Is Now the Best Time To Buy A New Car?

July 22, 2008

Unemployment is up; the housing market is still in shambles; the economy is slowed by high gas and fuel prices, on the one hand, yet threatened by inflation on the other. Wall Street is behaving in an unstable way. Furthermore, America’s manufacturing sector is in trouble. Could this, paradoxically, be one of the best times in recent history to buy a new car? The answer may be, yes.

Fewer cars are being sold than ever before, and automakers have had to decrease the amount of cars they manufacture. During the first fiscal quarter of 2008, 8% fewer automobiles were sold in America than during the first fiscal quarter of 2007. Auto manufacturers have to work hard to sell the cars that they’ve already produced. Since 2001, low sticker prices have helped sell cars, but that hasn’t been enough. Meanwhile, the Federal Reserve has cut rates during the first quarter of 2008, helping to get consumers to spend more.

What do these facts amount to? Since 2008, auto manufacturers have been offering customers who buy new cars greater and greater incentives. These are bonuses meant to help encourage customers to buy. The most common incentives are lending customers money to buy the vehicle they want at low interest rates, or offering cash rebates on the purchase of certain vehicles. The Federal Reserve’s rate cuts have not only helped consumers directly–they’ve also helped auto manufacturers help consumers by making it easier for the car manufacturers to offer their customers low-interest-rate loans.

Just one instance of this phenomenon is the fact that, this year, General Motors has devoted $3,300 per car on customer bonuses such as rebates, 0% financing, and low-interest-rate car loans. In 2007, the company had only spend $2,800 per car on such incentives. Many new cars now come with offers of loans at an interest rate ranging between 2.5 and 4%. The costlier cars often come with loans at 0% interest, at least for a certain number of years. Compare this with the interest rate you’re likely to get on a comparable loan from a bank: approximately 7%, if your credit is good.

As for rebates, consumers can receive up to $1,000 back, even on economy cars like the new Toyota Camry Hybrid and the Saturn Aura.

All other factors being equal, you need to consider what type of incentive you want when you buy a new car. The rebates are an especially good deal for customers who don’t plan to hold on to their car for more than a few years. If you only want to keep your new car for two or three years, getting the rebate combined with a loan from a bank (instead of the car manufacturer) could save you the most money.

Customers who plan to keep their car for the long haul would do better to take advantage of auto manufacturer’s offers of a low-interest loan. Because they’ll be making payments longer, they stand to save more money with the low interest rates.

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