Cars
Get a Great Deal
The new 2004s are rolling into showrooms with same types of incentives and rebates as the 2003s rolling out. Find out how to negotiate the lowest price.
By Mark Solheim, Senior Editor, Kiplinger's Personal Finance
December 2003
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Rebates and low-interest financing are quickly spreading from the 2003 closeout models to the new 2004s. Starting in October you could claim rebates of $3,000 on the 2004 GMC Envoy SUV, the Chevy Cavalier and Chrysler 300M, and $2,500 on the Ford Excursion SUV. On many 2004 models from the Big Three, zero-percent financing for up to 60 months was also available. Foreign carmakers try to avoid incentives, but even Toyota was offering $500 off 2004 Corollas and Matrixes in some regions.
Other import brands prefer to lay cash on the table for the dealer to dole out. For example, Volvo was recently offering a $5,000 dealer incentive on the 2004 S80 2.9. Carmakers may also throw in "loyalty" incentives for repeat buyers. (Offers tend to change at the beginning of every month. CarDeals, $7, the newsletter published by Consumers' Checkbook, lists current rebate and low-rate financing deals.)
Don't view an incentive as an order to put on kid gloves when negotiating a deal. Carmakers use incentives to keep the assembly lines moving and build market share, and even on low- or no-profit transactions, they often make money on your interest payments if you finance the car. Dealers' profits aren't impaired by rebates, either, because the cash goes directly from the carmaker to the customer. In fact, many buyers use the money to add pricey options, which feeds dealers' bottom lines. With low interest rates and five back-to-back years of record sales, dealers' profits "are still in the sweet spot," says Paul Taylor, chief economist for the National Automobile Dealers Association.
Meanwhile, it looks like another good year to score a bargain. The best route to a rock-bottom price is to contact several dealers and let them compete for your business. That's how CarBargains negotiates deals for customers. Whether you're going it alone or not, start with our tables in the December issue of Kiplinger's Personal Finance to see which new models earned top honors and to identify other models you'd like to check out. Price and annual costs for insurance and maintenance are important, but so is the resale value -- how much the car will be worth two and four years down the road -- and whether each vehicle is equipped with safety features, such as anti-lock brakes and side-impact airbags. You can get up-to-date vehicle and option pricing anytime online with Kiplinger's Car Finder.
The tables provide other numbers you can use to show the dealer you've done your homework, including the dealer cost (often called the invoice price) and Kiplinger's target price, which is designed to give you a fair deal and the dealer a fair profit. Some popular models in short supply aren't likely to sell for much less than sticker. To get a better idea of how low you can go, check Edmunds.com for the actual transaction price in your region.
After the test drive, get on the phone with the dealer and several other dealers in your area to solicit bids. That way you won't have to submit to the negotiating games dealers often play. Ask each dealership to bid an amount above or below the factory invoice price for the make, model and style you want. Playing off the invoice is key because it eliminates dickering at the dealership. If a dealer commits to selling you a car for $300 over invoice, for example, the number of options on the vehicles you consider won't open the door to further negotiations. You'll see the invoice price for the car and every option, and know you can buy it for $300 over the total. Make sure rebates are not included and that you identify any miscellaneous charges that could show up on the final bill, such as dealer prep or port charges. Get the lowest bidders to send you an e-mail or fax confirming the promised price.
Line up financing from your bank or credit union in advance so the carmaker's cut-rate loan doesn't become an excuse for the dealer to stop bargaining. If you have a choice between low-rate financing and a rebate, it usually makes sense to take the cash, add it to your down payment, and get your own financing -- particularly if you have access to a tax-deductible home-equity line of credit. Whatever you do, think twice before you finance a car with those popular six- and seven-year loans, and particularly the eight-year loans that some lenders now offer. Besides increasing your overall interest costs, you'll likely be making payments on a car that's practically worthless by the end of the term.
The allure of auto leasing has waned in recent years as residual values written into contracts (that is, how much the car is expected to be worth at the end of the lease) have fallen in response to sagging used-car prices and manufacturers have poured on low-rate financing for purchasers. Still, some lease deals are attractive, particularly if you want to drive a new car every two or three years. But remember this: Bargaining hard for the lowest price is just as important when you lease as when you buy. The key to payments is the difference between the car's price and its residual value.