In February, new-vehicle sales dropped an astounding 41 percent from the previous year. Automakers are hemorrhaging cash and begging the taxpayers of multiple nations for bailouts. Dealerships have become virtual ghost towns. If the car industry is to remain solvent, automakers must find a way to get people to buy cars.
"The consumer psychology is, don't spend money unless you have to," says David Lucas, vice president of Motor Intelligence, a consulting firm specializing in incentives and sales data. "Even some people with the means to purchase a car have a wait-and-see attitude."
Auto manufacturers have kept sales volumes up for years now with creative discounts, but times are desperate, so companies are throwing unheard-of incentives at consumers. The discounts are steep enough that the economics of the automotive world are going topsy-turvy. And it's a sign of the bizarro world that America has found itself in that we can legitimately ask the question: Is a new car actually cheaper than a used car?
Conventional Thought
The average incentive in February was $2,900 per vehicle, yet according to a recent report, 27 percent of shoppers who did drop by a dealer in February to buy a car drove out in a used one. That got us wondering. Given the incentives from automakers and tax breaks for new-car buyers in the American Recovery and Reinvestment Act, is buying a used car still the best deal for your money?
Conventional wisdom has always held that new cars lose a significant portion of their value as soon as you drive them off the lot, so it's a far better deal to pick one up in its second to fifth year of life. A study by Consumer Reports from 2008 found that within the first five years, a vehicle depreciated by 45 percent, with almost 20 percent of that drop usually coming within the first year. But when tax incentives and free cash from manufacturers render the sticker price all but meaningless, does that logic still hold? We decided to look at a few examples to see where you get the best bang for your buck.
Discuss:
Today's cash-back and tax incentives are amazing. Could they put you into a new car?
A World With Incentives
Incentives vary by region and change from month to month (and the haggling prowess of different individuals can yield different results), but we checked out three vehicles in the $20,000 to $30,000 range in early March to see how some sample new-car deals stacked up against the Kelley Blue Book value of the same model from the previous year, as well as a three-year-old model.
is reportedly leading the industry in incentives, so we decided to start our bargain hunt there. The 300 sedan has been impressing critics for several years now, but it must not be impressing shoppers, since Chrysler is piling on discounts like there's no tomorrow (and, considering the company's financial straits, there may not be). A base-level, rear-wheel-drive 2009 300 Touring sedan has an MSRP of $27,665 (including destination charge). After a $2,326 employee price discount, plus $2,000 in regional dealer incentives (in some areas, there are also loyalty discounts for customers who currently own a Chrysler product), the price comes down to $23,339 — that's $1,829 below the invoice price of the vehicle. The stimulus bill also allows buyers to deduct the state sales tax of any vehicle purchased this year on federal income-tax returns. All of this combined starts to approach the $21,775 suggested Blue Book value of a 2008 300 Touring model in excellent condition with 10,000 miles on it. However, a three-year-old 2006 model with 30,000 miles on it is still a significant savings at $16,580.
