Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Car shopping

Car dealers pushing deals to make room for 2012 models Add to ...

Just for the moment imagine you are a contented car dealer enjoying the last days of summer in August. Your general manager is up at the cottage and you’re running a skeleton sales crew because – well, because your inventory of 2011 models is pretty well under control and no one, or at least almost no one, buys a new car in the Dog Days of August.

And then on the horizon you see a tractor trailer laden with new 2012s. It’s not alone, either. There are three more right behind it. These are the 2012s you ordered in May, before you even knew the final pricing for 2012 (though in this sales climate it’s axiomatic that if there is a price increase, it won’t be much).

“Consider the psychology of the dealer,” says industry veteran Paul Timoteo, president of the pricing service www.carcostcanada.com. “The 2012s arrive in late August and it’s scramble time. The dealer principal calls his general manager at the cottage and says, ‘We gotta sell these (leftover 2011) cars. Let’s move these things.’ ”

All of a sudden you, the dealer, are scrambling to make space for those truckloads of new 2012s.

“This is the dynamic where the panic hits,” laughs Timoteo. “What you see is all these 2011s that are being flogged by dealers.”

In other words, the lazy days of August can become anxious days and nights as dealers set about clearing out inventory. Sure, in this day and age, dealers generally do a good job of matching inventory to consumer demand, but in August there just isn’t much consumer demand, and that represents a buying opportunity for the savvy car shopper.

The Dog Days of August are a superb time to go car shopping, at least for those who can pull themselves away from the golf course, the cottage, the hammock and the barbeque.

“But don’t be just sucked in by the deal,” cautions Timoteo. “A great deal on a car you’re not happy with is not really a great deal at all. Don’t rush just to get the good deal; get the deal on the car you want.”

There is certainly no shortage of bargains out there, though. As DesRosiers Automotive Consultants points out, light-vehicle sales in Canada were down by 4.9 per cent last month and they are up only 1.5 per cent on the year.

To keep the sales action percolating, car companies in Canada, working with their dealers, continue to tuck attractive offers into the glovebox, under the hood and in the trunk – from cash-back incentives to cheap leases to extra equipment offered at no cost or with a rebate and even rebates for loyal owners and Costco members.

Make no mistake, as a general rule, it’s a buyer’s market out there. As DesRosiers notes, for most of this year car makers and their dealers have put “massive incentive money” into the marketplace, yet even at that overall sales are about flat compared to 2010.

Dennis DesRosiers, president, says the strong Canadian dollar suggests that manufacturers have an exchange rate bonus that can be used as incentive money to keep the market lively and attractive for buyers.

As a general rule, companies and dealers who are suffering from slow or slower sales counter with healthier sales sweeteners, although this is not always the case. That said, at least be aware that, as DesRosiers says in a note to clients, Audi, BMW, Hyundai, Kia and Volkswagen all had a great July, with sales up in the double-digit range.

Meanwhile, “Honda and Toyota, still racked with supply problems, had under-performing months down in the double-digit range,” he says.

Not surprisingly, Honda and Toyota are throwing money at the market in ways not seen in decades, if ever. Yet even those car companies doing well, sales-wise, need to keep themselves in the incentive game – or lose ground to more aggressive rivals. Thus, the BMW 3-Series is an excellent deal, especially given an all-new version of the 3-Series is coming in the very near future.

Hyundai and Kia, aware that Honda and Toyota are both working through huge challenges, are in the incentive game in a pretty aggressive way – aiming to steal away market share at a time when the dominant Japanese players are vulnerable. Ford, now Canada’s top auto maker, wants to remain the sales leader in Canada and is doing so with a fairly long list of attractive pricing offers – including Employee Pricing across the board.

And on the story goes. Chrysler, with 15.2 per cent market share, is chasing down General Motors for the No. 2 spot in Canada. GM’s market share through the end of July was at 15.3 per cent.

DesRosiers says his company’s analysis of the fundamentals of the Canadian market – its sales potential – suggests “the Canadian market should be up in the 1.8-million range (annually) and possibly even higher. So we can be pleased with a 1.6-million tracking but we are still very much below where the market should be.”

The point is, car companies and their dealers are pumping money into the market just to tread water. But they, too, can see the “potential” for total annual new light-vehicle sales of 1.8 million and, as we all know, hope springs eternal. Meantime, the troubles of one company represent an opportunity for another – or more than one, in fact.

Timoteo says buyers looking for a Dog Days Deal in August will find plenty of them, though getting the best offer is not always easy.

“It’s a very, very complex process to figure out what the deals are,” he says. For instance, Employee Pricing sounds appealing, but shoppers doing their homework might find the Employee Pricing discount is actually less than the factory incentive money on the table at the time just before the Employee Pricing promotion went into effect.

“Rebates tend to drop when employee pricing comes out,” he says. “Unless you’re actually in the market before and after, it’s hard to know.”

Car companies have a variety of tactics for offering sales sweeteners and they sometimes come with different labels from manufacturer to manufacturer. Some rebates are factory-to-dealer offers that need to be negotiated. Others are straight factory-to-customer goodies. In certain cases, the promotions can be combined or “stacked,” while in others they cannot.

Buyers also need to consider negotiating for the so-called “dealer incentive,” which in truth is a portion of the dealer profit. To do that, the savvy buyer looks to get a piece of the difference between the wholesale price the dealer pays the manufacturer and the retail price the dealer charges the customer.

Naturally, because his company sells pricing reports that include the factory invoice price, Timoteo suggests paying a fee to buy a www.carcostcanada pricing report. That said, it’s fair to say most dealers enjoy a 6 to 8 per cent markup on most of the vehicles they sell, though there are exceptions. At some point every buyer will need to work out a final purchase contract and it’s always better to be armed with as much information as possible.

Just to complicate things, also remember that car companies are free to change their offers at any time and dealers are free to sell for any price they choose. Some manufacturers, in fact, change their incentive mix several times a month. And one of the busiest times of all for this sort of thing is during the Dog Days of August.



In the know

Most popular video »


More from The Globe and Mail

Most Popular Stories