themselves paying at least $10,000 more in interest throughout the duration of their loans compared to those with higher credit scores.
Gradual Return of New Car Incentives: Better Deals on the Horizon
After experiencing a decline during the pandemic, incentives for new cars have been slowly making a comeback. While manufacturers haven’t yet reached pre-pandemic incentive levels, the improving vehicle supply has resulted in better deals. In fact, April marked the highest point in a year for car incentives. According to Kelley Blue Book, the average incentive in April was $1,714, which is equivalent to 3.6% of the transaction price.
The increase in incentives indicates that car buyers might discover more attractive offers during Memorial Day sales, surpassing previous events like the December holidays. Nonetheless, it’s essential to recognize that the current average incentive of 3.6% falls well below the 9% incentives provided in April 2019.
Car dealerships often start advertising Memorial Day sales about a week before the actual holiday. However, some deals may be available throughout the entire month of May, giving consumers an extended period to take advantage of these offers.
Although Memorial Day weekend offers great opportunities for finding financing deals on holidays, it’s important to note that the auto industry also promotes special offers and promotions during other upcoming holidays like the Fourth of July and Labor Day.