Timing a Car Purchase

There are lots of "Best Times to Purchase a Car" write-ups on the web. They usually offer mechanical rules for buyers about when to initiate a new car transaction. While these chronology suggestions are broadly valid, and are repeated here, often a principal concept is missing.

The best time to buy an automobile, whether it's the latest halo roadster from a car dealer or a clunker from a private party, is when supply is high and demand is low.

Supply is car dealer inventory, and demand is every other customer besides you.

This will be hard to reduce to a set of black-letter timing rules.

When it comes to timing a vehicle acquisition, one size seldom fits all. Supply and demand will vary seasonally by manufacturer, model, and region.

The key to any successful deal is the relative degree of desperation of the parties. Somebody has to be motivated to buy/sell more than the opposing party. The standard automotive press rules about when to buy are based on periodic weaknesses in the seller's hand.

So my first and most important rule is: schedule your transactions so you won't be the desperate party!

Too many buyers wait until their locked up engine is refused warranty coverage to realize they needed to be looking ahead.

Never wait until your old conveyance has an appointment with eternity to start working on the next deal.

I say the optimum time to purchase a car is when you don't really need one. When your last ride is paid off and still runs perfectly, start saving for the motorcar of the future.

Approaching the seller with a loan-upside-down jalopy to trade and a weak credit rating will destroy any benefit a timing strategy could provide.

The Big Clock: Macroeconomics

Historically car demand rose and fell, over a period of years, with what was called the business cycle. The rule for understanding the macro cycle was: "Don't fight the Fed."

The Fed (Federal Reserve Banking System) sets interest rates. The rule meant that when interest rates were rising, sensitive sectors, like housing and autos, would soften.

Today things are different, with governments worldwide boosting the money supply in a race toward globalization.

But higher interest rates still raise monthly payments and slow automobile sales.

After years of artificially low interest rates in Japan and the US, the Fed raised rates something like 15 times, leading up to very flat US vehicle sales for 2006-2007.

The spring of 2008, with very soft car sales and a panicked Fed chopping interest rates, is a great time to be a buyer.

Economic shocks, like September 11th and Hurricane Katrina, create insecurity which hurts car sales. When the event is something short of full scale war, this is a buying occasion.

Automotive Market Trends

Model demand has its own independent timing, and one key determinant of demand is fuel price.

As gas prices rose in the summer of 2006, manufacturer incentives on trucks and SUVs rose with them. A paradigm shift toward smaller cars and crossovers began. SUV's, especially the midsize models sold to the middle class, and light trucks, experienced a glut.

This has created a crisis for the weakest automakers, notably Chrysler, where profits were structured around big-rig-wannabe pickups.

Dealers pay interest on their real estate and vehicle inventory: this is known as "floorplan costs."

The more cars on the lot and the longer a particular car sits there, the lower the profit on the eventual sale.

Used car dealers generally give a car 30 days to sell, then take it right back to the auction it came from rather than cut a deep deal.

New car vendors must make deals to move their stale floorplan.

High-demand vehicles like Mercedes-Benz, Honda, and BMW seldom have big seasonal fluctuation. These builders rarely make more cars than they can sell.

During the 2006 gas panic, the popularity of Honda's recently restyled Civic soared. A limited supply of Civics lowered US inventories to mere 2 days supply. Showing up at a given time of the month wouldn't have shaved a dime off the deal.

At that same time, Daimler-Chrysler executives chose to keep the factories humming, dumping thousands of unsold 2006 "sales bank" models on hapless dealers. Any day was a good day for buyers to show, but those who didn't bargain effectively took risks on this inventory surge.

Vans, both minivans and full-size vans, have been a declining segment during the past couple years. Record sums of incentive money supported minivan sales as soccer moms fled to crossover CUVs or downsized to save gas. For the overbuilt mini-van segment, every day was deal day.

For the duration or rebates/incentives on a vehicle, purchasers can assume the vehicle is not selling quickly enough to reduce profit eating inventory levels.

edmunds.com is a good source for current incentives and rebates.

Rebate levels for the model being researched and others in the brand give a good index of the desperation of the seller.

Product Life Cycle

The design cycle, ranging from 3 to 7 years depending on builder, is the interval between upgrades and restyling of a particular car model. New model roll-outs with big ad budgets will sometimes build huge demand.

Pontiac Solstice, a sporty halo model, generated months-long waiting lists and carried additional dealer markup stickers for the whole model year. Likewise the hybrid green-fad generated big premiums.

Forget end-of-period closeouts on these hot buggies.

A good example of a slow selling lame duck is the 2003-2007 Chevy Malibu. With a restyled 2008 Malibu, which received a big investment to become GM's Camry fighter, getting lots of attention, '07 Malibus could see some price softening.

Buying last years style does involve additional depreciation risk, so it's not for the quick to flip.

When car models approach the end of their life cycle, several things happen. Sometimes the manufacturer abruptly announces that the car will be discontinued. Other times there is a gradual transition to rental fleet sales and inventories build. Again there are bargains, but also the worst depreciation of any new car. Keep 'em 175K miles? No problem.

The Circle Game: Annual Cycles

Historically there was a definite model year timetable. The cycle began with a two week assembly line shut-down in late summer to retool the plant for the next year's production. The new year's cars would be kept under wraps until the big day, which was hyped like Christmas and the 4th of July.

The timely advent of robots and automation has relegated this practice to antiquity. Today's flexible production can be programmed to build two models simultaneously, allowing new model introductions as fast as product development can have them ready. With new product the key to survival for many builders, they won't wait until September to introduce "next year's model."

Sporty cars, ragtops, and roadsters exhibit very large seasonal demand swings, with the sharp spring price peak coming earlier and earlier each year.

Mid-size passenger sedans exhibit the least seasonal and regional price movement, while the luxury market shows the greatest relative price stability. SUVs and trucks, especially all-wheel-drives, tend to peak in the fall and winter.

But despite the tides of change, and subject to the niche market exceptions noted above, the best time of the year to sell a car is in the late spring and summer.

Late spring is income tax refund time. Shoppers will use refund anticipation loans as down payments.

This spike in demand creates the worst occasion for purchasing a vehicle.

November through the end of December are considered optimal, with January and February close behind.

Late December is often cited as the timeliest period for a new vehicle, as customers are all at the mall and dealers seek to avoid taxes on inventory carried over into the new year.

Any holiday, especially the extended ones when everybody leaves town, creates a sales slow down.

Days of the Month: Dealer Dynamics

Best days of the month for auto buying tend the 16th through the 31st. Right at the very end is better, as manufacturer-imposed quotas must be met and bonuses are at stake. Advertising tends to pick up as the last day approaches.

Salespeople are frequently assigned a monthly quota, and sales managers may be just a few sales short of goals.

Detroit manufacturer dealer incentives, increasingly designed to drive the dealership consolidation, favor larger dealers. Smaller shops may be desperate to meet quotas, as they risk being deprived of hotter selling models.

Floorplan costs drive month-end deals. Dealers and sales managers will be looking at their oldest inventory. Often these cars will be ugly ducklings; unpopular models, colors, or option combinations. Buyers seeking end of month deals should avoid being steered to something unmarketable.

Days of the Week

I prefer to do the looking on Sunday morning, when the dealership is closed.

Several Houston dealers, with security onsite, will leave doors unlocked on Sunday so customers can carefully examine cars without sales pressure.

Weekends and Monday nights are the busiest times of the week at most car dealerships.

Frequently sales promotions are targeted for the week's traffic peak. Most dealerships are open late on Saturday and Monday nights.

Often the dealership will offer higher bonuses to the sales force on weekends.

Customer sales satisfaction is lower on the weekend, when it takes an average of 22 minutes longer to purchase a car, according to JD Power.

But that was the average. At some Toyota lots, there are more customers on a nice Saturday morning than sales staff can handle. The Finance office becomes a bottleneck, and the showroom backs up with customers waiting on paperwork.

This peak in demand is a bad time to ask a salesman to go on an extended test drive or try to cut a tight deal.

Early and Late: Here Comes The Night

Auto dealerships generally stay open until the last customer is gone. The sales manager and the finance person will be stuck waiting on the buyer to make a move.

Some say this is an unequaled moment to cut a deal, as the staff will be thinking of whatever it is that motivates salespersons after work. I have never tried this, but I have read numerous forum posts about rudeness, lost keys, and other dealer desperation ploys after hours.

Staying late and then having the deal fall through is a car salesperson's supreme agony.

Rain or Shine

So light showroom traffic is a condition to be satisfied before the purchase.

Whenever few people are out and about, just after a heavy rain, for instance, is an opportune moment.

Worse weather may mean a better deal.

Desperado you ain't gettin no younger, so don't set foot on a carlot if you're hungry, tired, or ill.

Never begin to negotiate a deal when you're pressed for time.

Houston, Texas, July 2007