Automotive Fire Sales: Getting the Best Possible Deal

Automotive experts often expound on the many ways in which consumers can secure great deals on their automotive purchases.

Among the many strategies in automotive negotiation is shopping for a vehicle when dealerships are attempting to reduce their inventories, which can result in a “fire sale.” During these special promotional periods, those in the market to buy a new car or truck often can find exceptional deals.

The Cost of Inventory

Many people might not realize that auto dealerships actually purchase the vehicles they will eventually sell to the public, and until those vehicles are sold, the dealership pays interest on them, which is big motivation to move inventory quickly.

And not all dealerships pay the same interest - some have loans with higher interest and therefore more need to reduce their inventory.

Year-End Fire Sales

Each year, auto manufacturers release the models for the following year anywhere from late spring to early fall. While the manufacturers focus on generating as much buzz as possible for the new models, dealerships must unload their current inventories of the previous models as quickly as possible. This is in addition to new cars becoming more affording than ever due to the current recession.

This need to reduce inventories often results in mini-fire sales, during which dealerships offer sizable incentives on top of any manufacturer incentives already available.

However, while consumers can find great deals on previous-year models during a year-end sale, those visiting dealerships should keep in mind that there is only so much the dealership can cut prices.

Today’s troubled economy already has forced many auto makers to slash prices significantly, causing many vehicles to be sold with little or no profit margin. These price cuts do not leave much room for dealerships to negotiate.

In vehicle transactions, the resulting profits are actually what dealerships use to cover their expenses, such as rent, utilities and salaries. After covering those costs, the remaining profit then goes to the dealership owner. While a dealership might want to offer the best deal possible to a customer, any additional savings will cut into the dealership owner’s ability to run his or her business.

Bankruptcy Fire Sales

A key differentiating factor when it comes to true fire sales is the question of bankruptcy. If an auto manufacturer has filed for bankruptcy and is closing any dealerships, those dealerships have an even greater need to unload their inventories and might sell their vehicles at a loss in order to move them.

In April 2009, American auto maker Chrysler filed for Chapter 11 bankruptcy and announced that it would be closing about 2,400 dealerships throughout the United States. The dealerships selected for closure now have a very limited time to sell their complete inventory, and the clock is ticking.

In fact, Chrysler will be assisting these dealerships with additional incentives, but only until June 9. After that date, the dealerships are on their own.

As a result, many dealerships will be forced to sell much of their inventory well below cost and to take a loss on the sales. While this situation poses an unfortunate financial challenge for the dealerships, it does offer a unique opportunity for consumers to purchase vehicles at rates even lower than what would normally be possible.

The one catch is selection will be limited to what the dealership has on hand. While the deals might get sweeter and sweeter as June 9 approaches, the number of vehicles from which to choose will dwindle.