December/ Year-End Car Offer Conundrum: Should You Avail Discounts Or Not?

In the lives of automobiles, years definitely matter. As the end of the year draws near and new model year approaches, car dealers are keen on clearing out stocks of old models and make room for new, pricier models. Therefore, 'December' month means "Discounts" and "Delights" in the automotive calendar. Exciting cash back offers and financing deals like zero percent interest loans woo buyers. In fact, many buyers consider a wait for this month to avail of great discounts and deals. From small cars to luxury models, passenger cars to commercial vehicles, year-end car buying gives consumers an advantage in finding the best deal.

However, one should avail or not such year-end offers actually depends on buyers' individual usage and ownership plans. There is no hard and fast logic that every reduction in car price works in buyers favour.

It is indeed true that year-end is a smart time to buy cars, when new model-year units are rolling into dealers' inventories. This month, buyers may get an attractive deal on a 2015 models, especially those with manufacturing dates exceeding four-five months. At times, dealers will even have the previous year models in stock till the month of March or April. In such cases, stock clearance will be the sole priority of the dealers and even receive bonuses from the automakers to get rid of old inventory. In contrast, those buyers who demand the newest models will likely pay closer to the manufacturer's suggested retail price, or "sticker price." In case of some all-new or face-lifted models that are in high demand, dealers may ask for more than the sticker price, or may even cut accessories and other allied, dealer-level benefits.

Buying a new car at the end of the calendar year remains a good strategy because it follows the same logic as other buying techniques - the dealers are most anxious to negotiate than any other time. Further, in addition to usual bargaining, those consumers who are willing to do a bit of homework can maximise their savings in car purchase. The more you are aware of different offers by various sellers, the less you are likely to be deceived. Because, a good deal means that both the buyers and the dealerships are fairly treated and have made a reasonable profit. Blind focus on the final price of the car may not work in buyers favour always.

Resale value and Depreciation

It is not merely the price you pay while buying a car that matters, but also its long-term value and returns. Although the resale value of a car depends on several factors such as the make, odometer reading, fuel type (petrol, diesel, or CNG), number of ownership, and its physical condition, the age of the car and its model year is one of them - an important one as well. While there is no defined formula to calculate depreciation, a typical buyer depreciates the car by about 8-10% every year in general.

Therefore, if you intend to buy a new car in the year-end, consider two things. Firstly, how long do you plan to use the car? Do you intend to keep the car for a long period, say 6-8 years (at least 5 years), or you have the habit of frequently changing your cars for every 2-3 years? For those who intends to keep the car for a maximum period, year-end offers are highly beneficial. How?

For instance, let’s take the case of 2015 model year Volvo XC60 which comes with a flat cash benefit of Rs 6 lakh across all variants this month. While the 2.4-litre Diesel variant was available at around Rs 60 lakh (ex-showroom, Delhi) till last month, it is now available at Rs 53.21 lakh. Let’s say you keep this car for six years, and when you sell this 2015 model car in 2021, in all probability it may fetch you a resale value of approximately Rs 23 lakh. Interestingly, a 2016 model car may be valued slightly higher, say at Rs 24-25 lakhs. But the initial discount that you got (Rs. 6 lakh) is far higher than the Rs 1-2 lakhs extra you may get for the New Year model.

Also Read: Economic Suicide: Poor Resale Tales (The case of Mitsubishi Montero)

However, this logic may not work well for those who change their cars frequently, say every two years. In addition, the discount may not be beneficial if the new-year model car has undergone any face-lifts or a generational leap. In such cases, it is recommended to wait for the new model-year car and purchase it in the months of January or February. Do remember that resale value is dependent on several factors and not just the model year, the above illustration is for indicative purpose only.

Decide on the fuel

Secondly, as a car buyer, you must decide on the fuel depending on your daily car usage. As we know, both diesel and petrol models do not get equal or similar year-end discounts. Until last year, it is usually the petrol models that pile up in dealership stocks and so get higher discounts than their diesel counterparts. However, with the deregulation of diesel fuel and narrowing price gap between the two fuels, the craze for diesel cars have come down, although not radically. Moreover, the fuel-biased year-end offers vary significantly across places, car segments, makes and models.

Hence, buyers must decide on which fuel they must opt to reap optimum savings, by mapping their own driving needs. If you intend to drive more than 50 km per day, then it may make more sense in the long-run to opt for a diesel model. Buying a petrol variant out of sheer discounts may not be economical in such a scenario.

To conclude, year-end car buying is certainly advantageous provided you do proper homework on all available discounts and math on resale value and everyday fuel costs. It is unlikely that buyers may get both the latest model and the best price. Some concessions have to be made if we want the best possible price. However, blind focus on the final price of the car may not work in favour of buyers at all times.  

Also Read: Rupee Slides; Car Buyers To Face The Heat 

Photos Credit: Autocar India, WSJ

---