By J.D. RuckerAt least two or three times per week, people ask me if it is better to buy the newest model available or last year's leftovers when considering a new car. My standard response is "Yes".
Before they get too upset, I qualify my response by saying that their individual circumstance makes all the difference in determining their best course of action. Here are the top things to consider before making a decision.
What is the bottom line price difference
"Clearance" is a state of mind. It's a buzzword. It leads consumers in most situations to believing they are getting the best possible deal whether they are buying a Toyota or toilet paper.
Before finding out how much you can buy last year's models for, find out the best deal on a new model. In many cases, there just isn't much of a difference.
Consider the Lincoln Mark LT. As of January, 2007, the '06 model has a nice $5,000 in total rebates and around $5,100 in negotiated discounts. It sounds like a whopper of a deal. Most Lincoln Dealerships have used this to sell off their remaining inventory.
In the same time period, the '07 models have $3,500 in rebates and around $4,800 in average negotiated discounts. On a $40,000+ vehicle, is the $1,800 in savings worth an entire model year? Perhaps! Read on.
How soon will you trade/sell your vehicle
For many, this should be the most heavily weighted factor. It all comes down to trade/selling value when you're done with your vehicle.
Short Cycle Buyers (1-3 years ownership before replacing) -- You may save a good bit of money up front, but you may lose the money you were "saving" and sometimes even more if you go for the older model.
The reason for this is that for most vehicles, over half of the depreciation occurs in the first 1-3 years. If you are buying today and trading/selling within 3, the 2006 model will be worth a lot less than the 2007. With the Mark LT example above, the customer may save $1,800 now, but in 2009, their '06 will be worth $3,000-$4,500 less than the '07.
Long Cycle Buyers (5+ years) In 2012, an '06 Toyota Camry with 80k miles will be worth nearly as much as the identical '07 Toyota Camry with 80k miles. Since there wasn't a significant difference in style or features between '06 and '07 on the Camry, the miles will play a more important role in determining value than the year model once you get past 5 or 6 years old.
Short Cycle Buyers are better off going with the newer model if there isn't a huge price or incentive difference (which depends on make and model). Long Cycle Buyers should get the older model unless there are major differences to consider between the two.
Customers who are stuck in the middle (3-5 years) will definitely want to consider more factors.
What's New
The '06 Honda CRV is a nice SUV by most standards. Compare it to the '07 CRV and you would think you switched brands.
Do your research and find out what is new. It doesn't have to have a huge body-style change to offer something worth the extra money. Chevy is currently boasting that their 2007 Silverado is drastically improved. Are the improvements worth the $4,000 more that you’ll pay for it?
Selection
The problem with last year's leftovers is that they are leftovers for a reason. A new vehicle that sits on a lot for a year or more may have something wrong with it. Whether it's the wrong options configuration, the wrong color, or the wrong engine, there's most likely a valid reason for it to still be sitting there.
With that said, do not assume that the vehicle perfectly fitted for you isn't waiting for you to find it. Take a shot. Find a dealer who you want to work with and who will do a search through their "central inventory" of dealers with whom they can trade. One never knows unless one tries.
The Interest Rate Trap
Very few things sound better when buying a vehicle than "zero percent financing". It has become so common, especially for last year's clearance models, for manufacturer finance divisions to offer 60 or even 72 months at a low, low rate.
Before you jump on the rate, please refer to the first tip on buying cycles. 0% only reaches its fullest potential for those who go the length of the note before trading.
Customers regularly pass on $3,000+ rebates to take the financing rate because a finance manager told them the payments would be lower and they would save $4,000+ in interest. This can be misleading. If you are a short cycle buyer, you may only save half of the money promised because the interest saved after 1-3 years will most likely be less than the rebate you passed on.
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Some final tips:
Look for the window. There is usually a short time period with every make and model when the all of the stars align for the previous model year. This is the time when the rebate difference is greater, the current model year discounts are lower, and the selection is still good. If you are one who only buys previous model year vehicles, keep in touch with your dealership to determine the absolute best time to get that vehicle (other than the standard "right now" response from many dealers).
Order if you can. Patience pays off when purchasing a vehicle. Most dealerships will sell ordered vehicles for less than ones on the lot. More importantly, custom ordering allows you to get the options you want without paying for options you didn't want. Most manufacturers are now offering the "better" incentive option on orders, which means that if you order one today and the incentives change before your vehicle arrives, you'll be able to pick which incentive works best for you.
Keep researching. If you're reading this, you are already taking advantage of the greatest weapon in your car-buying arsenal -- the Internet. Check the main sites like Kelley Blue Book . Check the manufacturers' sites. Send emails to dealers and check out their websites. It's truly a buyers market out there for those who are willing to put in a little effort and a lot of common sense.
I hope it helps.
