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The ‘absolute worst’ of times for car buying are over

Car shoppers should have an easier time finding good deals this Memorial Day weekend than last.

Dealerships are sitting on a glut of 2023 vehicles, leading to steeper discounts and lower interest rates than usual, the auto research firm Edmunds said Wednesday. The share of ’23 models available at dealerships nationwide has reached 6.8%, up from 5.4% last year for 2022 models, it found.

Faced with higher inventories, automakers and dealers are offering an average discount of $4,147 on last year’s models, Edmunds said — more than double the $1,919 average for ’22 models a year ago.

The promotions could bring some relief to consumers pummeled by the higher overall costs of car ownership, including from insurance and maintenance. Those expenses rose to an average of $12,182 for new vehicles, up from $10,728 in 2022, according to AAA — squeezing buyers long after driving off the lot.

The 2022-23 market “was one of the absolute worst times to buy a vehicle,” said Ivan Drury, director of insights at Edmunds. “There was no inventory. People were paying heavy premiums and there were no incentives on them.”

Many drivers held on to their existing rides longer as a result. The age of the average vehicle on U.S. roads hit a new record of 12.6 years this year, S&P Global Mobility said Wednesday.

But now, Drury said, “we are back on track.” The current wave of discounting adds to signs that the market is returning to normal after pandemic supply-chain issues scrambled vehicle prices, he said.

The price cuts aren’t across the board, though.

For buyers who’ve held off snagging their ideal vehicle — say, an SUV tricked out with entertainment features for a big family — Memorial Day deals might make for an ideal time to pull the trigger, Drury said. On the other hand, those looking for more stripped-down, “point A to point B” vehicles, such as ’23 sedans under $35,000, might see fewer options because they’re being bought up so quickly.

“We are definitely seeing a return to the old car business,” especially surrounding holiday sales weekends, said Scott Kunes, chief operating officer at Kunes Auto and RV Group, which operates a network of more than 40 dealerships in the Midwest.

“This market has flipped from a seller’s market to a buyer’s market, where not only are manufacturers incentivizing vehicles, but we as dealers are trying to find ways to incentivize vehicles moving off the lot quicker,” he said.

Kunes said his dealerships averaged a 64-day supply of vehicles in April 2023. That inventory metric surged to 135 days as of last month. As the Kunes network looks to clear out overstuffed lots, heavy discounts are piling up in two areas, he said: Big Three autos — those from Ford, General Motors and Jeep maker Stellantis — and electric vehicles.

Stellantis had the largest share of ’23 vehicles on lots as well as the deepest average discount on those models, Edmunds found. Buyers can take advantage of the automaker’s Memorial Day deal on the ’23 Dodge Challenger SXT, which offers a $3,750 cash rebate. (California residents can combine that with local incentives, bringing savings up to $6,750.)

 As for EVs, “we’re having a very difficult time” selling them, Kunes said, as demand has slowed. That’s frustrating for dealers, but it could give buyers a prime opportunity to combine manufacturer and dealer discounts with federal tax credits to take advantage of some of the lowest EV prices ever seen. There are plenty of generous EV leasing options as well, Kunes added.

On the used car front, gone are the pandemic-era days when they cost as much as or more than new models — which had encouraged some drivers to trade in 2-year-old cars at inventory-starved dealerships for even newer, shinier sets of wheels. Used vehicle prices fell more steeply than nearly any other category in April’s consumer price index, falling 6.9% from April 2023 to last month, behind only transportation services (11%) and hospital services (7.7%).

New vehicle costs have mostly held steady, inching down only 0.4% year over year in April. Factoring in auto loan rates, the average monthly payment for a new vehicle actually increased 1.8% to $762, according to Cox Automotive.

Though the average auto loan rate improved last month to 10.22% — a nine-month low — Cox found the average transaction price jumped by 2.2% to $48,150 after three straight months of declines.

That’s why it’s crucial for buyers to do their homework, said Drury: Reach out to dealerships to find out about discounts and incentives ahead of time, and calculate any monthly payments before signing on the dotted line.

After the industry resolved most of its supply chain issues, he said, “now we have the parts, but the problem is the price to finance these vehicles.”

Many auto manufacturers are turning to incentivized financing to help dealers move vehicles, said Kunes. He pointed to Ford’s Flex Buy program, which lowers qualified buyers’ monthly payments by up to 18% for the first three years and then increases them to satisfy the balance.

“Incentivized rates are a great thing for consumers to look for, especially in this high-interest climate,” said Kunes. “It can save you more money over the term of the loan than maybe another model that has a $1,000 rebate.”

But experts caution buyers who like to switch vehicles often: Even with the best holiday deal, that recent ’23 model will still depreciate faster than a current-year car, leaving you with low residual value at trade-in.

“If you are not someone who really drives it till the wheels fall off, do not buy that 2023,” said Drury. “You can’t drive your car another 5,000 miles and the value goes up. Those days are done.”

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