Although new vehicles are sitting on dealer lots longer than at any point since July 2009, incentives — particularly tempting zero-percent finance deals — have been slow to materialize, according to a new analysis from Edmunds, the car shopping and information platform.

Its data shows ‘days to turn’ now averages 77 days — two days more than in July —  but found incentives in August were basically flat compared to the previous month.

Automakers have also been careful with financing deals; only 10% of loans in August had 0% APRs, compared to 15% last August. The average interest rate on a new-car loan was also up 2% in August, compared to July.

Edmunds executive director of industry analysis Jessica Caldwell said: “Labor Day weekend usually brings in nearly a third more buyers than the typical first weekend of the month, so this is critical opportunity to make a dent in inventory.

“Given the state of the market, we would usually expect automakers to pull out all the stops to get shoppers into their showrooms, but based on what we saw in August, it's not a sure thing."

Edmunds analysis shows inventory of 2017 model-year vehicles is particularly plentiful on dealer lots, even as 2018 models begin to arrive in showrooms. Edmunds estimates that only 8% of new vehicles sold in August will be 2018 models, while in August 2016, 17% of vehicles sold were from the new model year.

"Car shoppers now are savvy enough to know that you can get the best deals on outgoing model-year vehicles," Caldwell said. "In many ways it's a buyer's market, and they're not going to purchase if they think there's a chance a better offer could come along in the near future."

Used car price surge

In contrast, the latest Used Market Report from Edmunds shows used car prices are on the up. In the second quarter of 2017, the average transaction price for a used vehicle was $19,227, up 2.1% from Q2 of 2016 and a new second quarter record.

The company says the price spike is hitting the lowest end of the market hardest because cars six years old and older are holding their value much better now than they used to. Five years ago, on average a 10-year-old used vehicle retained only 21.1% of its original MSRP, while in the second quarter of this year, it held 26.4%.

Shoppers looking to buy an older used truck or SUV will be particularly squeezed — for example, five years ago a 10-year-old mid-size SUV retained only 16% of its MSRP, while in the second quarter of this year retained value doubled to 32.5%.

Ivan Drury, Edmunds senior manager of industry analysis, said: “Vehicle sales reached historic lows during the recession, and now fewer consumers have an older trade-in when they buy a new vehicle.

“It's the basic law of supply and demand. People still want to buy affordable older cars, but there simply aren't as many out there."

Off-lease glut

At the same time, shoppers who have a bit more to spend and are looking for a newer used car may be able to find unexpected bargains. A glut of off-lease vehicles and rising incentives are putting pressure on the residual values of newer cars, causing them to depreciate more quickly.

Edmunds' analysts found that while a one-year-old used vehicle retained 76.6% of its value in the second quarter of 2012, this year that amount has dropped to just 70.9%. Car segments have been hit the hardest: one-year-old sub-compact cars are now worth 15% less than they were five years ago, mid-size cars are worth 9.5% less, and large cars are worth 8% less.

Drury said: “You often hear that the value of a new car drops dramatically the moment it's driven off the dealer's lot, and that's more true than ever right now.

“The surge in popularity of leasing has led to a more disposable mentality about personal vehicles, which has taken a toll on the values of newer used cars."

These shifts at both ends of the market are making used cars as a whole less affordable. While the pricing difference between a one-year-old and a 10-year-old used car was 55.5% five years ago, today that gap has narrowed to just 44.4%.

However, Edmunds says this price squeeze does not seem to be deterring car shoppers. For the first time ever, more than 10 million used vehicles were sold at retail in the second quarter of this year, a 1.7% boost from Q2 of last year and a 7.9% lift from Q2 of 2012.

Drury added: “The dynamics of the used market are completely different now than they were five years ago, and we don't see this trend reversing anytime soon.

“Leasing grew steadily until late last year, so the near-new vehicle stock will continue to grow, and it's going to take time to replenish the supply of older used models. It's good news for those who can afford it, but for shoppers who need to find reliable transportation on a budget, this is a challenging scenario."