Goodbye new-car discounts, hello perks
CHICAGO (MarketWatch)--Car buyers, you have been warned: General Motors's unconventional money-back guarantee and haggle-free pricing mark the dawn of a new era in the annual summer inventory clearance race.
"Car manufacturers don't want to go back to that bad habit of giving cars away," said Jesse Toprak, vice president of market intelligence at TrueCar.com, an automotive research site. "If the product is good enough, you shouldn't have to discount it."
That's true for iPhones, Coach bags and Tiffany jewelry, but has rarely been the case for cars, the prices of which are deeply discounted when it's time to clear out the old models to make room for the new. That's typically in late summer and early winter.
But GM's (GM) sales-incentive program as well as Chrysler's "no payments for 90 days" promotion--both unveiled in commercials during Major League Baseball's annual All-Star Game--signal that the sales success car dealers have found in recent months will keep them from slashing prices to the bone. Instead, they will be more innovative in how they lure you onto their showroom floors.
"This whole incentive game has really changed recently," said Jessica Caldwell, senior analyst at Edmunds.com.
"The amount of cash offers is not as high as it was a few years ago," she said. "There's a lot more financing and leasing deals because credit is so cheap now."
So don't expect big price slashing, employee-pricing deals or buy-a-car-get-free-insurance this year. Even cash rebates, which are still available, will be limited.
GM's "love it or return it" program gives consumers up to 60 days to return any 2012 or 2013 Chevy car they bought at a participating dealer. There must not be more than 4,000 miles on the odometer or more than $300 in damage, which is basically a scrape or dent.
The "total confidence pricing" deal is the no-haggle pricing on 2012 vehicles that significantly cuts the cost from manufacturer's suggested retail price to the supplier pricing, which is the same price you would get if you worked for one of the car maker's suppliers. Both deals expire Sept. 4.
Chrysler's gimmick is a "no payments for 90 days" campaign on Chrysler, Jeep, Dodge, Ram Truck and Fiat models through the end of August. The vehicles must be financed through Ally Financial.
Car makers are in a rare sweet spot now after years of having sales clobbered by the recession, fluctuating gas prices and a mostly lackluster lineup of new car models.
Consumers are buying
In June, the industry's U.S. sales blew the doors off expectations by jumping 22% to post the best sales month since 2007. Even truck and SUV sales ran well, perhaps because of falling gas prices.
GM, the nation's largest auto maker, reported a 16% increase while No. 2 Ford said sales climbed 7%. Toyota, which is the third largest auto maker in the U.S., clocked a 60% rise as it recovered from last year's clubbing from production slowdowns caused after the Japanese earthquake and tsunami. No. 4 Chrysler posted a 20% gain.
The influx of new-car buyers is driven partly by boredom and yearning. The average age for the estimated 245 million cars on U.S. roads is pushing 11 years--ancient in an industry that has been adding technological bells and whistles to even the smallest and cheapest of cars in recent years.
As the economy wobbles back to stabilization, consumers are trading in those oldsters--many of which are in perfectly fine operating condition, thanks to better production--for cars with backup cameras, synchronization features, and alarms that alert drivers to impending danger.
What's more, domestic auto makers have dramatically stepped up their game and now are competing on a more level playing field with Japanese and German auto makers.
"In terms of product and quality, the industry is at a greater level of parity than at any time in the past," said Alec Gutierrez, senior market analyst for automotive insights at Kelley Blue Book. "What's coming out today from Ford, GM and Chrysler, for the first time ever, is on par or better than what's available" from foreign manufacturers.
It's also helped that the residual values on used cars are, for the most part, relatively strong--a hangover from the slowdown in new-car sales that began in late 2008 and hit bottom in 2009 before turning the corner this year.
Though values have fallen, on average, about 4% year over year, they are still 10% to 15% higher than they were before 2008, Gutierrez said.
"These extraordinarily strong used-car values are expected to last at least into the next year or two," he added.
Add to that the bevy of new models, with little to no discounts, that are coming out to entice car buyers.
Take the Toyota Camry, long a family-favorite sedan that stayed on the road for years and has ranked as the best-selling car in the U.S. for 14 of that last 15 years. It was finally redesigned this year with a sleeker style and updated with audio and navigation packages.
"It's one of those high-volume cars that are all new this year," Caldwell said. "How many people have Camrys? We've still got all model years going back to the '80s on the road.
"That's a huge buyer base and this new kid on the block is appealing to all these people," she added.
New designs are also coming out for the Nissan Altima, the Ford Escape, the Ford Fusion, the Chevy Malibu, the Honda Accord and the Dodge Dart, for example.
Of course, there will always be a handful of good cars to buy on the cheap, at least relatively speaking. Caldwell said most luxury auto makers are already well into the 2013 model sales except for Mercedes-Benz.
"Luxury-car buyers should look to Mercedes as the model year comes to a close," she said. "Mercedes typically offers great leasing deals in August when they have plenty of old inventory left."