Dealers Offering Bargains On Cars
Serious Slump Spurs Discounts

By Thomas Heath
Washington Post Staff Writer
Sunday, November 30, 2008

Looking for an upside to the downturn? Check out the auto showrooms.

If you qualify for a car loan (credit score above 500 and proof of employment), deals can be had. Thank the recession, the meltdown of Detroit's Big Three and the downward spiral in consumer confidence.

"If you are a bargain hunter, there has never been a better time," said Philip Reed, senior consumer advice editor for Edmunds, which specializes in consumer automotive information. "If it gets any better, they will be giving cars away. In the cases we are looking at, it's 25 to 30 percent off sticker price."

But before you run out, be warned: There are no giveaways. And if you're looking real cheap, you'll be hard pressed to find a car below $10,000 -- except for a bare-bones Nissan Versa without air conditioning. Even your basic Toyota Yaris -- known as a "price leader" designed to draw customers -- runs $11,390 on the Darcars Toyota Silver Spring lot.

The best deals go to those who can pay cash. If you are borrowing at zero percent interest, which is making a comeback, most dealers will not give you as big a break on price because the zero-interest loan is looked upon as the bargain.

"It all comes down to how much you finance," said Ethan Rossignol, general sales manager at Darcars Toyota Silver Spring. For those borrowing money, a credit score over 700 will probably bring an interest rate in the 5 or 6 percent range, said Al Toueg, general sales manager at Buick Pontiac GMC on Nicholson Lane in Rockville, part of the Fitzgerald Automalls network. The lower your credit score, the higher the interest rate. A credit score of around 600 might cost the buyer an annual interest rate of 8 or 9 percent. People in the 500 range will have trouble getting approved.

With car sales expected to hit 13 million this year compared with 16 million last year, dealers have thrown out the book on showroom economics. Profit margins, which is the amount they keep on each car, are thin or almost nonexistent.

The margin is normally someplace between what they pay for the car ("invoice price") and what they would like you to pay for the car ("sticker price" or "manufacturer's suggested retail price-MSRP"). That margin can range from $300 on a Toyota Corolla to a few thousand on GMC's lumbering Denali sport-utility vehicle.

Darcars' Rossignol swears he is losing money on some small cars.

Take a Toyota Corolla, one of the hottest selling cars in the country. Rossignol sells a Corolla with power locks and windows, an automatic transmission and air conditioning. Its invoice price is $16,522. The MSRP is $17,865, which is what Toyota suggested he get for it. That would have given him a $1,300 profit. The car's price: $14,790. Even if the manufacturer gives him some extra cash for the Corolla -- known as "dealer cash" -- it's likely that Rossignol will make little or nothing on the sale. A year ago the car would have probably fetched more than its $16,522 invoice.

"Six months ago, you had zero incentives," Rossignol said. "Now you have a choice of $1,000 customer cash or zero percent financing. Incentives from the manufacturer is something that we have never seen. And Toyota has never, ever put zero percent [interest rates on loans] like it just did. Now we have zero [percent loans] on 12 models."

General Motors, which says it will soon fail if it doesn't get billions in government loans, is knocking thousands off its prices to bring in customers. The bigger the car, the bigger the deal.

Buick Pontiac GMC in Rockville last week had a Yukon XL SUV with sunroof, V-8 engine, leather seats and fancy CD player, at a sticker price of $48,445, according to Toueg. After rebates and bonus cash, thanks to their friends at GM headquarters in Detroit, Toueg is selling the Yukon for $37,138.

Toueg says the least expensive car on the lot is the Pontiac G5 at $15,969. In sunnier economic climes, Toueg would be asking closer to $18,230.

"The [G5] has very little margin in it," Toueg said. "You are not looking to make money. You are looking at it to be your price leader."

Detroit is so anxious to move cars off its factory lots that automakers are dropping the price by the minute. While Toueg spoke on the phone with me, GMC dropped his invoice price on a 2008 Buick Lucerne from $25,283 to $22,283, in order to get him to buy five cars of a different model. A year ago, Lucernes were selling for $26,500.

"It's a slow market right now, and you've got to be very aggressive to move the needle," said Toueg, who at 47 is a 25-year veteran of the auto sales business.

Even the in-demand vehicles are discounted. Rossignol is selling a Toyota Highlander, a popular mid-size SUV, loaded up with cruise control, keyless remote access and mileage of 20 miles per gallon, at $24,900. That's 25 percent off the sticker price of $31,550.

Charles Russell, 54, a minister from Bowie, bought a 2009 Prius from Darcars Toyota Silver Spring last week because of the $1,000 incentive, which he was all-but-sure was about to expire.

"I think I did very well," said Russell, who paid $25,000 for the Prius and said he wants to do his part for the environment. The Toyota Prius is a hybrid that alternates between battery power and gas. "I bought now because the incentives are going away. You can't even get a Prius."

Reed said the best deal out there may be the Dodge Ram pickup truck, "well known as the most discounted vehicle in these days."

A 2008 Dodge Ram with an enlarged cab and a sticker price of $35,765 was selling in the Chevy Chase, Md., zip code for much less. "You can buy that car without haggling or beating up or pushing anybody around for $27,076. That's $4,500 below invoice," Reed said.

Summer is usually the best time to buy a car, and November is traditionally slow, Toueg said. But the end of December picks way up because "people feel really, really good between Christmas and New Year's and everybody is off."

So now may be the time when dealers are even more motivated to sell. Reed advises bargain hunters to look at 2008 vehicles, which dealers are anxious to get off the lots to make room for 2009s. And even if they sell cars for little or no profit, there are other ways to make money.

"If they don't have customers coming through, they aren't selling things they make money on like extended warranties, after-market products like alarms, rustproofing, bedliners, flaps, running boards and pinstriping," said Reed.

"You have to continue to sell cars to get trade-ins (which are more profitable than new-car sales), to keep your used-car inventory up and to build relationships with customers so they become repeat customers," Rossignol said.

For those braving such dealer-heavy avenues such as Rockville Pike in Montgomery County or Route 7 in Fairfax County, Reed had one last piece of negotiating advice.

"You can't go any lower than your opening offer. So be very careful about your opening offer. The first person who speaks, loses."