Is this as low as car prices can go?

Rebates, clearance pricing and cutthroat competition mean car prices at `historic lows’.

How many times have you heard this lately: “There’s never been a better time to buy a new car”?

Problem is, automobile dealers have been repeating it for years, diminishing the claim to just another tired sales pitch.

New-car shoppers have been wooed by a dizzying array of factory rebates, zero-per-cent offers, gas cards and other incentives long before the present economic downturn.

So, is it true that new vehicles have never been cheaper – or is it just hype?

George Iny, president of the consumer group Automobile Protection Association, believes consumers who are in the market for a vehicle have it especially good right now.

“New-car prices are at historic lows. Thanks to rebates and clearance pricing among the domestics, this has put pressure on the import brands” to be more competitive, says Iny.

The rise of Korean nameplates Hyundai and Kia in Canada has given other importers a run for their market share, he adds. “Hyundai and Kia now have several vehicles in the top tier of their segments, while still managing to sell at prices below much of the competition.” Iny points to some examples of recent price cuts: a $6,500 rebate on the Dodge Grand Caravan; about $6,000 off the all-new Pontiac G8 and the outgoing Ford Fusion; $3,850 plus no-cost financing on the Hyundai Elantra, and almost $10,000 off some Acura MDX models.

He suggests the deals are ripe for the picking because once the bailout money runs out and the domestics have found their footing, prices have nowhere to go but up. “General Motors and Chrysler both have about five months of inventory and are selling at low prices that cannot last after they restructure,” Iny says.

Yet despite the deep discounts, consumers have been sitting on the sidelines. Compared to one year ago, new-vehicle sales in March were down 15 per cent in Canada and 36 per cent in the U.S.

“There’s a perception that the market is behaving somewhat like a Dutch auction; that is, prospective buyers are watching the prices drop and won’t get involved until the absolute bottom is reached,” says Chris Travell, vice-president of Maritz Research Automotive Group.

Travell acknowledges there are more “cash on the hood” incentives now and even the Japanese automakers are dealing aggressively. Sticker prices at the low end of the market are especially cheap, with plenty of choice in the $10,000 to $15,000 range.

“Twenty years ago you were hard-pressed to find a new vehicle for $10,000,” Travell says.

What makes him hesitate about calling this a bonanza for consumers is the market data Maritz Research has uncovered for its clients (often the automakers themselves).

“It’s not just about price anymore,” he cautions, noting that the cost of the vehicle has dropped to the fourth-most important factor in a new-car purchase. Fuel economy, features for money and reliability all ranked higher as motivators for buyers in the 2008 study.

The ranking suggests some consumers can’t be tempted to buy right now regardless of the discounts.

Auto broker Mark Derry, who buys vehicles on behalf of clients at a significant discount from local dealers, is also cautious when portraying the present market.

“You have to look at it on a case-by-case basis,” Derry says. “The cash deals are not as good as last year, generally speaking, due to the decline of the Canadian dollar.”

With the dollar at par this time last year, Canadians were having a boisterous debate about the prices of goods in comparison to what our American neighbours were paying. Canadian auto manufacturers and importers were compelled to ratchet their prices down or boost incentives.

“Last year, I was finding stackable rebates on the all-new Honda Pilot that added up to $7,000 or $8,000 – now they’re around $3,000,” observes Derry. He says most Japanese vehicles are more expensive this year due to an unfavourable exchange rate.

Truck shoppers, on the other hand, have it better.

“I can offer my clients a $40,000 Dodge Ram pickup for $26,000,” he notes. Iny agrees, and wonders why the manufacturers are hell-bent on losing money. “The all-new Ram truck is being heavily discounted, which is forcing Ford and GM to respond,” says Iny. “All three are relatively new (truck) designs that could sell for more, and there is no comparable import volume in this segment. Dumb.”

Dumb, but the consumer wins – for now.

Payment options – cash, finance or lease – are not are as accommodating as they used to be, our experts agree. Many automakers are shying away from leasing because returned lease vehicles have suffered from dismal residuals, forcing dealers and automakers to eat their losses.

While GM and Chrysler are the only two major automakers to drop leasing outright, in practice many companies are steering consumers towards financing. Lease rates are higher than they used to be in many cases, while loan rates have generally remained attractive.

“Volvo technically leases but, in reality, their residuals are very low and their rates often are not great,” observes Derry. “I just got a quote for a couple of models and the interest rate on the lease for four years is 7.9 per cent, but if you finance it is zero per cent for five years.”

Domestic auto companies are especially keen to push long-term auto financing for six, seven and even eight years to shrink the monthly loan payment to resemble the $300 to $400 per month lease payment most Canadians can handle.

The APA doesn’t like the extra-long finance terms and advises consumers to alternatively look at financing three-year-old formerly leased automobiles, which Iny calls “fantastic buying opportunities,” thanks to the glut in the used-car market.

“Finance for 36 months and you will own it outright for roughly the same monthly payment as an 84-month new vehicle loan,” he says. “And there’s lots of life left in that used vehicle.”

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Apr 22, 2009

MARK TOLJAGIC

The Toronto Star