Should You Buy a Runout or Pay Extra for the New Model?
I’ve been asked many times over the years by friends, family, and customers, whether it’s better to go for a good deal on a runout vehicle model, or if it’s better to wait a while and pay more for the new model to become available.
The answer is that runout models of a vehicle can be good value for money and can sometimes be a better choice than the new model, but in some cases, it can be much better for you to go for the new one.
Just because you’re being offered a substantial discount on an outgoing vehicle model doesn’t mean it will cost you less in the long run. In fact, it can sometimes be a much better idea to pay a little extra for the new model than grab what looks like a good deal at the time on an outgoing model.
Factors you need to consider so you make the right decision include:
- How big are the changes to the new model?
- Is the runout model something you really want?
- How much value do included options add?
- Think carefully about runout “special editions”
- Why is the model changing?
- Residual values and thinking longer term
How big are the changes to the new model?
Probably the most important thing you have to think about when it comes to deciding between a runout and a new model is how different the new model that’s coming out from the one it’s replacing. Sometimes, a car, truck, or SUV that’s being billed by the manufacturer and dealers as “all-new” is nothing more than a new model year, and the only difference to the outgoing model may be something as minor as different stitching on the front seats. Honestly, the changes can be that small.
If a vehicle is only a year or two into a new generation, the second, and sometimes even the third model years of that generation can often be largely the same. If there are significant changes in the second or third years of a generation, it could mean the car hasn’t been well received and you might want to think twice about investing your hard-earned money in a model that probably wasn’t that great in the first place if it needed major changes in the first couple of years.
The normal lifespan of a vehicle generation these days is generally six or seven years, and the vehicle will probably have undergone a noticeable refresh halfway through that cycle. Just before that mid-cycle refresh or before the next-generation model comes out is when you’ll get the best deals on a runout, but it’s also when you’d be taking the greatest risk. The risks will be less before the mid-cycle refresh, but you’re definitely taking a chance buying a runout just before a genuinely all-new generation comes onto the market.
Is the runout model something you really want?
Unless money is no object to you, in which case you probably wouldn’t be considering buying a runout anyway, you need to ask yourself if the runout model is a car you really want. In fact, you should be asking yourself that question before you make any kind of purchase if you don’t have money to burn.
Buying a new vehicle is a big deal for most of us, but I’m well aware of how tempting it can be to go for what looks like a good deal if you think you’re going to be saving thousands of dollars. Think for a moment about some of the scenes we’ve seen on the news over the years on Black Friday.
People literally fighting over large flat-screen TVs that are on sale for a couple of hundred dollars less than the normal price. Haven’t you often wondered whether those people actually need a new TV? The chances are that they already have a perfectly good one already, but they are driven by the desire to not be the one to miss out on one of those elusive “bargains.”
Take it from someone who’s wasted a lot of money on stuff over the years. If you don’t actually want or need to replace something, it’s not a bargain, no matter how much money is knocked off it. A new car can be just the same. If you’ve gone out to replace your current vehicle and you’re presented with what looks like a great deal on a runout, and it’s a car you were already considering, then great. Give it serious consideration and look at just what you are getting for your money.
However, if you’ve gone out to buy a seven-seat family SUV and you find yourself drawn to what looks like a great offer on a midsize sedan, walk away. It wasn’t a case of a runout deal, but when the Range Rover Sport was launched back in 2005, you’d be amazed at how many people came into my showroom with a bunch of kids with them looking for an LR3 and went away with an order for the Range Rover.
They were seduced by this exciting new model and convinced themselves they’d never take all the kids with them at once to need seven seats anyway. Guess what? Most of them came back to try and trade out of them soon after.
How much value do included options add?
Do you know how we car dealers always lie to customers to get a sale? Well, I’ve got news for you. A lot of the time we are telling the truth, and when we try to give a customer the benefit of our knowledge and experience we’re doing it because we’re telling the truth, and we actually want them to become repeat customers.
If you want to add lots of options to what’s normally a fairly basic trim level, an honest salesperson will try and talk you out of it. It’s a little different with a runout model though.
Runout models – usually those the manufacturer is trying to sell through before a new generation is launched – often get a load of extra features added. This is good for you as the customer, but don’t be fooled into thinking it will help the vehicle be worth more when you come to trade it in again. The vehicle is what it is – the last of its model year – and it will always be valued as such. However, if it’s a model you wanted and you’re getting all these extra goodies included for no extra cost, go for it.
Think carefully about runout “special editions”
First of all, special editions are not particularly special at all. In fact, they’re basically a way of the manufacturer using up components they have already and making an aging model seem more attractive. In some cases, the manufacturer will truncate the trim level lineup and give the remaining models extra features, a new name, and even some flashy stickers with the special edition name on.
In some rare cases, these models can actually become quite sought after in the used market, but most of the time it just accentuates the age of the vehicle and can actually put some prospective buyers off.
This is a tough call to make as none of us have a crystal ball that tells us the future, but the louder and more garish a special edition is, the more carefully you should consider whether to buy it or not. And don’t get these models confused with normal special editions that are effectively appearance packages added to current models, such as the Midnight Editions Chevy offers for its pickup trucks.
Why is the model changing?
The bigger the change that’s coming to a vehicle model, the bigger the discounts are likely to be on the runout models, and the bigger the risk you’re taking by buying a runout. As I mentioned earlier, there are three types of model change to look out for. Some are just a change of model year with minor alterations to the outgoing model year, sometimes it’s a mid-cycle facelift, and sometimes an entirely new generation is about to arrive.
To be a smart buyer, you really need to know what’s happening next, and how big the changes are going to be. A carryover that’s just a new model year is no big deal, so go ahead and get yourself the best deal you possibly can on the runout model. You’ve very little to lose and everything to gain, so it’s just a case of how well you can negotiate.
A mid-cycle refresh is a little tougher to judge, but if you like the current version, and especially if you don’t like the changes that are coming, go ahead and get a runout bargain. However, if a refresh is happing only a year after the last refresh or the introduction of an entirely new generation, it’s time to ask why such fundamental changes are happening so soon.
Honda did this in late 2012 with the Civic, just a year after the launch of the ninth-generation model. The ninth generation was badly received by the media and consumers, so Honda changed both the exterior and interior for the 2013 model year. The 2012 runout models will have had big discounts, but how many people do you think want them today?
The sale price of a runout model might be a big saving on what it was previously, and it might be a lot less than the upcoming new model, but the monthly payments, if you’re buying on finance, might not necessarily reflect this. If you’re buying on a straight finance deal then it doesn’t matter – the rate is the rate.
If you’re buying on a finance deal with a balloon payment to keep the monthly payments low, or if you’re leasing, the residual value the finance company places on the runout model might be lower than it would be on the new model, and that would mean higher monthly payments.
The difference might not be huge, but if the payments are $25 a month more due to a lower residual, that’s $1,200 over a four-year agreement. If the price of the vehicle is $2,000 less than the new model, in that case, you’d only be saving $800 overall. Are you still happy with that, or would you opt for the new model if the saving was only going to be $800?
Residual values and thinking longer term
The residual value – or what the vehicle will be worth when you come to sell it – also matters if you’re not buying on finance. Let’s say you’re paying $4,000 less for the runout than you’d have to pay to get the new model.
What if I told you the one you’re buying will be worth $5,000 less in three years than the new model that’s $4,000 more today? In real terms, that means you’re actually going to be paying more for the runout model than if you paid the extra upfront for the new model.
Of course, it’s very difficult to know this on the day you make your decision, but what kind of new model is coming makes a big difference here. A new model year or even a mild refresh is unlikely to make that kind of difference, but a new generation could easily make that much difference or even more. For a good example of this, take a look at the second-generation Kia Sportage and compare it to the third-generation that arrived in 2010.
Hindsight is a wonderful thing, I know, but ask yourself how much of a discount you’d have wanted to buy a runout second-generation Sportage when you saw what the new model was like. You wouldn’t have to be an experienced car dealer to know the discount would have to have been massive to justify buying the outgoing model.
At the end of the day, the decision is entirely yours, but if you take into consideration everything I’ve said here you’ll at least be in a position to make a more knowledgeable buying decision and have less chance of getting it wrong. Sometimes the right decision is obvious, but sometimes it isn’t, and sometimes the type of vehicle you’re buying can be very important.
For example, convertibles and coupes don’t tend to age as badly as sedans or hatches, and pickup trucks and full-size SUVs don’t tend to change as often or as radically as cars. Buying a new vehicle is a big move for most of us, so don’t forget to check out other articles here on my site for more help with getting the right vehicle for you at the best possible price.