Bargain shoppers beware when it comes to close-out autos
Auto makers trim their line-ups
The auto sector is experiencing continuing tough economic conditions. The auto industry will have to emerge from the other side of this recession with a new look; a look that will be forever changed. The way autos are made and sold will never be the way it was. In reaction to this, many auto makers like GM and Honda are cutting low margin or poor selling models and lines to better define and strengthen their market positions. GM has killed the Pontiac line, for example. Honda has stopped making their S2000 roadster, and many others will follow suit from auto makers across the globe.
Clearance Sales are not always Deals when it comes to Cars
Normally, retail clearance sales of discontinued items can be great buys. The deep discounts create enough value to justify the purchase. However, cars are a bit more complex in how they fit into the sales model. Automobiles need to retain a residual value, how much they are worth for later resale, to be considered good investments. Discontinued car lines have a difficult time holding their residual market value because of a lack of demand and a lack of replacement parts and available service and warranty options. Once the particular discontinued model is out of the mainstream, very few people are interested in buying an old model. Combine that with the other difficulties in parts and service and you end up with very little value in the market.
Separating the Good Deals from the Bad
The key to determining which discontinued models are the best deals is good solid research. There are several places one can look to find out what the analysts see as the car’s future value. KBB.com, U.S. News’ car ranking site and Edmunds.com are a few good places to find out valuable information on how much the car is worth. These sites give valuable information on quality and reliability which directly affect the car’s residual value. Remember, residual value only matters if the car is going to be re-sold or traded in. If the car will be owned for 10 years or more, the residual value is not much of a factor. The car will not be worth much of a percentage of its original value anyway.
To Re-sell or not to Re-sell
The buyer has to have a plan in place before making the decision to buy a discontinued car model. If the plan is to keep the auto for 8 or 10 years or more, then residual value isn’t a consideration, but warranty and service are. Ask the dealer if the warranty will be honored after the model is discontinued. Also, ask if the warranty can be extended afterward. Many parts are universal on a lot of models, but an important question to ask is whether or not replacement parts will be available 5, 8, or 10 years down the road. If the buyer’s plan is to get a bargain price and then re-sell or trade in the vehicle, residual value comes back into play. No matter what the plan, research plays a key role in providing reliable information the buyer can use to get the best deal possible.