Car Shopping For Last Year's Model

By Automotive Staff | August 20, 2007
For those of you who know the seasons for car buying, you probably know that we are near or actually into the model-year closeout time.This is when dealerships offer incentives to attract you in to buy a 2007 model year car so that they can make room when the 2008 model year cars are delivered. So, the question this time of year in many households is: Would taking advantage of sales of 2007 model year cars be worth the savings? Well, it depends on the car. According to Forbes Auto, many car manufacturers not known to have a reputation of offering incentives to purchase their cars are now offering such deals. Two that come to mind are Honda and Toyota. It has been reported that Honda offered average incentives per car sold in July of about $1,146 versus only $896 in July 2006 while Toyota's average incentives per vehicle was about $1,492 in July in contrast of an average incentive per vehicle of $1,009 last year.
Of course, incentive programs are in the eye of the offerer. Honda and Toyota are offering discounts in the form of lower leases while the domestic car makers -- Ford, GM, and Chrysler -- are used to giving cash rebates. But that's just price. If style is important to you, then you may want to consider a model that has been redesigned either this year or last year. Pundits say that it is less likely that the next model year will look any different. And it could mean that some additional money stays in the wallet or purse since new designed models are often sought after and, as a result, hard to find. Keep in mind that when you buy a model year close out, you are doing a dealership a great favor. As we said, you are opening up space in the lot for the new model year cars. But you are also saving them a whole lot of money that they may otherwise have to invest in the older cars that stay on the lot. You see, dealers borrow money to pay for the cars that remain on the lot. For every day that car doesn't sell and remains on the lot, the poor dealer must pay interest charges called 'floor plan' interest. And if the interest rates are rising, well, you get the idea.... In 2006, the interest costs for dealers was about $160 per vehicle sold in 2006. That was double the costs in 2005. Timing is also a major issue. The longer a car stays on the dealership lot, the more drastic the dealer gets to sell it. So you may be able to find even better discounts if you wait until the fall. So now you have a better understanding why your friendly neighborhood car dealership is being so friendly and neighborly. And that goes for the automakers too. They are the ones who are presenting their dealers with incentive assistance. But there are still some disadvantages to consider. The new model year style of the car you are considering buying as a closeout may have gone through a major restyling. And you may like that restyling better than what the older version shows. Moreover, the resale value of the newer model is better than it is for the older model. If you are thinking about taking a lease incentive for a closeout model, you need to consider the residual value of the car. And it is the newer car that has the better residual value. So, if savings now outweighs styling and residual values, then all we can say is happy shopping.