6 key ques­tions about buy­ing a car dur­ing the pan­demic

Chicago Sun-Times - - DRIVE HOME - BY NATHAN BOMEY

Look­ing for a deal on a car in the midst of the pan­demic? There are some to be had, but don’t ex­pect ev­ery­thing to be on sale just be­cause the econ­omy is sput­ter­ing.

Au­tomak­ers di­aled back dis­counts in June af­ter ramp­ing them up in May, and in­ter­est rates have ticked up­ward af­ter reach­ing his­toric lows.

How­ever, deals are still bet­ter than this time last year.

Here are an­swers to six key ques­tions about new- and used-car shop­ping.

Are deal­ers clear­ing out last year’s mod­els?

Are deal­ers try­ing to sell off 2020 mod­els be­fore the 2021 cars and trucks ar­rive? Not yet.

About two months of down­time at most man­u­fac­tur­ing plants due to COVID-19 means that deal­ers don’t have a sur­plus of ve­hi­cles.

“While auto sales are down and will con­tinue un­der pres­sure through the year, there was also a sig­nif­i­cant loss of pro­duc­tion from March through May,” IHS Markit au­to­mo­tive an­a­lyst Stephanie Brin­ley said in an email.

In fact, au­tomak­ers are de­lay­ing dozens of new mod­els while they sell last year’s.

Are prices drop­ping?

Not so much.

The av­er­age new ve­hi­cle sold for $36,332 in June, which was up 3.2% from a year ear­lier, ac­cord­ing to car-re­search site TrueCar.

That in­crease is at­trib­ut­able to a shift­ing mix of sales from cheaper pas­sen­ger cars to more ex­pen­sive SUVs.

Over­all prices were also about the same in June as they were in May.

Are au­tomak­ers in­creas­ing dis­counts?

Some­times au­tomak­ers sell ve­hi­cles at a high sticker price but pro­vide dis­counts, of­ten re­ferred to as in­cen­tives, to make the ef­fec­tive price much lower.

For now, dis­counts are up year over year, but down com­pared with ear­lier in the pan­demic as deal­ers look to pre­serve prof­its.

In­cen­tives per ve­hi­cle av­er­aged $4,121 in June, up from $3,773 in June 2019, but down from $4,142 in May, ac­cord­ing to TrueCar.

Where are new-car deals pop­ping up?

Some au­tomak­ers are rais­ing new-car in­cen­tives more than oth­ers.

Honda, which typ­i­cally spurns in­cen­tives, in­creased dis­counts by 43.8% in June, com­pared with a year ear­lier, ac­cord­ing to TrueCar.

Volk­swa­gen Group, which in­cludes VW, Audi and Porsche, has ramped up in­cen­tives by 27.8%. And Daim­ler, which makes Mer­cedes-Benz, has in­creased them by 24.9%.

But some au­tomak­ers have taken their feet off the gas pedal.

For ex­am­ple, Hyundai’s dis­counts have fallen by 10.1%.

“In­cen­tives are not be­ing wielded as a way to prop up” sales, Brin­ley said. “In­stead, they are be­ing used as part of a broader strat­egy and tar­geted for spe­cific weak spots.” For ex­am­ple, dur­ing the first week­end of July, Audi dis­counted the A3 sedan by 11.7%.

Chevro­let dis­counted the Mal­ibu sedan by 13.9% and Ram dis­counted the Ram 1500 pickup by 10.9%, ac­cord­ing to TrueCar.

What about used cars?

Dur­ing the pan­demic, used-car prices have been af­fected by sev­eral fac­tors, in­clud­ing an in­flux of ve­hi­cles sold by car-rental firm Hertz, which filed for Chap­ter 11 bank­ruptcy pro­tec­tion.

Over the last 90 days, used-car prices have fallen by 1.7%, ac­cord­ing to car-buy­ing site CarGu­rus. But over the last 30 days, prices have in­creased 0.8%.

Look hard enough and you might find a great deal.

For ex­am­ple, the 2018 BMW 3-se­ries has dropped 28% since a year ago, but the 2018 Chevro­let Ca­maro has dropped only 3.7%, ac­cord­ing to CarGu­rus. The 2018 Ford Mus­tang has fallen 10.2%, while the 2018 Chevro­let Corvette has de­clined only 6.6%.

“Those shop­pers in the mar­ket for a used ve­hi­cle should be mindful that used ve­hi­cle prices are start­ing to in­crease as com­pared to the be­gin­ning of the year be­cause deal­ers are try­ing to re­plen­ish sup­ply for pop­u­lar used ve­hi­cles,” Ge­orge Au­gus­taitis, direc­tor of in­dus­try an­a­lyt­ics at CarGu­rus, said in an email.

Deal­ers are look­ing to re­plen­ish used cars as cost-con­scious Amer­i­cans choose not to buy new car mod­els.

Can I get a good deal on a loan?

Prob­a­bly.

Al­though credit con­di­tions have de­te­ri­o­rated for some buy­ers due to the hob­bled econ­omy, if you could af­ford a new ve­hi­cle be­fore, you can prob­a­bly still get a loan to­day.

And in­ter­est rates have plum­meted in re­cent months, hit­ting an av­er­age of 4.2% in June, down from 6% a year ear­lier, ac­cord­ing to car-re­search site Ed­munds.

Also, 0% fi­nanc­ing of­fers are at “near-record lev­els,” rep­re­sent­ing 24% of sales in May and 19.4% in June, ac­cord­ing to Ed­munds.

But Ed­munds cau­tioned buy­ers to think hard be­fore spread­ing out new-car pay­ments over sev­eral years.

“At 0% fi­nanc­ing, a six- or seven-year loan could make sense for a re­spon­si­ble buyer, but for many Amer­i­cans, re­ly­ing on longer loan terms to jus­tify their big­ger ve­hi­cle pur­chases could put them at greater risk for neg­a­tive eq­uity in the fu­ture,” Ed­munds an­a­lyst Jes­sica Cald­well said in a state­ment.

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