August 2007
How to drive a great, end-of-summer new car deal
Customer cash rebate incentives are just part of the potential savings
The end-of-summer sales season is underway. The auto industry's marketing machine is firing on all cylinders, barking clearance
deals on 2007 models in newspaper, radio, and television advertising. Such dramatic discounts are enough to grab the attention
of any in-market car buyer, but Consumer Reports Auto Price Service's analysis shows that there is even more potential savings
than shoppers might realize.
HIDDEN CASH FOR POWERING YOUR NEGOTIATIONS
Reviewing the 2007 incentives, we have seen hundreds, even thousands, of dollars in hidden dealer incentives. Car shoppers who claim their rebate, and perhaps even take advantage of reduced-rate financing, might be thrilled with their deal but they could be leaving significant money on the table.
The customer cash incentives come from the manufacturer, leaving the dealer to still earn money above their invoice price, plus a holdback fee that the manufacturer pays the dealer, and sometimes a manufacturer-to-dealer incentive. The holdback fee and manufacturer-to-dealer incentives are typically unadvertised. That means dealers might not be making big sacrifices to move old stock, and there could be more negotiation room.
For example, a $20,000 car with a $2,000 manufacturer-to-customer rebate means the buyer can easily drive it away for $18,000. Since that discount comes from the automaker, not from the dealer, the dealer profit isn't compromised. If that same car also has an additional $2,000 manufacturer-to-dealer incentive on it, the dealer would profit as if the car was sold for $22,000, or above the sticker price. Throw in the common 2-3 percent holdback that the manufacturer gives to the dealer to help cover base business costs, and the dealer would be sitting pretty in this scenario. As businesses, dealerships are entitled to earn a fair profit, but as the consumer, you deserve a fair deal. Understanding the numbers, and being armed with the latest incentives, can prepare you to negotiate effectively.
In July, we tracked 3,180 manufacturer-to-customer incentives for sedans across all vehicle variations and regions, with an average amount of $2,174. Digging deeper, we found that the dealers also received incentives to motivate sedan sales, averaging $1,238. A well-informed buyer could, therefore, negotiate $3,000 off and still leave the dealer with an earnings bonus. For the customer, having $2,000 off is good, but negotiating $3,000 off is better.
That scenario is repeated across other vehicle segments, as well. The most subsidized categories in July included convertibles, trailed by SUVs and wagons. (It seems counterintuitive that drop-tops would have such a heavy promotion in the summer, but a couple of specific models with large rebates skewed the average for this limited vehicle group.)
The important lesson here is to discover what incentives are available for the buyer and the dealer in order to negotiate effectively, no matter what body styles you are considering. Below are several sample Best New Car Deals to illustrate the potential savings on specific CR Recommended cars when you know all the numbers. (For even more insights, CR Auto Price Reports are available for more than 1,100 vehicles.)
SHOULD YOU BUY LAST YEAR'S LEFTOVERS?
Closeout car deals can bring significant savings when compared with the sticker price, but remember that the vehicle will essentially depreciate a full year's worth once the new model hits showrooms. In some cases, the 2008s will be right there on the lot next to the discounted 2007s.
A 2007 leftover might not be such a good deal if you plan to sell or trade the car in just a couple of years. But long-distance drivers can spread their high annual mileage over more model years by purchasing a clearance model, possibly elevating resale value. If you plan to drive the car for more than five years, or until it wears out, a closeout deal can be a smart choice.
GETTING THE BEST DEAL
Driving a hard bargain is only one part of the equation. Remember, a great deal on a bad car is no deal at all. Be sure to research your purchase carefully, considering safety, fuel economy, reliability, performance, and comfort. There is a tremendous amount of information available online, found at Web sites such as ConsumerReports.org, enabling you to narrow a shopping list to a few key vehicles. Evaluating the models with a test drive will help you trim the list to the true contenders.
To make the buying process easier, Consumer Reports recommends models that meet our stringent criteria for overall test performance, safety, and reliability. That is reflected in our Best new car deals, where the latest incentives are presented, as well as throughout our publications and Web services.
Buying a car requires homework, but that research pays off in your finding a good car and a relatively low price.
Learn more in our step-by-step guide to buying a new car.
HIDDEN CASH FOR POWERING YOUR NEGOTIATIONS
Reviewing the 2007 incentives, we have seen hundreds, even thousands, of dollars in hidden dealer incentives. Car shoppers who claim their rebate, and perhaps even take advantage of reduced-rate financing, might be thrilled with their deal but they could be leaving significant money on the table.
The customer cash incentives come from the manufacturer, leaving the dealer to still earn money above their invoice price, plus a holdback fee that the manufacturer pays the dealer, and sometimes a manufacturer-to-dealer incentive. The holdback fee and manufacturer-to-dealer incentives are typically unadvertised. That means dealers might not be making big sacrifices to move old stock, and there could be more negotiation room.
For example, a $20,000 car with a $2,000 manufacturer-to-customer rebate means the buyer can easily drive it away for $18,000. Since that discount comes from the automaker, not from the dealer, the dealer profit isn't compromised. If that same car also has an additional $2,000 manufacturer-to-dealer incentive on it, the dealer would profit as if the car was sold for $22,000, or above the sticker price. Throw in the common 2-3 percent holdback that the manufacturer gives to the dealer to help cover base business costs, and the dealer would be sitting pretty in this scenario. As businesses, dealerships are entitled to earn a fair profit, but as the consumer, you deserve a fair deal. Understanding the numbers, and being armed with the latest incentives, can prepare you to negotiate effectively.
In July, we tracked 3,180 manufacturer-to-customer incentives for sedans across all vehicle variations and regions, with an average amount of $2,174. Digging deeper, we found that the dealers also received incentives to motivate sedan sales, averaging $1,238. A well-informed buyer could, therefore, negotiate $3,000 off and still leave the dealer with an earnings bonus. For the customer, having $2,000 off is good, but negotiating $3,000 off is better.
That scenario is repeated across other vehicle segments, as well. The most subsidized categories in July included convertibles, trailed by SUVs and wagons. (It seems counterintuitive that drop-tops would have such a heavy promotion in the summer, but a couple of specific models with large rebates skewed the average for this limited vehicle group.)
The important lesson here is to discover what incentives are available for the buyer and the dealer in order to negotiate effectively, no matter what body styles you are considering. Below are several sample Best New Car Deals to illustrate the potential savings on specific CR Recommended cars when you know all the numbers. (For even more insights, CR Auto Price Reports are available for more than 1,100 vehicles.)
| Model | Expires | MSRP | Invoice price | Customer Rebates | Potential Negotiating Room |
|---|---|---|---|---|---|
| 2007 Toyota 4Runner Sport V6 4x4 | 9/4 | $32,935 | $29,359 | $2,000 | 19% |
| 2007 Saab 9-5 Aero w/Premium Package | 9/4 | 36,535 | 34,388 | 4,000 | 19 |
| 2007 Jeep Liberty Limited 4WD | 9/4 | 27,405 | 25,598 | 3,500 | 22 |
| 2007 Dodge Ram 1500 Pickup SLT 4X4 Quad Cab SWB | 9/4 | 32,505 | 28,735 | 5,000 | 30 |
| 2007 Lincoln Town Car Signature Limited | 10/1 | 45,910 | 42,356 | 7,000 | 31 |
SHOULD YOU BUY LAST YEAR'S LEFTOVERS?
Closeout car deals can bring significant savings when compared with the sticker price, but remember that the vehicle will essentially depreciate a full year's worth once the new model hits showrooms. In some cases, the 2008s will be right there on the lot next to the discounted 2007s.
A 2007 leftover might not be such a good deal if you plan to sell or trade the car in just a couple of years. But long-distance drivers can spread their high annual mileage over more model years by purchasing a clearance model, possibly elevating resale value. If you plan to drive the car for more than five years, or until it wears out, a closeout deal can be a smart choice.
GETTING THE BEST DEAL
Driving a hard bargain is only one part of the equation. Remember, a great deal on a bad car is no deal at all. Be sure to research your purchase carefully, considering safety, fuel economy, reliability, performance, and comfort. There is a tremendous amount of information available online, found at Web sites such as ConsumerReports.org, enabling you to narrow a shopping list to a few key vehicles. Evaluating the models with a test drive will help you trim the list to the true contenders.
To make the buying process easier, Consumer Reports recommends models that meet our stringent criteria for overall test performance, safety, and reliability. That is reflected in our Best new car deals, where the latest incentives are presented, as well as throughout our publications and Web services.
Buying a car requires homework, but that research pays off in your finding a good car and a relatively low price.
Learn more in our step-by-step guide to buying a new car.
