– by Julian Sale –
Well – sort of … Since the economic crash of 2008/2009, car manufacturers have scrambled to bring sales volumes back up. Leasing all but stopped in the $50,000 and under segment. Many common manufacturers cut costs and quality on existing models to drop the prices. Some introduced cheaper-made, smaller new models. Before the recession, consumers faced $18,000 plus price tags for base model cars. But today, we have some real bargains, like the VW Jetta base at $14,990, Dodge Dart base, $15,495, the new Nissan Micra at $9,998, and the Mitsubishi Mirage hatchback for $12,498. Wow. Those are cheap – really cheap. Don’t forget to add $$ for freight, PDI, dealer prep, whatever they call it now.
This is pretty cool, as young drivers have access to cheap, brand-new cars. More seasoned drivers who only need the most basic of transportation also feel right at home in these entry-level econoboxes. So what does that mean? Do these cheap new cars devalue the lightly used more expensive “cheap” cars from the last five years? The answer is no. When the manufacturers introduce a vehicle with a very, very low price, most consumers quickly find that you cannot actually locate many of these particular vehicles. Manufacturers produce the vast majority of their vehicles with a number of options packages, which drives the price up. Dealers are expected to sell these entry-level cars and make almost no profit, so the money is made in the upgrades, and the extras, and the options packages, along with servicing. If you were thrilled with your dealers’ service department, you will likely frequent them for routine maintenance. Dealers’ results rely on consumers returning back to buy again when they’re ready for an upgrade so service really sells in this case. That’s how a big dealer makes the money they didn’t make on the vehicle sale.
Another interesting fact is that these entry-level base models are the first to sell off the showroom floor, and the last to sell out of your driveway three or four years later. The price difference between a base model and a fully equipped comparable model can easily exceed $12,000 or $13,000 considering we are starting with the same basic car. But when it’s time for a sale, the base model car will have depreciated a little, and the car with all of the extras will only cost slightly more – despite having been much more expensive when new.
So, would you buy a new base model “XXX” for $14,000, or a two year old version with all the goods for the same price?
Food for thought.
