Car Deals Put You Behind Wheel

car auto dealer dealership
This is the time of year to look for a deal on current-year model cars. It's out with the old and in with the new as dealers try to clear their lots of inventory and make room for next year's models. This is not breaking news - it happens every year. But this year the deals are better than usual.

Financial contributor Ray Martin visits The Saturday Early Show to discuss the different incentives, point out the best deals and offer some tips on using the incentives to your advantage.

Car sales were weak in the early summer, leaving dealers with a glut of cars. Also, manufacturers are offering the highest incentives in history. The average manufacturer incentive per vehicle sold in the U.S set a new record of $2,885 per vehicle in July. In other words, consumers who purchased a car in July received a discount of almost $3,000.

The incentives include:

Low-percent Financing offers buyers a car loan with low interest rates, sometimes as low as 0 oercent; few people actually qualify for these low rates so more consumers increasingly prefer rebates.

Rebates - cash back in your pocket, usually goes toward a downpayment. Rebates are advertised on certain models, but you should also ask about the following:

  • Loyalty rebates: reward those who already own a vehicle of the same make.
  • Competitive rebates: reward those switching from a close competitor.
  • Financing rebates: reward those who choose to finance their purchase through the dealer.

  • Manufacturer to Dealer Rebates: these are rebates dealers receive from the car maker when they sell a specified model; dealers do not have to pass on the rebate to the consumer, nor do they have to tell consumers they are receiving the rebate themselves. You should do your research to discover if a dealer is receiving such a rebate before you buy; this knowledge is a valuable bargaining tool. Both Consumer Reports and collect this information.

Although we are now accustomed to seeing ads that scream "$2000 cash back!" or "Zero-percent financing available!" incentives only emerged in force following Sept. 11. Manufacturers were trying desperately to jumpstart the economy and get sales back on track. But now, consumers view such incentives as commonplace, and manufacturers can't get rid of the incentives without causing a big ruckus - and hurting sales. So, it appears that incentives are here to stay.

It used to be that incentives were offered on only undesirable cars. Now, they are offered on a wide variety of vehicles. In July, the biggest incentives were found on SUVs. Luxury cars also offered large incentives. If you're looking for a good deal, check out SUVs and luxury cars. The lowest average incentives were found on compact cars, followed by sports cars and luxury sports cars.

Here are the SUVs with the biggest incentive discounts:

  • Buick Rendezvous
  • Buick Rainier
  • Pontiac Aztek
  • Chevrolet Blazer
  • Chevrolet Tracker

Here are the luxury cars with the biggest incentives:
  • Cadillac DeVille
  • Pontiac Grand Am
  • Oldsmobile Alero
  • Cadillac Seville
  • Chevrolet Cavalier

Domestic manufacturers offer significantly higher incentives than foreign makers. Take a look at the average savings offered on vehicles from the Big Three:

GM: $4,467 (average amount of incentives offered per GM vehicle)
Ford: $3,686
Chrysler: $3,384

In comparison, the average Japanese-made car offered incentives of a little over $1,000 per vehicle in July.

While rebates and other incentives can certainly save you money, these offers should not be your primary motivation when choosing to buy a particular car. You need to make sure the car fits your needs, and you need to look carefully at the overall cost of the car for the time you're going to own the car.

It's interesting to note that over half of the people who received incentives when buying a car this year used the incentives to purchase a more expensive model. For example, if incentives can bring down the price of the Eddie Bauer Ford Explorer so that suddenly it costs consumers the same to buy the Eddie Bauer version or the standard Ford Explorer, more consumers are going to purchase the nicer car.

Martin encourages consumers to keep these things in mind when buying a car:

  • Buying a car that's loaded with incentives can lower the re-sale or trade-in value of your vehicle.
  • Before heading to the dealer, figure out your financing options - who will give you a car loan and what kind of rate will they charge? Many dealers increase incentives on a vehicle if you agree to go through the dealer's financing arm. However, you may not get the best rate through the dealer; you should know your other options as a form of comparison.
  • When negotiating for the car, start from the dealer's cost, not the sticker price minus the incentives. Incentives can be subtracted from the cost once you've agreed upon this price.
  • Manufacturers, not dealers, determine the incentives on cars. There is such a variety of incentives out there that you can't depend on your salesperson to know all of the current deals. You need to do your own research before heading to the dealer.