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Good Time for Buyers as Incentive Fever Returns

Retailing* Shoppers who do some research and are willing to compromise can find big savings. But there's a hitch--deals are bigger, but so are prices.


If you've been waiting, it's time to start shopping.

After cutting back on incentives in May and watching sales sag, auto makers have resumed piling on the deals. How long the good times will last for shoppers is anyone's guess, but market watchers say incentive fever could last into fall.

While it does, buyers who do a little research and are willing to compromise on issues such as exterior color or trim and equipment levels can find substantial savings as the 2002 model lines peter out.

"The average discount on a new car in the first half of June was $3,718," said Art Spinella, vice president of CNW Research, a Bandon, Ore., market research firm that tracks auto industry incentive spending.

There's a little hitch, of course--but there is little about buying a new car or truck that doesn't come with a hitch or two.

Although incentives are getting bigger, so are prices. The average manufacturer's suggested retail price, or MSRP, on new vehicles sold during the first half of June was $26,002--the highest MSRP ever, Spinella said. The average transaction price after negotiations and incentives was $22,284, also a record high, he said.

The incentives most consumers see are advertised deals--consumer cash offers and discounted interest rates or lease terms. But auto makers also try to boost sales by giving their dealers incentives--which dealers can keep for themselves or pass on to consumers as market conditions dictate.

Shoppers who know about dealer incentives can bargain even harder.

At General Motors Corp.'s Cadillac division, for example, a national promotion offers a cash rebate of $3,000 on the 2002 model Eldorado. GM also is offering its dealers $7,000 for each 2001 model Eldorado they move.

That means that a bargain- hungry shopper who doesn't see much difference between the two model years (and there isn't) could strike a better deal going after an unsold '01 model.

Sometimes, dealer cash and consumer cash can be combined: Hyundai is offering as much as $1,500 cash back to buyers of its 2002 model XG350 sedan. But dealers also are being offered $750 to $1,500 for each new XG350 they move. A buyer who knows this could persuade a hungry Hyundai retailer to pony up the dealer cash as well as the customer rebate, cutting the price by a nifty $3,000.

There are dozens of such deals to be made these days.

GM, which has been successful in slashing production and operating costs, is leading the incentive wars. The world's biggest car maker is applying the savings to its incentives program instead of its corporate profit to regain some of the market share it has lost during the last decade.

When GM was losing share, many believed the company was unable to build decent cars. Now that its market share is rising, the buzz is that GM is making a comeback with better cars and trucks. The company can't afford to let its image slip by letting sales sag.

And as GM has piled on the incentives to keep customers coming, Ford Motor Co. and DaimlerChrysler's Chrysler Group have been forced to follow.

"Incentives are now a permanent part of the industry," said Tom Libby, Michigan-based director of industry analysis for auto marketing consultant J.D. Power & Associates. "They are a pricing tool that manufacturers adjust to get demand to where they want it to be."

Even importers such as Honda Motor Co. and Mercedes-Benz that don't advertise customer rebates--because to do so might hurt their image--play the game. They just do it on limited models with dealer incentives that dealers can use as they see fit.

As Honda gets ready to launch an all-new Accord for 2003, some dealers are using factory cash to offer $1,000 discounts on remaining 2002 Accords. Honda also has begun promoting a special low- interest financing program on 2002 Accords and Civics--a rarity for the company.

Mercedes-Benz is offering dealers as much as $3,500 in cash for each 2002 E-Class they sell.

Many foreign auto makers have been able to avoid the incentive wars because the strong dollar in the last year has permitted them to compete with lower MSRPs. But the dollar now is weakening.

"It will be interesting to see how the foreign companies respond, and whether they will have to start playing the incentive game," said Robert Schnorbus, chief economist at J.D. Power & Associates.

For now, Schnorbus said, shoppers interested in cars from the domestic auto makers and from many importers "can find pretty attractive deals."

With the bulk of the 2003 models due to start pouring into dealerships by late summer and early fall, there's no guarantee that incentives will remain at present levels. Incentives typically fall when new models hit the showrooms.

And the selection of 2002 models is better now than it will be in a few months, as factories stop building and dealer stocks dwindle in anticipation of the '03 cars and trucks.

"So if you need to buy a new vehicle," Schnorbus said, "there's no reason to wait to see if better deals are coming."

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