This is the time of year when car companies pull out all the stops, using big discounts to sell off leftover models. While they last—which might not be much longer—the deals on certain 2007 models can amount to nearly 30% off the sticker price, according to auto shopping site Edmunds.com.
"One of the first things you notice is that a list of the biggest discounts is SUV- and truck-heavy," says Jesse Toprak, executive director of industry analysis for edmunds.com. That's because shoppers these days are thinking twice before buying big, gas-guzzling trucks. Large domestic-brand sedans also are tending to sit on the lot. Therefore, those vehicles are priced to move. According to AutoData in Woodcliff Lake, N.J., sales of domestic-brand pickup trucks were down about 8% this year through September, to about 1.7 million vehicles. The midsize SUV segment, including such former top sellers as Chevrolet TrailBlazer and the Jeep Grand Cherokee, was down about 14% to 583,834, for the same period.
Many of the most heavily discounted cars also are models that were never popular with consumers. These include such also-rans as the Chrysler Aspen (businessweek.com, 9/28/06), Jeep Commander (businessweek.com, 12/27/06), and Isuzu Ascender. Expect many of these to disappear from the lots altogether very soon—whether they sell or not.
In addition, readers will notice that of the 20 most-discounted vehicles on the market, Chrysler products dominate. What's cause for concern, however, is not that the Aspen or the Commander are struggling as the fact that onetime top sellers such as the Jeep Grand Cherokee and Dodge Ram (businessweek.com 3/22/06) have fallen so hard.
With the exception of Saab's line, no European models are offering heavy discounts. Some people would argue that the vehicle in question, the Saab 9-7X (businessweek.com, 12/28/05), isn't really European at all, since it is built by General Motors (GM) in the U.S. and shares a platform with two other deeply discounted vehicles—the Chevy TrailBlazer and Isuzu Ascender. But the point is that BMW (BMWG), Mercedes (DAI), Volkswagen (VOWG), and others have not had to resort to such deep cuts.
No Toyota (TM), Honda (HMC), or Nissan (NSANY) products are among the 20 most heavily discounted cars, either. This isn't surprising, but it is one more indication of how Detroit's pricing strategies have been rejected by its top competitors.
20 Biggest Deals
Edmunds.com compiled a list for BusinessWeek of the auto industry's 20 biggest bargains, in percentage terms relative to the sticker price a shopper could theoretically expect to pay, including options.
For instance, edmunds.com says Ford's (F) Lincoln Div. is offering deals worth 25% off the sticker price of a typically equipped 2007 Lincoln Town Car. The aging Town Car, which is rumored to be heading toward eventual discontinuation, has a starting price of $42,175, but edmunds.com estimates that the average sticker price, with options, is $46,711.
Edmunds.com calculates the cash value of all incentives, including customer and dealer rebates, low-interest financing, and cut-rate lease deals—even though the value of those deals may be spread out over time.
For example, the savings on a low-interest loan are not realized all at once. In the case of the Town Car, taking into account the net effect of all the potential incentives, edmunds.com calculates that the average consumer can expect to save $11,776. That's 25% of the sticker price, as equipped.
A shopper who walks into a Ford-Lincoln-Mercury dealership and asks for the "$11,776 discount" might get a blank stare or worse in return, because that's not how the deals are structured. Nevertheless, that's the value of the discounts, according to edmunds.com. Consumers should check car shopping Web sites as well as dealer and manufacturer sites for the latest deals.
Sales Down, Discounts Up
The simple rules of supply and demand pretty well describe how automakers decide which prices to cut. Says edmunds.com's Toprak: "There is a great correlation between discounts and days to turn," or how long it takes to sell a particular unit.
Days-supply is another commonly used auto industry benchmark for how well a model is selling. That is, how many days it would take to sell the existing inventory of a given model at the rate it sold the previous month. A 60-day supply is considered optimum, but GMC, for instance, had a 103-day supply of the Sierra full-size pickup (businessseek.com, 5/8/07) as of Oct. 1, according to Automotive News.
In addition, certain 2007 models, such as the Buick Rendezvous, are lame ducks that have been discontinued. Or they may have been replaced by noticeable redesigns. Early copies of the 2007 Chevrolet Silverado (businessweek.com, 1/23/07) and GMC Sierra full-size pickups have two strikes against them in that sense: first for being big trucks, and second for having been replaced by an all-new redesign. ("All-new redesign" sounds like a contradiction in terms, but it means an entirely new model with the same name as the model it replaced.)
For consumers, however, the opportunity to knock thousands of dollars off purchase prices and operating costs could be a big incentive. And products such as the Grand Cherokee and the Silverado continue to earn the respect of reviewers and users alike. Even the less popular or lame-duck models represent great bargains. If you can knock around $10,000 off the price of a $35,000 Jeep Commander, that Commander would begin to look pretty good.
Click here to see the 20 most discounted cars in America.