Getting a new car during recession?

Should I get a new car during this recession?

The truth is that no one can answer that question better than you. No one knows your finances and automotive needs better than yourself. If you are thinking about purchasing a new car, and you aren’t sure which way to go, here are a few points to consider.

The decision to buy a new car is always based on two things, want, and need. Before you go into a dealership, know which factor is motivating you. (There is nothing wrong with buying a new car just because you want one, as long as you can afford it!) Don’t select a model that is not suitable to your wants and needs just because it’s cheaper. If you do, you will be sorry for it later. It’s always good to research a few models before you shop, and rebates and incentives on all models are available online. Keep in mind while searching the internet that rebates are based upon where you live. For instance, if Sunnytown, California has a lower rate of unemployment than Middletown Indiana, chances are the rebates are going to be higher in Middletown, Indiana.

An important point to remember, due to the financial crisis dealers across the country are desperate to reduce their inventory. They are worried that manufactures will not be able to pay on the floor plan. Here is how a floor plan works. Let’s use the fictional dealership named Quality Cars as an example. Over the course of the year, Quality Cars has ordered 500 cars and trucks from the manufacturer. When a vehicle sells, a preset amount of money goes back to the manufacturer, and whatever money is left over goes to cover expenses such as commissions, advertising, and operating expenses. At the end of the year, Quality Cars has 400 vehicles on the lot. The manufacturer then pays the dealership for the remaining vehicles, and when the vehicle eventually sells, they get their money back. Quality Cars uses this money to pay the huge property taxes on the vehicles. If something were to happen where the manufacturer doesn’t pay on the floor plan, the dealer is still stuck with paying the property tax. If Quality Cars doesn’t have enough money to pay the taxes plus operating costs, they will file for bankruptcy and go out of business. To keep this from happening, Quality cars needs to sell as many vehicles as possible, which translates into a huge savings for you, the customer.

It’s not just new cars that are affected by the financial crisis; used cars are overstocked as well. When a car’s lease is up, it goes back to the bank, which in turn sells it back to a dealership through an auction. The amount of money the bank has invested in the vehicle was determined at the time the vehicle was leased. Due to the financial crisis, used car values are not where banks thought they would be, and they are now overstocked and losing money. To compound the problem, repossessions are up as well. Customers now have a chance to get a great deal on a used car, and there is a huge selection of them to choose from.

Manufacturers are also offering low finance rates on new cars. Most often, a customer has to give up part of the rebate for the low rate. It’s a good idea to check the rate at your own bank. If it’s lower than the rate the dealership is offering with the rebate, then go with your bank’s rate. The dealership then might “work” to beat your banks rate. Dealerships receive commissions when they use their own banks, so they will want to keep your financing “in house”. If it’s a new car you are buying, you should consider buying gap insurance for your protection. It’s also important to research insurance rates on the car you are interested in before making a purchase, so you don’t put yourself in a tough spot financially.