AJC CAR NEWS
Auto makers pump up deals on smaller cars
The Wall Street Journal
Saturday, November 01, 2008
They’re this year’s hot vehicles. But as the effects of the financial crisis deepen, even small and midsize cars are seeing declining sales — and that means better deals for prospective buyers.
Manufacturers had generally pulled back on incentives for smaller vehicles this year, after record-high gas prices spiked demand. And the discounts still aren’t as juicy or widespread as those on fuel-thirsty sport-utility vehicles, or even car-based crossovers.
Toyota
In an effort to boost sales, many manufacturers are offering deals on their smaller, more fuel-efficient models. Toyota’s Corolla carries up to a $1,000 rebate in some areas as well as zero percent financing for 36 months. In many parts of the country, customers can lease a Corolla for less than $230 a month over three years.
Ford
After cash-back deals of more than $2,000 in many areas of the country, a 2009 Ford Focus sedan with a manual transmission can likely be had for less than $14,000. Zero percent financing is available in many cases.
But customers can now get good deals — including cash-back offers, low-interest-rate financing and lease specials — on some best-selling cars. And they have newfound leverage when negotiating with dealers, many of whom are desperate to move vehicles off their lots.
The best deals will likely be found on cars made by General Motors Corp., Ford Motor Co. and Chrysler LLC, as Detroit has suffered the worst of the sales downturn. The Big Three have also had trouble in recent years competing with Asian and European automakers in small and midsize cars.
Shoppers can get back between $500 and $3,500 on some cars and will see financing rates below 2 percent on both 2008 and 2009 models. Some automakers are offering zero percent financing deals, and even some luxury brands are being discounted now, as a broad downturn takes its toll on the entire industry.
“Consumers are just not in the mood to buy anything,” said John Casesa, managing partner at Casesa Shapiro Group LLC, a New York consulting firm that owns some dealerships. “It’s that simple.”
He said that dealers will be “anxious” about having too much stock during typically slow winter months. “There’s going to be motivation to deal on anything except the absolute hottest models.”
Two briskly selling small cars, Ford’s Focus and Toyota Motor Corp.’s Corolla, are currently carrying manufacturer discounts through early November. Both get about 35 miles per gallon.
A 2009 Focus sedan with a manual transmission can likely be had for less than $14,000 after cash-back deals of more than $2,000 in many areas. Ford is also offering zero percent financing for 36 months in many cases. That’s after the company moved in April to boost Focus production about 30 percent amid surging demand.
Toyota’s Corolla, meanwhile, which goes for about $15,900 with a manual transmission and $16,655 with an automatic, carries up to a $1,000 rebate in some areas. Customers can also get zero percent financing for 36 months or lease a Corolla in many parts of the country for less than $230 a month over three years and a low down payment. (For both cars, these prices assume a base trim level; prices climb somewhat when you add certain options and features.)
Other small cars, such as Nissan Motor Co.’s 2009 Sentra and Versa, offer $750 and $500 cash-back deals, respectively. Alternatively, customers can get financing rates below 5 percent.
Beyond listed promotions, car shoppers also have increased bargaining power in the showroom. James Holmes, a 52-year-old sales consultant in Nashville, used several discounts when buying a 2008 Aura XE last month. The list price was $22,500 and he said he shaved off about $8,050.
He received a $2,000 discount from GMAC Financial Services, which financed his loan, a $1,300 discount from GM and a $1,750 rebate from Saturn — and he cashed in $3,000 worth of rewards from his GM credit card.
“I’d say I got a good deal,” Holmes said.
Sales of small cars are up about 6 percent for the year through September, compared with last year, while midsize cars are off only about 5 percent. But both segments plunged about 20 percent last month. Dealer inventories of these cars, meanwhile, have picked up recently after running at extraordinarily low levels in the spring.
Car buyers are “going to find better deals and better selection on small cars than they did four months ago, when the pickings were slim,” said George Pipas, Ford’s top sales analyst. Incentives typically pick up toward the end of a model year, but manufacturers held off on deals for small cars this year, amid increased demand. Pipas expects a more normal level of incentive activity on smaller vehicles going forward.
To be sure, average incentive spending on some smaller vehicles is still about the same, or even less generous, than it was a year ago, according to Edmunds.com, an auto-research firm. The average discount on compact cars fell to $818 from $879, while incentives on midsize cars were up slightly, to $1,627 from $1,447.
Jesse Toprak, an Edmunds analyst, expects demand to remain stronger among these better-mileage vehicles. Many midsize and small cars get better than 30 miles a gallon. Many large SUVs have trouble cracking 20 mpg.
“Although gas prices are lower, they’re still high. That will continue to fuel demand for anything gas-efficient,” said Toprak, adding that pricing on smaller cars will generally be less flexible than on larger vehicles.
Still, there are plenty of attractive deals on some hot-selling models. Sonja Fex recently took advantage of a $1,000 discount on a Toyota 2009 Corolla. She and her husband shopped several models, but liked the Corolla’s style and especially its good gas mileage.
The Southeast Florida couple just moved to Hobe Sound, Fex said, farther away from more-populated Jupiter, their previous home. “It’s a long commute just to get errands done, so we like the fuel efficiency,” she said of the Corolla.
Corolla isn’t the only Toyota car on sale. Even the 2009 Camry, America’s best-selling car, carries up to a $1,000 discount or zero percent financing for three years, depending on the market. Other 2009 midsize cars with deals include Honda Motor Co.’s 2009 Accord, which offers 1.9 percent financing for 24 to 36 months, and the 2009 Nissan Altima, which offers 3.9 percent financing for up to three years.
Chrysler’s 2009 Dodge Caliber compact offers a $1,000 discount in many markets. In addition to the Focus small car, Ford is offering up to $3,500 cash back on its midsize Fusion sedan in some markets, or zero percent financing for three years.
GM’s Saturn Aura never caught fire, and the 2009 model offers as much as $1,500 cash-back in some areas. The 2008 Aura, meanwhile, offers zero percent financing for 48 months in some markets.
Luxury cars, which often carry price tags in excess of $30,000, also have some deals these days as their sales decline. Toyota’s Lexus ES 350, priced around $35,000, has a $1,000 cash-back deal in limited circumstances, according to Edmunds. Daimler AG’s Mercedes-Benz is offering lease deals on many of its cars. These cars tend to be more powerful and less fuel-efficient than non-luxury small cars and midsize sedans.
Consumers could see attractive deals on nearly all vehicles through next year. Research firm J.D. Power & Associates expects automakers to sell 13.6 million light-duty cars and trucks this year, down 16 percent from a year ago. Next year, the firm predicts a potential “outright collapse” in the auto market, leading to sales of just 13.2 million light vehicles.
The upshot: Manufacturers and dealers likely won’t be able to command high prices for some time.
