DRIVE TIME


Save Big on New Cars

Mark Solheim

The economic slump has many vehicles going for near-invoice prices. Plus, rebates and low-rate financing deals abound.



The economy is sucking wind, home prices are tanking, and the stock market is scary. No wonder people are staying away from car-dealer showrooms. And that means it's a great time to get a bargain on a new car.

Carmakers have cut production, but they haven't shut down. Dealers still have to move the cars that roll off assembly lines, so many vehicles are going for near-invoice prices. As icing on the cake, carmakers have turned to low-rate financing and cash rebates.

Off the wagon

Yes, incentives are back. You'll remember that carmakers -- especially the Detroit automakers -- had sworn off deal sweeteners. General Motors, which began offering incentives to keep sales strong after 9/11, announced its "value pricing" strategy a couple of years ago. The idea was to set the sticker price close to the transaction price to minimize haggling and the need for incentives in the first place. The other two domestic carmakers tried to hold down incentives as well, because offering too many incentives slashes the resale value of vehicles and hurts the brand.

Value pricing worked okay -- until the economy went south. Vehicle sales for the first three months of 2008 were down 8% compared with the same period in 2007. And incentives are up. For example, GM is spending $3,300 on incentives per vehicle (including cash rebates and subsidized rates and leases), compared with $2,800 a year ago, according to Edmunds.com. The Federal Reserve's recent rate cuts have made it easier for carmakers to offer low-rate financing. Zero-percent deals are mostly relegated to gas-guzzling pickups and giant SUVs. But a slew of vehicles are offered with rates of 2.9% or 3.9% for 60-month loans.

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Rebates are also back, although you usually have to choose between the cash and the low interest rate. Again, the biggest rebates go with the biggest fuel burners, but you can get at least $1,000 back on a range of new vehicles, including the Lincoln MKX, Saturn Aura and Toyota Camry Hybrid. Even the 2009 Dodge Journey, a brand-new midsize crossover, is selling with $1,000 cash back.

With some vehicles, such as the Acura TL, the BMW 7 series and the Infiniti EX35, dealers have cash from the carmaker to use as they see fit -- meaning that you can probably negotiate a great deal. Or you could choose a subsidized lease. For example, Honda is offering a 36-month lease on the Accord EX for just $239 a month with $2,900 due at signing.

What should you do if you have to choose between a rebate and low-rate financing? In general, if you're going to keep the car for three years or less, take the cash rebate and finance with a traditional loan, says Jesse Toprak of Edmunds.com. But to be sure, run the numbers with our calculator.

What credit crunch?

Lenders still have money to grease auto sales, thanks in part to shots of liquidity from the Fed. "My dealers are telling me it's possible to get almost all customers financed," says Paul Taylor, chief economist of the National Automobile Dealers Association. Borrowers with credit scores below 700 may need more documentation and may pay a higher rate than they would have prior to the subprime-mortgage mess. But anyone with a credit score above 700 is likely to qualify for low-rate financing, says Toprak.

If you decide not to take an automaker's low-rate offer, expect to pay 6.8%, on average, for a 60-month loan, according to Bankrate.com. You may do better at some online banks and credit unions, where interest rates are as low as 5% for 60-month loans.

Will the deals last? Probably. Carmakers expect even fewer sales than last year and are not likely to curtail the come-ons. If you want the best bargains along with your choice of options and color, shop before August. After that, the deals improve but selection may be sketchy.



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