When sales fall,
incentives rise
By Terry
Jackson • Bankrate.com
Zero-percent financing. Thousands of dollars in rebates.
No-money-down, sign-and-drive leases.
Those were among the come-ons that manufacturers used
in 2004 to get people to buy new cars and trucks. The result was
annual U.S. sales of about 16.4 million new cars and trucks -- a
good number, but less than the 18 million that companies would like
to sell.
For 2005, the industry is predicting that sales will
be about the same as in 2004, which means shoppers can expect much
the same deals, with only a few changes.
The biggest rebates will still be on sport-utility
vehicles and trucks, especially if gasoline prices stay at $2 a
gallon or above. Cars that are in demand, such as gasoline-electric
hybrids, will command top dollar and probably won't come with any
rebates or special financing.
When it comes to zero-percent financing, those offers
won't be as prevalent as they were in 2004, in large part because
increases in the prime interest rate by the Federal Reserve have
affected the overall cost of borrowing.
That means a manufacturer such as General Motors
can offer 2.9-percent financing on most of its vehicles and that
will still be 4 to 6 percentage points lower than a buyer could
get elsewhere. But on slow-selling big SUVs and pickups, the zero-percent
financing deals are likely to stick around.
Over the past few years, manufacturers have moved
away from heavily subsidized leases with high residuals because
in many cases they had to dump hundreds of thousands of cars coming
off lease at less than the value set when the lease began.
But should new-vehicle sales start to fall below
an annual rate of 16 million, look for manufacturers to start
offering lease deals with very attractive monthly payments.
The danger in all these come-ons, from a factory's
standpoint, is that consumers have come to expect such offers
and it may take ever-more unique deals to get their attention.
Volkswagen is breaking new ground with an experimental
program in Illinois and Wisconsin that gives a year's free insurance
to people who buy or lease a Golf, New Beetle or New Beetle Convertible,
even if they have a few infractions on their driving record.
If that program moves the sales needle upward, look
for VW to offer it nationwide.
Other manufacturer incentives that can come into
play in 2005 include free routine maintenance, free gasoline or
a free extended warranty.
To help buyers navigate the marketing thicket that
surrounds new cars today, here's a thumbnail guide:
-
Rebates: This
is cash the manufacturer will give to the buyer. Although the
buyer can get a check from the manufacturer, usually what happens
is that at the time of sale the buyer signs over the rebate
to the dealer, who deducts it from the sales price. Rebates
can also differ by region and some rebates are available only
to certain buyers, such as those who trade a competitor's car,
or members of the military. A word of advice: Any rebate should
come directly off the best-negotiated deal, not off the manufacturer's
sticker price.
-
Dealer incentive:
This is a discount the manufacturer gives to dealers to encourage
them to sell more of a certain vehicle. While this money technically
isn't the same as a consumer rebate, it's in play during the
bargaining process. It's unlikely that even a savvy buyer can
get a dealer to kick back all of the incentive money, but a
sizeable percentage should trickle back to the buyer. Also,
unlike rebates, incentives aren't advertised. Buyers can find
out which vehicles carry incentives by checking sites such as
Edmunds.com.
-
Tax incentives:
Uncle Sam offers reasons to buy certain vehicles. Business owners
can depreciate their vehicles, and really
large ones (14,000 pounds or more) get added tax incentives.
Tax deductions and rebates are also available on the federal
and state level for hybrid
vehicles to encourage energy conservation.
-
Employer
bonuses: Check with your boss about
this one. It may seem a little odd, but a few companies, especially
in California, are offering bonuses to employees who buy environmentally
friendly vehicles such as gasoline-electric hybrids.
And then there are deals that aren't deals at all.
It's important to distinguish between legitimate factory rebates
and incentives and dealer come-ons such as, "$8,000 guaranteed
trade-in on any vehicle, even if it doesn't run,'' or "Buy
one car and get a second at half price.'' These deals usually
aren't bargains and often involve the dealer inflating the list
price and then discounting from there. Always ask to see the federally
required factory sticker. Any negotiations or rebates should start
from that price.
-- Posted: Feb. 15, 2005
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