The End-of-the-Month Deal: Myth, or Reality?

"Daywalker" (vlw357)
04/30/2014 at 19:06 • Filed to: None

Automatch Tom made a !!!error: Indecipherable SUB-paragraph formatting!!! to buying at the end of the month. The idea is this: sales people are more motivated to sell at the end of the month because they are thinking about their monthly bonus compensation.

However, I've also been told flat-out by a finance person at a dealership that buying at the end of the month does not make any difference. Meanwhile, that same dealership said that at the end of every month, they do a lot of volume. I know of many stories where a person boasts of an outstanding deal they got by buying at the end of the month, but I am skeptical whether the sales person is just telling them that so that they are more likely to buy, or whether the buyer is rationalizing their purchase in such a way (which is totally fine, but I'm interested in the economic effect, not the psychological effect).

I've heard the End-of-the-Month hypothesis for a long time, but I've never really seen it backed up with facts, so I decided to do some digging and see what the research says. I found a !!!error: Indecipherable SUB-paragraph formatting!!! (one of the world's most respected marketing research journals) by Rui Zhu, Xinlei Chen, and Srabana Dasgupta of the University of British Columbia that partially addresses this question, although this particular question is not the main focus of the study.

The authors do not find a statistically significant association between buying at the end of the month and vehicle price. To try to put their findings in understandable language, their estimate of the effect is -$50.77 (which suggests that buying at the end of the month would be associated with, on average, a $50.77 reduction in price). However, the data is inconsistent enough that statistically, this is not any different from zero.

They used data from all new-car sales in California in a 4-year period around 1999 to 2003. They define end of the month as the last 5 days of the month. Perhaps the trouble with their estimate is that, as some have suggested, you won't always get the best deal at the end of the month. It depends. If a sales person or dealer is well below their bonus target, they may be better off waiting until next month to book the sale so that they can take a shot at next month's bonus target. Ditto if they've already made their bonus target and are far from the next rung up. So a the power of an end of the month sale might look much larger under ideal conditions. Unfortunately, there's really no way that I know of to observe whether a particular sales person or dealer is in an optimal position to bend on price. If anyone has an idea, please comment!

I guess this calls for more research. What do you all think? Has anyone out there ever gotten a bad deal at the end of the month? Found a dealership seemingly unwilling to negotiate at the end of the month? (aside: I have). Industry insiders, some specific details about bonus compensation would be much appreciated!

DISCUSSION (11)

Tom McParland > Daywalker
04/30/2014 at 19:21

Again this would be a great discussion to repost to CarBuying.Jalopnik.com (if only that was a sub-blog...Hardibro)

I can tell you this...most of the time it is true, but sometimes not. I will definitely follow up with a full post.

Dean > Tom McParland
04/30/2014 at 19:30

I sell cars. Pricing doesn't really change for End of Month. Perception is reality.

crowmolly > Daywalker
04/30/2014 at 19:31

They may move more cars at the end of the month even though the pricing is not changed due to the myth alone. There are also many other variables in the equation- is the vehicle being financed, is the salesperson already at their numbers, are we talking about Camrys or Carreras, geographic location, etc. You have to create exact subsegments within your dataset and then look at them individually. Consumer insight and purchase intent is not something that can be casually looked into.

Tom McParland > Dean
04/30/2014 at 19:34

Depending on the dealership, motivation to give bigger discounts might change.

Dean > Tom McParland
04/30/2014 at 19:49

A deal is a deal for the first day of the month or the last. You're right, I might not try to hold any gross if I'm one shy of a 15 unit bonus at EOM, but that doesn't mean the actual bottom of the line deals change any if you are willing to negotiate.

Cars still invoice for the same on the first and on the 31st. You can still buy most new cars for invoice. The true discounts on new cars come from manufacturer discounts and dealer cash on moving truly aged units (just sold a 2013 Escape yesterday, had it hanging around alone for like 6 months, Ford gave us $2500 to apply to the car), but you can't "plan" for that, especially if you want a specific color / option set (that Escape was a SEL 1.6T AWD with the Vista Roof, no Nav, no Rear Cam, but a $32,000 car, you can buy a 2014 with the same, plus standard rear camera for $31,000 pre-discount).

It's just self-perpetuating public opinion that you can buy cars cheaper on a specific day, at a specific place, etc. Besides your random strange situations, it pretty much holds steady.

Tom McParland > Dean
04/30/2014 at 19:51

Agree...and my answer to the OP is, it depends.

Daywalker > Tom McParland
04/30/2014 at 20:28

Thanks Tom. This whole post is the result of my research on this little issue that your test drive post prompted. Definitely agree that would be a nice sub-blog.

Daywalker > Dean
04/30/2014 at 20:30

Thanks for the insights! I definitely believe that when customers "believe" they are getting a great deal, they brag about it, which drives more people to believe in something that might be a myth. I'm sure there's a huge volume effect that results from the perception, even if there's no meaningful price effect.

Daywalker > crowmolly
04/30/2014 at 20:33

Agreed. The perception of a great deal puts lots of buyers in the showroom at month end. The study I linked is pretty fastidious about controlling for lots of the "other" variables that are more important than EOM.

FanofF1 > Daywalker
05/01/2014 at 14:38

Your primary mission every day in selling cars is to make that day "the end of the month" in the customers head. Sometimes it is a better deal at the end of the month but this notion of "beating the dealer" is silly..the house never loses.

Daywalker > FanofF1
05/01/2014 at 15:18

A sale at the beginning of the month counts just as much as one at the end of the month!