Consumer Reports: Tempted by Big Discounts, July 4th Car Shoppers are Advised to Look at Long-term Cost of Ownership

CONSUMER REPORTS FINDS 8 OUT OF 10 VEHICLES WITH THE LARGEST INCENTIVES ARE NOT WORTH THE DISCOUNT

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YONKERS, NY – Car buyers will find vehicles boasting thousands of dollars in discounts this July 4th holiday weekend, but not all deals are created equal, according to Consumer Reports Auto Price Service.

Strong incentives from Ford Motor Company and General Motors are making some large cars and SUVs seem like attractive long-term buys. After examining thousands of incentives and rebates from vehicle manufacturers, Consumer Reports’ Auto Price Service found the 10 largest incentives currently offered are on large, American-brand vehicles from Ford and General Motors, reflecting the market move toward fuel-efficient vehicles.

“As the prices on full-sized sedans and SUVs are reduced, it is natural for consumers to think the discounts will offset their expected annual gasoline costs,” said Rob Gentile, director of Consumer Reports’ Auto Price Service. “However, it is important to consider the vehicles’ potential depreciation. These car prices are reduced because they are less desirable in today’s market and buyers will assume the risk for their value in tomorrow’s market.”

To understand the potential cost implications, Consumer Reports Auto Price Service determined the likely purchase price for each vehicle and projected how the vehicles will depreciate over time.

At three years of ownership, current cash rebates on two of the 10 vehicles with the largest incentives— 2006 Chevrolet Tahoe and Mercury Grand Marquis— give these vehicles a financial edge in combined depreciation and fuel costs over better performing, higher-rated vehicles like the three-row Honda Pilot and Acura TL. However, by year five, the balance favors CR’s picks. The accumulated costs for the Tahoe came in at a few hundred dollars above the Pilot.

Although the full-sized SUVs cost more after five years, buyers who need a large vehicle for both cargo and towing may accept the cost difference. The only CR-Recommended sedan with large, seasonal incentives, the Grand Marquis, is an attractive buy with $5,000 in incentives available through July 5, 2006.

“Car buyers must be careful when considering highly discounted vehicles. The key to making a smart purchase is to be informed and not to get distracted by the incentives alone,” Gentile said. “With careful research, buyers can narrow their wish list down to proven, high-rated models and learn how to negotiate the best price before entering the showroom.”

For this analysis, Consumer Reports’ Auto Price Service calculated vehicle prices by subtracting sales incentives, dealer holdbacks and rebates from the invoice price to generate Consumer Reports Bottom line Price—which is the cost of the car to the dealer. Consumers can consider a transaction price that is between 4 and 8 percent above Consumer Reports Bottom Line Price to be a fair deal. Consumer Reports used the Bottom Line Price plus 4 percent for this analysis to determine the transaction price. Consumer Reports Auto Price Service then subtracted the depreciation cost from the transaction price. Fuel costs were based on 15,000 miles a year, gasoline at $2.90 a gallon, and Consumer Reports’ overall mileage ratings.

For more information on Consumer Reports’ Auto Price Service analysis of July 4th car-buying incentives, or to get the latest new car ratings and reviews visit www.ConsumerReports.org.

Consumer Reports Bottom Line Price helps car shoppers cut through the confusion of buying a car by providing an accurate number from which to start negotiating. The Bottom Line Price takes into consideration what the dealer actually paid for a car, plus all incentives and rebates. Knowing the Bottom Line Price levels the playing field between consumers and dealers, helping car shoppers save hundreds, even thousands, on a new-car purchase. Consumers can get the Bottom Line Price, well as consumer reports reliability ratings and testing results in the New Car Buying Kit ($39 for three mos.) available at www.ConsumerReports.org or by calling toll free at 1-800-395-4400.