A few years ago, would you have expected Consumer Reports to rank two American-made cars among its top three? That's what happened in the magazine's rankings of the incoming crop of 2014 models. The highest-scoring car was the American-made electric Tesla Model S, followed by the BMW 135i and the Chevrolet Impala.
Yes, the Impala.
In this week's podcast, Mark Hamrick interviews:
- Jeff Bartlett, deputy auto editor for Consumer Reports. Bartlett explains whether he believes the impressive Impala is an outlier in the General Motors family, and how he measures affordability. (He's not a fan of five-year car loans.)
- Tara Baukus Mello, auto writer for Bankrate. Mello discusses whether Detroit is all the way back, and explains when it's a good idea to buy a 2013 model at a discount and when it's better to buy a 2014 model.
- And Polyana da Costa, Bankrate's senior mortgage reporter, explains why you shouldn't give up on refinancing, even if you missed the record-low rates last spring.
Tips for buying a new car in late summer and early fall
The lowdown on the hottest new cars, along with essential auto-buying tips. And, are the best mortgage refi deals history?
LISTEN TO AUDIO
Mark Hamrick: From Bankrate.com this is Your Money This Week. I'm Mark Hamrick reporting from Washington.
Americans love their cars and they've had to love them a little longer than they might have done otherwise in the wake of the recession. With consumers returning to showrooms now ready to buy, auto sales are one of the bright spots in the U.S. economy. And we'll hear from Consumer Reports how General Motors has notched one of its highest ratings ever. We'll also check in with auto writer Tara Baukus Mello who gives us some great tips for anyone in the market for a car. And Bankrate's Polyana da Costa reflects on low mortgage rates and whether the best times for refinancing are already behind. All that and more on Your Money This Week.
In our first segment some good news for General Motors and perspective car buyers. Not only has Consumer Reports placed the Chevrolet Impala atop of the sedan category it's among the top three vehicles tested along with the Tesla hatchback and a BMW coupe. We spoke with Consumer Reports deputy auto editor Jeff Bartlett and asked: What's so good about the Impala?
Jeff Bartlett: Where the Chevrolet Impala really stands out in the ratings is that it performs well across the board. Consumer Reports conducts more than 50 tests and the cars that really stand at the top of their categories are those that not just have some strengths but they have few weaknesses. So they're able to get peak scores in many of the categories. That's exactly what the Impala did.
Mark Hamrick: And we mentioned that it was in the top three in kind of your auto vehicle universe there going up against the Tesla S hatchback and the BMW 135i coupe. That's some pretty high cotton there in terms of automobiles, isn't it?
Jeff Bartlett: It's certainly in elite territory. The Tesla was a real game-changer, a car that has terrific performance and luxury as well as pretty impressive technology, which gave it an edge, of course, in the fuel economy category. But all around, the car earned it on its virtue of excelling in every single test. Likewise, the BMW (135)i is an impressive, fun, engaging, high performance vehicle that absolutely is a top score in most of its categories. Probably the thing that stands out most for the Impala, though, is that it's able to compete at a level you usually associate with upscale cars by just thinking of the brand. Chevrolet is not BMW, nor is it Tesla yet they proved that they can produce a quality product that can rival the very best.
Mark Hamrick: Of course, with so much riding on the transformation of General Motors in recent years we feel like it's necessary to ask the question right now. Does this mean that GM's turnaround is truly complete?
Jeff Bartlett: Well, we see this as a pretty interesting example of the potential for the new GM. If you think of the worst of old GM being the previous Impala, which scored 63 points out of 100 in our tests, and sold most of its vehicles to fleet. It was truly an undesirable, mediocre car that was essentially ancient by the end of its model run. They've shown in a few short years what a dramatic change that they can make. And if the Impala is a sign of things to come I think that is painting a pretty bright future for GM.
Mark Hamrick: So is the Impala an outlier among the autos that GM produces or is there a general level of quality that's associated with what it's doing right now?
Jeff Bartlett: We're seeing good things in all of the recent GM products, but we're also seeing significant weaknesses. Now for instance, within the Chevrolet stable is the Malibu, a car that is good but not great. And it had some very overt limitations. For instance, it's a family sedan with very limited backseat room. That is a real Achilles heel going up against a new Altima, the Fusion, new Accord, and fairly recent Camry. Likewise, those buyers are really prioritizing fuel economy and the fuel economy's pretty mediocre in the Malibu. The rest of the car is nice and has its appeals but in order to really stand out in this very competitive market, Chevrolet, like all brands, needs to hit across the board and provide that balanced performance that we see in the Impala.
Mark Hamrick: So you noted that the Impala compares well with vehicles that can cost as much as $20,000 or more on top of its price. How much would one expect to pay for the Impala?
Jeff Bartlett: Well, the version that we tested got very close to $40,000 but its base price starts at $27,000. So it does cover a wide range and certainly you can dial back on some of the luxury features that we indulged in, in order to save some money. But the amazing thing is, of course, cars are getting more expensive and it's increasingly common for a car that size to be priced in the 30s. But what we're seeing is this really held up against prestige-brand cars that are priced quite a bit more. In fact, we're still rotating through a few vehicles that overlap, and it's amazing how the Chevrolet kind of recalibrates your perspective.
Mark Hamrick: Now, among the variety of vehicles you tested obviously some foreign makes fared well, too. And I understand that among those were the Hyundai Santa Fe and the Kia, is it Forte?
Jeff Bartlett: That's right.
Mark Hamrick: So tell me about those vehicles.
Jeff Bartlett: Well, we've seen good cars, of course, in other segments from other manufacturers. They Hyundai Santa Fe is a desirable, well-executed three-row SUV. It's also offered in a two row as the Santa Fe Sport, which we didn't think excelled quite as much. Likewise, we thought highly of the Kia Forte, which is a small car that comes on the heels of the Hyundai Elantra, a car that we quite like. And as we've seen as a trend with Kia and Hyundai whichever one introduces the model most recently that tends to improve on the other. So it doesn't matter which way the order is, in this case, the Kia shines a little bit brighter than that, similar, Hyundai.
Mark Hamrick: We know that one of the impacts of the recession was that people were holding onto to their automobiles much longer than they would have traditionally and one presumes that some of the things that are going on in the industry right now amount to a catch up by consumers who may feel as if an auto purchase is overdue. Having said all that, does one need to pay a lot of money to have a good automobile?
Jeff Bartlett: Well, perhaps the tweak to that would be, should people pay a lot of money? What we see from consumers is a great deal of interest in, not only the basic functions of a car, but they're drawn in by some of the bells and whistles and even prestige. Yet we're seeing that the length of time that people need to pay off their car loans continues to increase. Right now it seems to be around 65 months is the average. And I would come at that question to say it'd be worthwhile consumers taking a step back and think, "Should I really be putting all this money into a car?" Do I need something at the level that I want? In reality, most people could probably dial it back a little bit, save themselves some money, and still get a car that can accomplish all of their goals.
Mark Hamrick: Five and a half years is a long time to have a car loan.
Jeff Bartlett: Oh, it absolutely is. And that length means unless you're able to get one of these terrific year-end, near zero percent interest rates it means it's also costing you more money because you're laying the finance charges out there. Really think about, what do you need? In reality, my take is if you're looking at a 65-month loan you can't afford the car. You wouldn't do that for any other type of purchase. It'd be like buying a house with a 50-year mortgage.
Mark Hamrick: Good point, and how are they doing with mileage these days?
Jeff Bartlett: Well, we're seeing real gains in fuel economy in our tests. Of course, you're seeing big numbers readily advertised. But we're also measuring notable improvements. It seems like each car that comes in tends to nudge up 1 or 2 miles per gallon over the vehicle it replaces. Yeah, so there are good fuel efficient choices out there but it's very important to do your research and make sure that you understand what the real-world fuel economy is in our tests as well as understand how you're going to drive it. Now for instance, we're seeing a lot of cars advertised at near or above 40 mpg on the highway. That's in a pretty idealized situation that probably most people don't travel on a daily basis. You want to look at how your lifestyle matches up with those figures.
Mark Hamrick: Jeff Bartlett, thank you.
Jeff Bartlett: Thank you.
Mark Hamrick: Jeff Bartlett, deputy auto editor at Consumer Reports. He spoke with us from his office in Yonkers, N.Y.
Next up, since we're on a roll, we wanted to delve further into the question how things are shaping up for consumers for late summer and early fall for anyone in the market for a car. What should we look for and what do we need to avoid? In our second segment, Bankrate auto writer Tara Baukus Mello. I asked her if she thought consumer reports got it right by giving such high grades to the Impala.
Tara Baukus Mello: Boy, I sure do think that they have it right. Their analysis definitely seemed like it was spot-on from the information that I've seen in the market. However, it was a little bit of a surprise that the Impala just trumped so many cars even some that were even $20,000 or so more expensive. It's really a testament to what General Motors has been doing these last few years redesigning a lot of really lackluster models and turning them into head-turning, industry-leading automobiles. They've done that with the Cruze, the Silverado pickup, the Chevy Sonic. They're all really big improvements in quality and in design. And of course, the latest would be the Impala, which has just knocked the socks off of a lot of people including Consumer Reports.
Mark Hamrick: And of course, this comes at a time when the city of Detroit itself has filed for bankruptcy in all these many years after the restructuring and federal bailouts given to GM and Chrysler. Ford didn't require a bailout. But does this say Detroit, as defined by the auto industry, is back or doing well?
Tara Baukus Mello: Well, it certainly speaks to the American-branded automobiles that are out there and how there's really been a turnaround in general of all of those brands. The quality has come up. JD Power has talked about that. Folks in general are just really, really happy with all of the American-branded vehicles. And they've really become huge competitors to the Japanese and the European models that have been very strong competitors for so many years.
Mark Hamrick: And it seems as if Chrysler in general doesn't quite as much attention, and that's been the case for many years. How has Chrysler done coming out of its restructuring?
Tara Baukus Mello: Chrysler's doing okay coming out of its restructuring. It's certainly been a little bit more of a challenge for them. I think when they got purchased by DaimlerChrysler and had that German connection their styling, design and engineering went a little bit of a different direction than Ford and GM. And I think it's just taking a little while for them to find their footing.
Mark Hamrick: Of course, that was now probably regarded as one of the worst mergers in modern history. And it found itself essentially a takeover target once again over time. What'd you say about generally the Chrysler vehicle line up from a consumer standpoint?
Tara Baukus Mello: The Chrysler vehicle lineup hasn't gotten quite as strong as what we've seen Ford and General Motors do in the last couple of years. But it is definitely coming along. There's really some interesting things to keep your eye on with the Chrysler models and their relationship with Fiat in terms of smaller, more fuel-efficient vehicles as well.
Mark Hamrick: So for people who might be in the market for a new car here late summer, early fall, should they be looking at these new models when you also have better deals presumably on the end-of-year model offers? How does a consumer try to put all those issues into perspective?
Tara Baukus Mello: Well, the key thing to remember when you're purchasing a car, a new car, at this time of year is that as you've mentioned we've got the new model lineup coming in, the 2014 models. So, dealers and manufacturers are very anxious to get rid of the 2013 models. They are starting to offer, and they're going to continue to offer over the next couple of months, and even potentially through the end of the year, some very hefty discounts on those models. You'll see the biggest discounts on 2013 models that are going to be redesigned for the 2014 model year because those vehicles will have some older styling issues and they'll be even less desirable. The key thing to think about when you go to make a purchase is how long you're going to keep the car, because when you're purchasing a 2013 model year at this point in time or over the next couple of months, you're essentially buying a car that's already 1 model year old. So if you're going to be getting rid of that car in a couple of years, even three years, you're going to have an issue with the resale value because you're going to have a car that's 1 model year older than if you had bought a 2014. Now if you're somebody who keeps your cars for a very long time, that's probably not going to matter too much, and you can certainly take advantage of those hefty discounts.
Mark Hamrick: Tara, what do you say to people who say, "I'd rather buy a car that's a couple of years old to avoid taking the depreciation hit," as the saying goes. It loses a lot of value as soon you drive it off the lot.
Tara Baukus Mello: From a financial perspective that's a terrific thing to do. You're not, as you pointed out, taking that initial hit the moment you drive the car off the lot. And in addition, you've got a car that is probably still under warranty if it's only 1 or 2 model years old. Cars often go out of warranty around the third model year, sometimes a little bit longer. One thing to think about if you do make that decision is to look at two different things actually. The first is to look at a certified preowned car, which is a car that would be certified from the manufacturer and has gone through an inspection process. Not only is that inspection process helpful, but those cars often come with longer warranties. Volvo is a great example of that. They're certified preowned warranty is 100,000 miles. It's better than the new-car warranty. So as long as you've got some warranty in there to cover you or you purchase an extended vehicle warranty through a third party or through the manufacturer then you've got those big parts covered and you can just save a whole bunch of money.
Mark Hamrick: So what do you advise people to look at when they're trying to buy a new car? What are some things that they may not think of when they go on those lots and are at risk of, first of all, falling prey to high-pressure sales tactics?
Tara Baukus Mello: Well, the first thing I always suggest to folks is to not go on the dealer's lot until they're really pretty close to thinking about making one of those decisions. So you want to do some research in advance of the dealer's lot or you want to head over to the dealer's lot when it's a Sunday and no one's around after hours, something like that. The first step I always suggest to folks is to determine your budget. Generally to keep auto costs in check you want to spend no more than 20 percent of your monthly household income on all of the cars and all of the costs associated with those cars in your household. So that's not just your monthly payment. But it's your gas, it's your insurance, it's your repairs, your maintenance. So take a look at your household budget and keep that 20 percent number in mind. If you come up with a number that's smaller than what you'd like don't assume that a small number means you need to purchase a used car. Certainly there's good value in purchasing a used car and you can choose to do that in the long run but if you really want one of those new models if you've got even $15,000 to spend you can get some really decent new cars and some wonderful near-new cars that will help you even if your budget's a little bit small. A couple of other things to think about if you're going to be financing is to look around for the best interest rate before you walk into the dealer and try to start negotiating the price of that car. So you see the ads for zero percent and low-interest financing, they're trying to woo you to get into that dealership before you've really made your decision. But go take a look around at the local lenders, use a site like Bankrate.com to see what the national lenders are offering. They've got a wonderful rate search tool that's there. And try to get a feel for the best rate you'll qualify for before you go into the dealership. Then when you're talking with the dealer you can make the best choice for you.
Mark Hamrick: Well, short of taking you to the lot to help one make the purchase this is all great advice, Tara, and we really appreciate it. Thanks so much.
Tara Baukus Mello: It was my pleasure, Mark.
Mark Hamrick: Tara Baukus Mello, Bankrate's auto writer, is speaking with us from Simi Valley, Calif. Be sure to check out a wide array of calculators at Bankrate.com. They can help you determine just what kind of loan you can afford, make a decision whether to lease or buy, and even choose new versus used cars.
While the Federal Reserve has been keeping benchmark interest rates low, some of the rates being charged in the marketplace, the real world, have been on the rise. And that includes mortgage interest rates. Is it too late to refinance a home loan? Next up, we hear from Bankrate's Polyana da Costa.
Polyana da Costa: Did I miss the chance to refinance my mortgage? That's a question many homeowners have after they watched mortgage rates jump. The 30-year fixed has gone up by more than a full percentage point in the last couple of months. For many homeowners the answer is "yes." The opportunity to cut your house payment knocked on your door and you took too long to answer it. But don't give up yet especially if you have a rate of 5.5 percent or higher. The bigger your mortgage is the more you can save. Let's say you have a mortgage of $300,000. You're paying 5.5 percent interest. That comes to $1,700 a month plus taxes and insurance. Let's say you can refinance and cut your rate by 1 percent. You'd be paying 4.5 percent. That would cut your mortgage by $200 a month. It'd be like giving yourself an annual raise of $2,400. Granted, had you refinanced your mortgage three months ago when the 30-year fixed was at 3.5 percent you would have gotten a raise of $350 a month instead of $200. But that's history now. Industry experts say it's unlikely that mortgage rates will fall back to the levels we got used to seeing. Now, if you got your mortgage in the last couple of years and they're paying about 5 percent on your loan but just can't forgive yourself for not refinancing when rates were at the bottom, there's still hope. While you may not find enough savings by refinancing with a 30-year fixed you can still get a 15-year fixed mortgage in the 3 percent range. If you do that your payments will be slightly higher but you finish paying your mortgage 15 years earlier. Some homeowners also are looking into adjustable-rate mortgages. They carry significantly lower rates than the usual fixed-rate loans. But remember that with an ARM loan your rate will reset usually after five or seven years. And who knows where rates will be seven years from now. For Your Money This Week, I'm Polyana da Costa.
Mark Hamrick: Finally, our look at this week in business history and a birthday. On Aug. 10, 1814, Henri Nestle was born in Germany. He trained as an apprentice in a pharmacy and began working with chemicals making and selling prescriptions. With infant mortality a huge problem, Nestle found success selling infant formula. The company he founded was, of course, Nestle, now the world's largest food and beverage company that makes products you might know like Lean Cuisine, Haagen-Dazs ice cream, Stouffer's frozen food and Nestea.
You've been listening to Your Money This Week. Our thanks to Jeff Bartlett with Consumer Reports, to auto writer Tara Baukus Mello, and Bankrate's Polyana da Costa. If you enjoyed the podcast, please rate and subscribe to our program. We're hoping you can help us to get the word out. For more on this and other personal finance issues visit Bankrate.com or you can follow us on Twitter @Bankrate. Our editor-in-chief is Julie Bandy, managing editor Katie Doyle, and thanks to producer Lucas Wysocki for his work in the studio. I'm Mark Hamrick. From all of us here at Bankrate here's hoping you have a great week.