Looking for an upside to the downturn? Check out the auto showrooms.
If you qualify for a car loan (credit score above 500 and proof of
employment), deals can be had. Thank the recession, the meltdown of
Detroit's Big Three and the downward spiral in consumer confidence.
"If you are a bargain hunter, there has never been a better time,"
said Philip Reed, senior consumer advice editor for Edmunds, which
specializes in consumer automotive information. "If it gets any better,
they will be giving cars away. In the cases we are looking at, it's 25
to 30 percent off sticker price."
But before you run out, be warned: There are no giveaways. And if
you're looking real cheap, you'll be hard pressed to find a car below
$10,000 -- except for a bare-bones Nissan Versa without air conditioning. Even your basic Toyota Yaris -- known as a "price leader" designed to draw customers -- runs $11,390 on the Darcars Toyota Silver Spring lot.
The best deals go to those who can pay cash. If you are borrowing at
zero percent interest, which is making a comeback, most dealers will
not give you as big a break on price because the zero-interest loan is
looked upon as the bargain.
"It all comes down to how much you finance," said Ethan Rossignol,
general sales manager at Darcars Toyota Silver Spring. For those
borrowing money, a credit score over 700 will probably bring an
interest rate in the 5 or 6 percent range, said Al Toueg, general sales
manager at Buick Pontiac GMC on Nicholson Lane in Rockville, part of
the Fitzgerald Automalls network. The lower your credit score, the
higher the interest rate. A credit score of around 600 might cost the
buyer an annual interest rate of 8 or 9 percent. People in the 500
range will have trouble getting approved.
With car sales expected to hit 13 million this year compared with 16
million last year, dealers have thrown out the book on showroom
economics. Profit margins, which is the amount they keep on each car,
are thin or almost nonexistent.
The margin is normally someplace between what they pay for the car ("invoice price") and what they would like you to pay for the car ("sticker price" or "manufacturer's suggested retail price-MSRP"). That margin can range from $300 on a Toyota Corolla to a few thousand on GMC's lumbering Denali sport-utility vehicle.
Darcars' Rossignol swears he is losing money on some small cars.
Take a Toyota Corolla, one of the hottest selling cars in the
country. Rossignol sells a Corolla with power locks and windows, an
automatic transmission and air conditioning. Its invoice price is
$16,522. The MSRP is $17,865, which is what Toyota suggested he get for
it. That would have given him a $1,300 profit. The car's price:
$14,790. Even if the manufacturer gives him some extra cash for the
Corolla -- known as "dealer cash" -- it's likely that Rossignol will
make little or nothing on the sale. A year ago the car would have
probably fetched more than its $16,522 invoice.
"Six months ago, you had zero incentives," Rossignol said. "Now you
have a choice of $1,000 customer cash or zero percent financing.
Incentives from the manufacturer is something that we have never seen.
And Toyota has never, ever put zero percent [interest rates on loans]
like it just did. Now we have zero [percent loans] on 12 models."
General Motors,
which says it will soon fail if it doesn't get billions in government
loans, is knocking thousands off its prices to bring in customers. The
bigger the car, the bigger the deal.
