Personal Finance

Softer auto sales means Memorial Day weekend comes with deals for car shoppers

Key Points
  • The average length that cars sat unsold on dealer lots in April was 75 days, about 6% higher than last year.
  • Some auto manufacturers are offering incentives on certain makes and models.
  • Many of the deals are on SUVs and trucks, which are sitting on lots longer than the average.

With auto sales slowing, car shoppers are likely to find dealerships eager to move inventory over the Memorial Day weekend.

While the holiday always marks a big sales push, this year it comes as cars are sitting on dealer lots longer before getting sold. The average in April was 75 days, about 6% higher than last year, according to auto-research company Edmunds.

"The longer a car sits on a lot, the more it costs the dealer," said Matt Jones, senior consumer advice editor at Edmunds. "This is an opportunity for them to do some spring cleaning, and they'll be pushing cars."

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Some of the best deals are expected on SUVs and trucks, which spent more time unsold than the average, Edmunds data show. In April, midsize SUVs took 76 days to sell, compared to 63 days a year earlier. For large SUVs, it was 82 days, compared to 68 days in April 2018.

While manufacturers are generally less generous with their discounts than they were a year ago, incentives are around for the Memorial Day sales push.

For example, Dodge is offering $4,250 off 2019 Caravans through June 3 and the 2019 Kia Sorento comes with discounts of $3,000 to $5,000 through July 1, according to Cars.com.

Nevertheless, consumers should expect overall higher prices on new cars. The average is $36,700, Edmunds data show. That's up from about $36,100 a year ago and $32,200 five years ago.

The cost of financing a new car

Aspect of loan Apr-19 Apr-18 Apr-14
Length (months)69.4468.9966.51
Monthly payment$553 $533 $474
Amount financed$31,914 $31,181 $27,580
Interest rate6.28%5.58%4.40%
Down payment$4,383 $3,980 $3,564
Average transaction price$36,718 $36,094 $32,206

About 35% of new cars are priced below $30,000, compared with 54% in 2012, according to a recent Cox Automotive report.

At the same time, however, consumers have shifted their preference to pricier SUVs and pickup trucks and away from lower-cost sedans and smaller cars. Improved technology and safety features add to the price, as well.

And, consumers are stretching out the length of auto loans to afford new-car purchases: As of April, the average loan length was closing in on 70 months — two months shy of six years — up from about 66.5 months five years ago.

If you do end up looking at a car that comes with a manufacturer's incentive, remember that negotiations with a dealership should be based on the reduced price, said Kelsey Mays, senior editor of Cars.com.

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Mistakes to avoid while car shopping

"That should be your starting point," Mays said. "That incentive is a factory-to-consumer discount when it's advertised by the manufacturer, so it's not costing the dealership anything."

Consumers also are likely to find deals on used cars, said Jones at Edmunds.

"So many leased cars are coming back to market that it's driving down the price of three-year-old cars," Jones said.

The price gap between new and 3-year-old used vehicles has been growing. Last year, buyers saved an average of $13,700 by choosing a used car instead of a new one, compared with about $11,400 in 2013.

Regardless of whether you're looking at a new or used car, here are some tips to help the buying process go smoothly.

Assess the market

It's worthwhile to do some research online before buying. If you have any flexibility, you might discover a great deal on a car similar to the one you were thinking about.

You also might find a difference in price among local dealerships on the same car. Or, you might find a dealership that has a special deal going — say, picking up the sales tax on your purchase — that could reduce your overall cost.

Get preapproved financing

Unless paying with cash, you should get preapproved for a loan from a bank or credit union. While there's no obligation to use the preapproval, you'll at least be armed with a comparison when the dealership offers its loan terms.

"If what a dealer can offer beats your preapproval, then great," Jones said. "If not, you still have the preapproved loan with the better interest rate."

Generally speaking, the better your credit score, the better terms you'll get.

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Collect key documents

Make sure you're armed with all the documents you'll need to complete a sale: your driver's license, the title and registration for your existing car (if you're trading it in), and proof of insurance.

If you are making a down payment, call the dealership ahead of time to find out what forms of payment are accepted.

Beware the add-ons

Once you get to the nitty-gritty of a deal, you might be offered an optional feature or service contract, such as an extended warranty.

Make sure you do the math before you sign on the dotted line — not only to understand the extra monthly cost, but also to know what you would pay over the life of the loan for the add-on.

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