This Week in Car Buying: Deals of the month; Flood of 2-row crossovers coming; Industry tightens up; Floorplan costs may affect deals
This month's deals cover a wide range of vehicles including a newly introduced sporty hatchback as well as current model year crossovers and a couple of luxury entries. The attractive lease offers start as low as $200 per month, while the cash rebates can be as generous as $4,000. Incentives can vary by region, so be sure to use your zip code when checking the manufacturer’s website for availability and details.
Even though the 2019 model year is yet to get underway in earnest, Hyundai is sweetening the offer for its all-new 2019 Hyundai Veloster. This handsome hatch is unique in that is has a single door on the driver’s side like a coupe and two passenger-side doors to ease entry into the rear seat. The Korean automaker has a 3-year $199-per-month lease requiring $2,299 up front. Also joining the $199-a-month lease club in August is Acura, which has a 3-year deal at that rate with $2,499 down on the 2018 Acura ILX compact sedan.
There’s no question that compact crossover SUVs have been a growing segment that manufacturers are more than eager to exploit. As this competition grows, consumers are beginning to benefit from a wider array of lease deals. There are two stalwarts in the segment, the 2018 Toyota RAV4 and the 2018 Mazda CX-5, which are offering identical $209 per month 3-year leases. The Toyota requires a $1,999 down payment, while Mazda one-ups its rival by requiring only $1,989 in advance. Chevy also has a lease offer on its 2018 Chevrolet Equinox, it’s going for $242 per month for 39 months with $1,742 up front.
The 2018 Jeep Compass also made our list and the revamped crossover comes with up to $3,750 cash back on an MSRP of $25,390 and a Kelley Blue Book Fair Purchase Price of $23,887. A more generous rebate of $4,000 is available on the 2018 Kia Sorento, which has an MSRP of $28,190 and a KBB Fair Purchase Price of $26,628. Volkswagen has a $1,000 rebate coupled with 1.9-percent financing on its 2018 VW Tiguan. This redesigned compact SUV offers 3-row seating for up to seven passengers.
Two cars round out our list. The 2018 Ford Focus carries a hefty $4,000 rebate, while at the other end of the spectrum, Cadillac’s 2018 ATS sedan combines $2,000 cash back with 0.0-percent financing. All these deals are effective through September 4.
Flood of 2-row crossovers coming
Old hotness: 3-row SUVs over midsize family cars. New hotness: 2-row crossovers over 3-row models. Evidently, manufacturers are seeing some sort of shift in the booming crossover SUV segments, where 3-row models for a long time have been the price of admission. So much so, that Lexus finally added a third row to its RX, one of the progenitors of the crossover SUV phenomenon.
But now, manufacturers in both the mainstream and luxury segments are preparing to unleash a new wave of 2-row crossovers that will soon hit the market. One of the high profile models recently unveiled is the 2019 Chevrolet Blazer, which is expected to bow early next year. Audi’s range topping SUV, the 2019 Q8 has also bowed and Volkswagen is actively pursuing a 2-row Cross Sport concept based on the Atlas. That vehicle was shown at the New York Auto Show. Now comes word that Honda is working on a new 2-row crossover positioned between the CR-V and Pilot resurrecting the old Passport nameplate, last seen on an Isuzu Rodeo variant sold in 2002.
These new entries aren’t so much “coupe” versions of existing crossovers like those seen in Mercedes’ lineup of GLC, GLE and GLS models, but rather more upright greenhouses that are inspired more by traditional SUVs. We’ll see if these new models cut into 3-row volume or take more share away from traditional sedans.
Industry tightens up
The decline in sales last month was not totally unexpected and the industry is reacting more decisively when it comes to tightening production schedules and decreasing its dependence on incentives. In the past, manufacturers would be slow to curtail output and a flood of inventory would usually spark costly price wars as various brands sought to move the iron.
And car makers have gotten smarter about the mix of vehicles they produce, pushing up truck production to nearly 70 percent of its volume and allowing traditional car output to shrink to new lows that are less than a third of total output. While fewer cars are being sold, fewer are being produced and as a result, incentives are actually dropping while ticking up on trucks, crossovers and SUVs. The bottom line is that we will continue to see incentives throughout the balance of the 2018 model year on existing models, as well as some activity on 2019 models in slow-selling segments. However, because of the discipline of the manufacturers in holding the line on inventories, buyers shouldn’t expect fire sale pricing or big rebates during the model changeover.
Floorplan costs may affect deals
If manufacturers reining in production and cutting incentives aren’t enough to make deal-finding a bit tougher, a change in interest rates may also affect vehicle availability and your ability to negotiate a better price. It’s a given that higher interest rates will affect the amount you pay for a car when you finance it. But also, those same higher rates have an impact on the number of cars dealers may stock and their willingness to dicker over the bottom line.
When dealers stock cars, they have actually purchased them from the manufacturer and have financed these vehicles on short term loans that are repaid when the vehicle is sold. That exposure is known as floorplan. Manufacturers help subsidize these loans and since 2010, thanks to record low interest rates, floorplan has been a net revenue gain for dealers because of these incentives. This positive cash flow has allowed dealers to stock more cars at no cost to themselves and have a bit more room to negotiate that sweet deal.
According to the National Auto Dealer Association, floorplan turned from a net cost to the dealer to net income in 2010, with dealers taking in an average of $2,355 annually. While these interest rates remained at record low levels, sales boomed and dealer income from floorplan hit an average of nearly $110,000 annually in 2015. Subsequent increases in interest rates and slower inventory turn dropped that average income to $17,083 per dealer in 2017. It’s expected that with higher interest rates, dealers will be soon paying for floorplan rather than making money off it. As a result, there will be pressure to stock fewer cars and offer less leeway in making a deal in to preserve profit margins. And if dealers stock fewer cars, they may be ineligible for sales-volume related incentives. In short, floorplan is one of those subtle industry factors that could contribute to lower sales and fewer deals in the days ahead.
Considering the donation of your old car to charity? If you use the new donate option here at Kelley Blue Book through Sept. 30, we’ll give an extra $100 to St. Jude’s Hospital. Details here.
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