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Consumer Reports Analysis of Late-Summer Car Incentives: Some Deals Are Compelling While Others Distract From True Savings

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Employee pricing for some models yielded great deals

YONKERS, N.Y., Aug. 28, 2008; Consumer Reports' Auto Price Service's latest analysis shows that looking beyond the hype of heavily marketed sales, some deals are compelling, while others attempt to distract car buyers from the true potential savings and long-term owner costs.

This is a tumultuous time in the automotive industry, with the national economy, gasoline prices, and the model-year change all impacting car shoppers. Vehicle choices and consumer priorities are much different now than just a year or two ago. The one thing that has remained constant is heavily marketed sales signaling the end of summer, with zero-percent interest, employee discounts, and even buy-one-get-one-free pitches competing for consumers' attention and money.

In August, CR tracked 2,014 national incentives across all vehicle variations. With ultra-large SUV and truck sales hurting, it's no surprise that Hummer has the highest average combined customer and dealer incentives per model at $5,400. Some premium brands have significant incentives, as well, with Lincoln at $4,500 and both Land Rover and Mercedes-Benz at $4,100.

Employee discount campaigns have proven quite successful at moving metal in recent years, and it's no surprise to see this marketing tool brought out again. CR ran the numbers on several CR-recommended models eligible for this program, comparing traditional incentives and negotiation against advertised employee pricing.

With the sample vehicles, including the Buick LaCrosse CX, Chevrolet Impala LTZ, and Saturn Outlook XR AWD, CR found that the employee pricing was a good deal. In these instances, the employee pricing came in around 15 percent below MSRP. Compared against CR's traditional Bottom Line Price (which factors invoice price, rebates, and dealer holdback) plus a slim two- percent dealer profit, the employee pricing offers were 3-4 percent lower than this total figure, making them attractive deals.

CR experts note that many sensational offers do not measure up and it's important that any prospective buyer review all the numbers before making a commitment.

"Our analysis on select GM models shows that the Employee Pricing for Everyone plan can offer great deals, but it's important to look at all the numbers, especially hidden dealer incentives, long-term owner costs, reliability, fuel efficiency, safety ratings, and Consumer Reports overall test scores," said Jeff Bartlett, deputy online automotive editor, Consumer Reports.

The full results of the analysis are available at: http://www.consumerreports.org/.

With an employee discount or another eye-catching offer, CR experts advise consumers to look beyond the incentive to understand what the long-term owner costs will really be. After all, it's only a good deal if it makes sense today and in the years that follow. Vehicles are depreciating assets, losing about 46 percent of their value on average over five years of ownership. Consumer Reports forecasts depreciation, fuel, finance, insurance, maintenance, repair, and tax costs out to eight years for new cars.

Closeout car deals can bring significant savings when compared with the sticker price, but remember that the vehicle will essentially depreciate a full year's worth once the new model hits the showrooms. In some cases, the 2009s will be right there on the lot next to the discounted 2008s.

The latest incentive trends As expected, incentive availability and scale vary by category, with premium and gas-guzzling models having the grandest offers in general.

The size of the incentive varies in direct proportion with the size of the vehicle. The big money is with SUVs and pickup trucks, and, to a lesser- degree, minivans. Fuel-efficient and affordable small cars are attracting more buyers with fewer and lower incentives, when available.

The chart below highlights the average incentives in direct proportion with the size of the vehicle:

                               Average value of available incentives

  Hatchbacks/wagons            $1,300
  Budget and small cars        $1,000
  Sporty/convertible           $2,300
  Sedans                       $2,300
  Minivans                     $2,200
  SUVs                         $2,600
  Pickup trucks                $3,200

  Getting the best deal

Driving a hard bargain is only one part of the equation. CR experts advise that getting a great deal on a bad car is no deal at all. Especially if you plan on keeping the car a long time, you need to buy a model with good safety ratings, fuel economy, reliability, and projected owner costs.

Buying a car requires homework, but that research pays off when you find a good car at a relatively low price. For the full financial picture, be sure to review the detailed owner cost data for each vehicle (available to subscribers at http://www.consumerreports.org/.)