In the last tip we spoke briefly about new cars in the market for which supply exceeds demand. When supply is relatively high and demand relatively low, the price falls – that’s fundamental to economics, and just as valid for new cars as it is for iron ore, or stocks and bonds. This is a very happy proposition for you if you’re thinking about buying a new car
For you, the fundamental question is: How do you tell if the new car you’re considering buying is oversupplied? Here are the telltale signs:
First, the most important indicator is whether the new car you’re thinking about buying is in stock now at many dealerships. See, if you’re a carmaker, production has to equal sales; otherwise you go bankrupt. Therefore, over-supplied new cars get distributed, they end up in dealership stock. Dealers are ‘incentivised’ to sell them. Getting a discount in this situation is easy.
(The converse proposition is also true. When the terrible tsunami and earthquake hit Japan in early 2011, Toyota, the world’s largest carmaker, hit a major speed bump. Supply of many Toyota vehicles was sidelined for several months. Dealers simply could not secure new Toyotas to sell. In this situation, getting a discount is unthinkable.)
The second way to see if particular new car models aren’t selling very well is to look at special promotions, and heavy advertising campaigns. New cars are often advertised heavily when they are first launched, but this quickly tapers off. Additional advertising promotion often indicates poor sales performance. (There’s no need to advertise a new car when buyers are queueing up to purchase it.) In particular, advertising involving discounts, ‘limited edition’ models, as well as ‘free’ extras (like accessories or roadside assistance) is a dead giveaway that a particular new car isn’t selling nearly as well as the marketing department had hoped. So is so-called ‘below the line’ promotions – things like giving cars away for charity. These are never – never – the market’s top sellers. Instead they’re almost always the cars which car companies are clutching at straws to promote, in the hope of stimulating even a small amount of additional consumer interest.