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Is There a Chance Car Prices Could Plummet?

October 1, 2009

Everywhere you look, people are talking about the recession being over. Almost everyone is predicting the economy has recovered, the worst is over, and we should see consumers buying lots of things by the end of this year, including more cars.

The stock market has risen about 50% after hitting a low in March. Even house prices have inched up slightly in the past couple of months.

It would seem everything is rosy once again, but before you get your hopes up, there is a good possibility we will see a double dip recession.

All the positive economic news of late has come about due to government spending and intervention. This is not sustainable.

Most consumers have gone from being spenders to savers. Unemployment is officially at 10% but when you take into account all the people who are working part-time when they want to be working full-time, and all the people who have given up looking for a job, the real unemployment rate is closer to 17%. These are not good numbers and they're likely to go up until the middle of 2010.

So how does all of this affect car prices? First off, most car companies have bought into the idea the economy has recovered and the worst is behind us. They will be producing a total of 2.72 million cars in the 4th quarter in anticipation of an increase in sales. Ford is leading the way with a 35% increase over last year followed by Toyota with a 26% increase. Nissan is increasing production by 18%.

Some of this production will be used to replace depleted inventory resulting from the "cash for clunkers" program. Much of it is simply a bet that car sales will improve.

There's always a chance the predictions will be correct and the economy will continue to improve, but if things turn ugly again, we're going to have a situation where there is way too much supply and no demand for cars.

This would lead to a big drop in car prices. If you're considering buying a car now, it may be worthwhile to wait a few months and see where we go from here. Right now, car dealers are still low on inventory and are not giving exceptional deals other than for leftover 2009 models.

If we do go into another recession, there is no telling how far car sales will plummet. One thing is for sure, production is slated to go up and if demand falls off a cliff, car makers will be forced to raise incentives to move the inventory. It could be a huge buyer's market, that is, if you're even willing to buy a car at that point.

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My Recommendation for Car Shoppers

TrueCar No-Haggle, Edmunds Price Promise, and 1-800 Car Show are the quickest way to see the lowest car prices in your area. These sites show you no-haggle prices from dealers closest to you - and the deals are usually really good. This should be the first step you take when negotiating your car price. Follow this up with my checklist to make sure you squeeze out every last bit of savings.

California Residents - Important:

There is a new online car buying service called Roadster, available only to California residents, which I highly recommend you try - especially if you hate the stress of haggling with a car salesman. They provide an expert concierge who negotiates the price of the car and delivers it to your home with zero hassle - you never have to interact with a dealership. Here is my in-depth review of Roadster and why I recommend it.

- Gregg Fidan

Gregg Fidan

About: Gregg Fidan

Gregg Fidan + is the founder of RealCarTips. After being ripped off on his first car purchase, he devoted several years to figuring out the best ways to avoid scams and negotiate the best car deals. He has written hundreds of articles on the subject of car buying and taught thousands of car shoppers how to get the best deals.

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