There are a few good deals around, but new-car and truck shoppers had better lower their expectations for the typical, big Labor Day weekend promotional discount this year. On average, customer incentives are way down, supplies of new cars and trucks are way down, and prices are way up.
Just finding the car or truck you want, in stock at a dealership — at almost any price — is an achievement nowadays. As always, there are some Labor Day specials, but shoppers are likely going to have to search for a vehicle, as hard as they search for a deal on that vehicle.
Analysts recommend searching for cars online, farther from home than you normally would. Success may also mean settling for a car you want, rather than the car you want, if you can live with some features and options that aren’t your first choice.
Inventory at 30% of Pre-Covid Levels
“This year’s Labor Day Special is getting the car you want, in a color you don’t hate,” said Brian Finkelmeyer, senior director of new vehicle solutions at Cox Automotive. He said the industry had an inventory of about 1 million unsold, new cars and trucks at the beginning of August 2021, vs. 3.5 million in February 2020, pre-Covid.
The coronavirus pandemic shut down auto factories and most dealerships in the spring of 2020 for weeks, and in some cases months. A shortage of computer chips followed, which is still going on, and that has also temporarily shut down many production lines. With high demand and scarce supply, automakers and dealers lack motivation to cut prices. Shutdowns continue: General Motors, for instance, will halt virtually all North American production the next two weeks.
“There are a couple of luxury sedans that have some deals on them,” Finkelmeyer told Forbes Wheels this week. “But your mainstream stuff, there’s not a lot being offered, there,” in terms of discounts.
VW Arteon Deals Have the Biggest Bang for the Buck
In a recent blog post on the topic of Labor Day sales, Finkelmeyer cited the Volkswagen Arteon as the model with the biggest “bang for the buck” this weekend, in terms the size of the estimated incentive, including the value of lease incentives, and the average transaction price, as a percent of manufacturer’s suggested retail price.
The average transaction price, often abbreviated ATP, is a measure of the price people actually pay. It takes into account incentives, and dealer markups or dealer discounts, as the case may be, Finkelmeyer said. The average transaction price for the VW Arteon is $38,696, or 88.5% of suggested retail; the estimated average incentive for Labor Day weekend is $7,267, he said.
What’s more, the VW Arteon is relatively available, he said. The latest inventory figures show an 88-day supply, according to Cox Automotive. As the name suggests, days-supply is an industry measure for how long a given supply of vehicles would last, at the current sales rate.
To put that in perspective, the VW Arteon isn’t a big seller. An 88-day supply is fewer than 2,000 cars, according to Cox Automotive.
In terms of absolute dollars, the Audi A8 has the highest estimated incentive for Labor Day weekend, at $21,806, including lease incentives, Finkelmeyer said. However, he considers the VW Arteon a better deal percentagewise, because the average transaction price for the Audi A8 is $104,538, or 96.7% of suggested retail, according to Cox.
Most Available: Nissan Murano
More numerous than either is the Nissan Murano. Finkelmeyer said Nissan dealers have a 68-day supply, or just over 10,000 units. The average estimated incentive for Labor Day weekend is $5,916, including lease incentives. The average transaction price of $42,464 is 99.1% of suggested retail.
In normal times, 99% of suggested retail would not be considered such a great deal, but with the current inventory shortage, a surprising number of cars and trucks are selling for more than sticker price — sometimes, a lot more.
According to Tyson Jominy, vice president, data & analytics for J.D. Power, since 2019 the percentage has more than doubled, for cars and trucks that sell in a range starting at 5% below suggested retail price, and above.
That reached 80% in July 2021, from around 30% in January 2020, pre-COVID, according to J.D. Power.
Segments with Least Room to Negotiate
The product segments with the worst consumer negotiating position are what J.D. Power defines as Midsize Sporty Car, like the Ford Mustang or the Dodge Challenger, and Large Premium SUV, like the Cadillac Escalade. The sports cars are transacting recently for an average of 3.8% above suggested retail; the full-size SUVs, 3.5% above suggested retail, the company said.
Meanwhile, there are still some 0% financing offers to be found, but not as many as before, according to Jonathan Smoke, chief economist for Cox Automotive.
In the early part of August 2021, 0% offers accounted for about 9.5% of new-vehicle loans, Smoke said in a report on Aug. 31. That was a small increase, from 8.4% in July, but down from 20% in April 2020. Pre-COVID, 0% loans averaged 4.5% share in 2019, Cox Automotive said.
Normal Labor Day Goal: Sell Off Old Inventory
Before this year, Labor Day weekend was a reliable time to find widespread bargains, because it’s the traditional time of year when automakers launch a new model year, said J.D. Power’s Jominy. The goal for Labor Day discounts is to sell off leftover cars and trucks from the expiring model year, and make room for the new models, which typically require fewer discounts.
But this year, Labor Day is lacking a key ingredient for the biggest discounts, and that’s a large oversupply of last year’s models. Other big holiday weekends for auto sales include Memorial Day, July 4, Black Friday, and pretty much the entire month of December, analysts said. For used cars and for borrowers with subprime credit, sales usually peak around tax-return season in the spring.
“If you had a Mount Rushmore for holidays associated with big auto sales, Labor Day would definitely be on it. It is typically the holiday where incentives really ramp up, particularly for the outgoing model, to clear out the old model,” Jominy said.
“All that is to say, ‘usually.’ Because, not so fast, my friend,” he said. “This year, you’re not going to see a whole lot.”