Is it Still a Good Time to Buy a Car?

After Washington's 'cash for clunkers' program blew through its billion dollars in its first five days, shoppers must decide whether they should wait—for the possibility of more government incentives, lower prices, and the 2010 models—or take that leap now.

Anyone driving a true clunker might want to wait for the dust to settle. The government's Car Allowance Rebate System promised rebates of $3,500 to $4,500 to anyone trading in an old, inefficient car for a new, fuel-efficient vehicle. The program was funded with $1 billion, an amount officials thought would last through the end of August. Instead, it didn't even last through July, when the program was launched. Now the Obama administration is scrambling for extra cash to keep the program running and Michigan legislators are pushing Capitol Hill colleagues for a new, improved clunkers plan. A lawmaker on Friday said the House would move to approve another $2 billion to keep the program alive.

If your vehicle doesn't officially qualify as a clunker, it's still a great time to trade in and get a more fuel-efficient car. You may have to act quickly since the best deals may disappear as quickly as the clunkers program did, according to Phil Reed of Edmunds.com, an auto-research Web site. Still on the table today are federal tax deductions and credits for car buyers, low-interest financing, near-record levels of manufacturers' incentives, typical summer sales, and dealers willing to sell cars—even at a loss—to clear the lots for the 2010 models coming within a few weeks.

"It really is the perfect storm for customers," says Brian Benstock, whose dealership, Paragon Honda and Acura in Queens, N.Y., got swamped with customers once the clunkers program became law. Buyers have been streaming into dealers nationwide and cutting deals that, in some cases, allow them to drive small and fuel-efficient cars off lots after paying just 50 cents on the dollar. That's not true for buyers of big cars and trucks, where dealers have low inventory but are still fielding high customer demand. Deals in that segment of the auto market are especially hard to come by these days.

That makes skilled car shopping more important than ever. Dealers and manufacturers could stop cutting prices—or even raise them—in the face of renewed sales activity, warns Reed of Edmunds.com. He and other analysts predict that the fat auto inventories on dealer lots will shrink quickly and those great deals will disappear. That all makes the act of car buying a real science. Here are some points to consider:

Incentives live, for now. Smart customers can get better deals with the right car choice. Chrysler, which had been doubling the clunkers cash rebate for buyers, is going to keep giving out $3,500 and $4,500 cash incentives for most of its models through the end of August. In June, manufacturers were giving away an average of $2,930 per car in incentives, Edmunds reported, and much of that money is still on the table. (There's a list here.) Some particularly overstocked cars, such as the Toyota Camry, are actually selling under the price the dealers really paid for them, says Scott Painter at Truecar.com, a Web site that publishes actual sales prices of most cars. That sounds like an old "make it up on volume" joke, but he says that the carrying costs for cars on the lot is a significant expense for dealers, and with new 2010 models already being shipped, they need to clear those 2009 models out in a hurry.

For the most part, 2010 models aren't worth waiting for, says Reed. He's not expecting anything beyond mild refinements on the newest cars and he is expecting inventories to be lower and prices to be higher by October, when the bulk of new models roll onto lots.

Tax deals remain. Purchasers who seal their deal before Jan. 1, 2010, will also be able to deduct the sales and excise taxes they pay on their cars, even if they don't typically itemize deductions. And there are federal tax credits for buying some hybrids, all listed here.

Ho-hum hybrids. The Prius is still popular, but forget the waiting lists that used to queue up for this hybrid; now there are deals to be had in some markets. The next big thing in fuel efficiency will likely be electric cars, but the ones that have decent driving range are probably more than a year away, reports Reed.

He suggests that consumers looking to save money and do the environmentally correct thing simply buy a fuel-efficient conventional car. "The entry cost to the hybrid is higher, and people overestimate how much the hybrid will save them," he says. "If you get the Honda Fit or the Toyota Yaris or the Nissan Versa, you'll achieve and fulfill the intentions of a green vehicle."

Previously owned is played out. There's an anomaly in the auto market now: many models cost just as much used, with 20,000 or 30,000 miles on them, as they do brand-spanking new. That's partially because new-car rebates and financing incentives are keeping those prices low, and partially because dealers are less willing to cut their profit margins on the used cars they have—and with fewer customers having bought new cars in recent months, there are fewer used trade-ins on the lot. That makes the conventional wisdom—used is cheaper—wrong.

Walk in with a plan. It would be a mistake to arrive at a lot without a deal plotted out in your mind. Do some advance research on sites like Edmunds, TrueCar, and Kelly Blue Book and find out exactly how much local dealers are paying and charging for specific models. After that's done, you can visit lots and do test drives to narrow your search. Then contact local dealers and request quotes by e-mail. By the time you're ready to cut a check, you should have the same, if not more, information about the value of a car than the salesperson.

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