Car key balancing on human finger
For months, factors ranging from the rise in gas prices to the Japan earthquake-induced decline in supply have driven the selling prices of new and used cars alike to all-time highs. Now that vehicle production is mostly back to normal, more cars are becoming available to consumers, and with the increased supply, automakers and dealerships are more inclined to sell vehicles for less. But what if consumers, freshly freaked out by the debt downgrade (and Wall Street’s reaction), decide they’re not in the mood to buy new cars, even if prices are cheaper than they’ve been in months?
If that happens, automakers will have a supply problem of a different sort: They’ll have more cars than they know what to do with. And the most efficient way to solve that problem would be to juice consumer demand by offering their glut of vehicles at even more substantial discounts.
Given the recent drying up of car sales incentives, this spring and summer has been a particularly bad time to try to score a bargain at the car dealership. Consumers seem to understand this well, proven by the recent decline in car sales. After averaging 13 million units sold per month in early 2011, sales dropped to 11.8 million in May, and 11.4 million in June. The numbers rebounded (somewhat) in July to 12.5 million, and it’s been the accepted wisdom that the sales figures would continue to grow.
Here’s how Edmunds AutoObserver describes the current situation:
… for the next few months, supply will expand as production returns to normal, thereby exerting pressure on prices to become more competitive. Both greater availability and lower prices will encourage car sales and, in particular, trigger the release of deferred demand from consumers who held off making car purchases earlier this year when supply was limited and prices were higher.
Under normal circumstances, demand would surely kick back into gear. But what with the stock market’s sell off and widespread economic uncertainty, it’s not hard to imagine a scenario in which consumers continue holding off on purchasing big-ticket items like new cars—which, in turn, would likely lead to even lower prices on all those new cars.
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Of course, the economy as a whole would benefit if everyone who’s been on the fence about buying a car just went out and snatched one up today, preferably at sticker price. As for the individual consumer looking to get the most car for the buck, if you’ve managed to hold off buying for a few months, it’s probably wise to wait a bit longer. While there’s a lot of debate about the best time of year to purchase a car, it’s generally accepted that buyers get better deals around Labor Day, the end of October, or the end of the calendar year than they do in spring or summer. This fall and winter, the dropoff from summer car prices may be bigger than usual.
The upheaval in the market doesn’t exactly make consumers eager to run off to the car dealership and drop $30K or $40K on a new vehicle, per an expert quoted by SmartMoney:
“This [uncertainty] could really dampen enthusiasm and motivation for buying cars,” says Lacey Plache, chief economist for auto pricing site Edmunds.com.
And if the buyers aren’t motivated to buy, the sellers have no choice but to become more motivated to sell.
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Brad Tuttle is a reporter at TIME. Find him on Twitter at @bradrtuttle. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.