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What's hot, what's not

If you're like many buyers, you're gravitating toward reliable, fuel-efficient vehicles. That trend is boosting sales of Toyota's Prius hybrid, the subcompact Honda Fit, the Nissan Versa and Toyota Yaris, and the ever-popular Honda Civic, Mazda3 and Toyota Corolla. Midsize and large sedans took a hit amid the lull in sales last year. But midsize sedans are still attractive to pump-price-conscious buyers because the vast majority come with thrifty, four-cylinder engines. Result: The Toyota Camry still tops the best-seller list, and the Honda Accord, redesigned for 2008, is still in second place.

So it's no surprise that the Asian auto juggernaut continues to take market share from the domestic carmakers. Toyota now ranks second in U.S. sales (behind GM), and is on track to overtake GM in both U.S. and global sales.

Now Detroit is fighting back. Witness the Malibu's extreme makeover, with a head-turning design and European-derived architecture. "The new Malibu is probably the first really good Chevy since the 1960s," says Erich Merkle, director of forecasting for IRN, an automotive-industry consulting firm. Merkle says that although he had not owned a U.S.-made vehicle since 1995, he bought a Ford Fusion last year because it rates well for dependability -- and he liked the styling.

The Art of Haggling

Don't Be Afraid to Haggle

In a post-incentive world, hagglers drive home the deals.

Carmakers tightened their purse strings in 2007, offering an average of $500 less in incentives per vehicle compared with the year before. That helped push the average transaction price of a new car to $27,500, up $570 from the year before, according to Power Information Network (which also supplied the lists of hottest vehicles). Partly because buyers have been trained to wait for incentives, and partly because interest rates are higher -- 7%, on average, for a five-year new-car loan -- dealers had to price their 2007 inventory to sell. Dealerships booked an average $17 loss per vehicle last year, according to the National Automobile Dealers Association.

Don't hold your breath waiting for incentives to return. Cash rebates and subsidized interest rates are carefully targeted to clear out slow-selling vehicles or the previous year's models. But that doesn't mean you can't get a great deal on a 2008. When we asked CarBargains, the buying service of the nonprofit Consumers' Checkbook organization, to shop for our ten Best New Cars, they found the Chevy Malibu, Honda Accord and Nissan Rogue at invoice (the dealer cost), and the Chrysler Town & Country at invoice minus $400.

Sara Stramel of Indianapolis played the haggling game perfectly. She recently left her job at a bank to start her own marketing consulting business, so she wanted to trade in her aging VW Jetta for an affordable and more reliable 2008 midsize sedan. She looked at the Nissan Altima, and rented the Hyundai Sonata and Saturn Aura, but ultimately picked a Honda Accord because Hondas are dependable and have high resale values. And, she says, "the redesign turns heads."

Next she e-mailed the Internet sales staff of all three Indianapolis Honda dealerships looking for a lease payment of $290 a month for 40 months on a $22,500 Accord LX-P (a new trim level for 2008). One dealer came close, at $298 a month, but Stramel wouldn't budge. "I hung up. He called back two minutes later and said, 'You've got a deal.' " She drove to the dealership to sign the papers -- the first time she'd set foot in the showroom.

But Motor City carmakers won't revive and thrive, says Merkle, until they figure out that "they're not in the transportation business. They're making a fashion statement." Buyers may never look under the hood, but they'll inspect the cabin, so interior designs have to improve. GM and Ford have been making strides, but Chrysler still has a ways to go, says Merkle.

No one designs fashionable interiors like the German luxury lines, and sales have been strong for Audi, BMW and Porsche. Luxury auto sales are tied to stock-market performance, and even though the market has been retreating lately, investors are still coasting on money made the past couple of years. Plus, many luxury vehicles are leased, keeping payments lower.

Sales of small cars and crossover SUVs are up, and sales of pickups and truck-based SUVs are down -- which makes sense, given high gas prices. Crossovers are also gnawing at the market share of truck-based SUVs and minivans because many buyers prefer their racier designs. Plus, many crossovers now feature third-row seats that can actually accommodate adults, second-row seats that slide forward for easier rear access, and fold-flat second- and third-row seats for carrying cargo instead of your crew. In other words, they're morphing into cool minivans.

Greener horizons

Hybrid sales shot up by a third in 2007, to 350,000, thanks largely to increased production of the Toyota Prius. For 2008, GM introduced a Malibu hybrid and a redesigned Saturn Vue hybrid, as well as the first full-size SUV hybrids, the Chevrolet Tahoe and GMC Yukon. And Toyota redesigned its Highlander Hybrid for 2008.

After checking out the competition, Meridee Williams chose the hybrid Highlander. Williams commutes 60 miles a day round-trip from her home in Pasadena, Cal., to her business in Claremont, and she was tired of paying a small fortune to fill up her Range Rover. She wanted an SUV because she usually travels with her German shepherd, Czar, and feels safer in a larger vehicle. Like many hybrid owners, she was motivated by a combination of environmental consciousness and a desire for better gas mileage. The new technology was the clincher: "I love the computer that tells me my miles per gallon and the gauge that shows when I'm on battery power," she says.

Diesels get up to 30% better mileage than gasoline-powered vehicles, but they're scarce among 2008 models. New clean-air standards that took effect in 2007 forced manufacturers to retool their diesels to reduce soot and nitrous oxides, which contribute to smog. The few that are available -- the Mercedes-Benz E, GL, M and R classes, and a Jeep Grand Cherokee -- still don't meet emissions requirements in California, Connecticut, Massachusetts, New York and Vermont. But that will change later this year as the 2009s are introduced. New diesels from Acura, Audi and BMW, as well as Jeep, Mercedes-Benz and Volkswagen, should pass muster in all 50 states.

You'll pay a premium of up to $5,000 for a hybrid or diesel model, and you probably won't get it back from savings on fuel. That price gap will eventually decrease, but not until sales increase. Hybrids still account for only 2% of vehicle sales, while diesels represent about 3% of the market.

Alternative-energy-vehicle sales will get a boost from the new energy bill. Washington finally realized that the car industry and its customers aren't going to save the planet without prodding from policymakers. The energy bill aims to reduce U.S. dependence on foreign oil and cut greenhouse-gas emissions. Tough new rules raise manufacturers' fleetwide average fuel efficiency for both cars and light trucks to 35 miles per gallon (from a current 27.5 mpg for cars and 22.2 mpg for light trucks) by 2020. The thousands of extra dollars it will cost to produce a more efficient vehicle should be offset by savings on fuel. The bill also requires the use of more alternative fuels.

One thing the energy bill doesn't do is extend tax credits for buying hybrid cars (the credits phase out after a carmaker sells 60,000 hybrids). Tax credits for Toyota and Lexus hybrids are gone. The break for the Honda Civic Hybrid has been slashed in half, to $1,050, and will be gone after December 31. Credits for other hybrids range from $1,300 for the Malibu and Saturn Aura to $3,000 for the Ford Escape.

A Tour of the new sedans

In the under-$20,000 category, fuel sippers rule. But no one in this price class matches the 40-plus mpg of the Smart fortwo (and that's with new testing procedures from the Environmental Protection Agency that have lowered the estimated fuel economy on 2008 models by 2 to 4 mpg, on average). The two-seater from Daimler with a three-cylinder engine is 40 inches shorter than the stubby Mini Cooper and tops out at 90 miles per hour. The Best New Car is the Scion xB, which hit the street last fall with a less boxy redesign and more power under the hood. The Mazda3 gets our Best in Class award. Its practical design has been winning fans -- and sales.

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