Car Discount's No Gimmick

General Motors is extending to Aug. 1 the sales promotion that is offering vehicles for the same price that GM employees pay. Now Ford and Chrysler want to do it, too. Why? Financial adviser Ray Martin explains as part of his regular appearance on The Early Show.
General Motors found great success when it began offering customers its employee discount, and now the other two big American automakers (Ford and Chrysler) are following suit. GM reported that its sales increased by 41 percent in June '05 versus June '04, thanks to the program.

There are no gimmicks here, no hidden costs or inflated prices. GM is, indeed, offering consumers exactly what it says: the same prices on 2005 vehicles that employees pay. Not only are customers getting a good deal, many say they believe the program takes away one of the most distasteful parts of buying a new car: negotiating the price and being left with the nagging feeling that you're getting ripped off.

The program includes most GM vehicles, and Ford and Chrysler are both saying that most of their vehicles will also be made available at employee discount prices. Each automaker has a handful of vehicles that are not included, including the Chevy Corvette, Ford Mustang and Dodge Charger sedan.

To clarify: the employee discount is the bottom-line price. You cannot talk dealers down below this price. But that's OK, because, in general, these employee discounts are about 4 to 6 percent below dealer costs. That's a great price.

Typically, even after buyers negotiate a car price, experts say they are lucky if they wind up paying hundreds of dollars above dealer costs. So GM's employee discount program really is a great deal for consumers, and it sounds as though Ford's and Chrysler's will be equally good deals.

Here's even better news for buyers: In addition to the employee discount, some models continue to carry cash rebates or other incentives. You don't have to ask for these or haggle for them. They will simply be rolled into your final purchase price automatically.

For example, Ford is offering the Explorer XLT SUV for $24,739. That's about $8100 below the sticker price - you get the employee discount and a $4000 cash rebate.

Of course, the automakers are not doing this out of the kindness of their hearts. GM kicked off the promotion in June in hopes of clearing lots for new 2006 vehicles. GM had simply not been selling enough cars, and inventory was too high. They had the option of shutting down their plants for the summer and not making more cars, but they would have had to continue paying employees. So, it wound up being cheaper to sell discounted vehicles instead of paying employees to sit idle.

The employee discount program was an experiment that worked, and the other two automakers don't want to be left behind. GM not only reported fantastic sale numbers, the company also increased its market share, attracting new, first-time GM customers. Ford and Chrysler certainly don't want to lose customers to GM, so the pricing war is on.

All of this may not spell success for the companies in the long run, but it's resulting in great deals for customers right now.

Here's Ray Martin's advice about taking advantage of the deal:

  • Strike While the Iron's Hot. If you've been considering buying a new car, go ahead and do so now. These programs truly are good deals. If nothing else, check out the Big Threes' offers before heading to other manufacturers.
  • Research Trade-In Offers. If you're planning on trading in a car when you buy a new one, you may not receive as good a deal on that trade-in as you would have in the past. Dealers are offering such good prices on the new car, that they may try to make some extra money off of you by low-balling the trade-in offer. Check out Kelly Blue Book and Edmunds, so you know if you're receiving a fair trade-in offer and so you can fight for a better offer, if needed.
  • Look for Used Car Deals. Martin points out that these lower prices on new cars is bound to translate to lower prices on GM, Ford and Chrysler used cars over the coming weeks. Use this information to your advantage when negotiating to buy a used car, and be prepared to adjust pricing if you're selling a used car.

    The final question that these price wars beg: Employee discount programs are scheduled to end in August. What can kind of prices can consumers expect after that? Critics of the employee discount offers say that customers are going to get so used to low prices, that they won't settle for anything else and car companies will be forced to comply.

    While no one knows for sure what automakers will offer in coming months, GM has already stated that '06 sticker prices will be lower than '05 sticker prices, though higher than the discounts offered now.

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