Car Makers Roll Out Deals on Hot Models

You know times are tough in the auto industry when even tightfisted companies like Honda, Toyota and BMW are cutting special deals for car buyers.

As car makers scramble to stem a sales decline that made 2007 their worst year in a decade -- and as sales continue to tumble this year -- they are offering buyers with good credit low financing rates, rebates, lease deals and other incentives on a wider range of models than usual.

Though car makers are producing fewer vehicles, demand has slackened at a faster clip and inventories continue to grow. The resulting glut means buyers can drive away in popular models -- including economy cars, sport sedans and luxury SUVs -- for surprisingly low prices. It also means consumers are in their best negotiating position in years when cutting deals in the showroom.

Most of the in-your-face offers are coming from the Big Three U.S. auto makers. But popular foreign makers such as Toyota Motor Corp., Nissan Motor Co. and BMW AG -- which rarely provide big incentives -- are joining the party, even though their sales have held up better than those of their American counterparts.

Among the more notable incentives: BMW is offering a $369 monthly lease for its 3-Series sedan -- about the same rate as a well-equipped Ford Taurus or a Honda Accord, even though the BMW costs much more to purchase. General Motors Corp. is offering a $1,000 bonus in addition to a $2,000 cash rebate currently available for the popular Chevrolet Silverado -- for a total of $3,000 cash back -- through the end of February. (Buyers can opt for $1,000 cash and 1.9% financing instead.) Toyota, for its part, is offering 0% financing on its new 2008 Highlander and on the 2008 Camry, the best-selling car in the U.S.

Each of the six top auto makers saw a softening in sales over that period. Chrysler LLC experienced a 28% decline, despite a recent move to offer more free features on its cars and trucks. The numbers follow a decline of 4.3% for U.S. light-vehicle sales in January, including fleet sales.

The buyers' market for car shoppers mirrors the housing market, where low mortgage rates are making it easier for buyers with good credit to buy homes. Auto makers' finance units and other lenders are also suffering after years of making loans to high-risk borrowers. That means many programs under which buyers with poor credit could get car loans -- those once touted in manic radio ads -- have disappeared.

But for qualified car shoppers who have been holding out, this may be a good time to find a deal. Unlike typical inventory-reduction sales, the latest offers don't apply only to outdated and unpopular cars. GM's Cadillac unit is offering 1.9% financing on its new-for-2008 CTS, even though the sport sedan is a hot seller acclaimed for distinctive styling and performance.

Incentives on newer models used to be rare, but GM says it has learned it is better to tack small incentives on new vehicles early and then gradually add more -- "feathering it in," as spokesman John M. McDonald calls the tactic. He says the low finance rate on the CTS, for example, should be just enough to keep it competitive in a crowded segment that includes the BMW 3-Series and Infiniti G35.

Ford is offering 0% financing on loans up to 60 months and 1.9% financing for 72-month loans across many of its vehicles, including its 2008 F-series pickup trucks. Earlier this year, Chrysler rolled out its "Zero Plus" incentive program, in which buyers can qualify for 0% financing for up to 36 months, plus an additional $2,500 cash back on most 2008 Chrysler, Jeep and Dodge vehicles.

Industrywide, the average amount that car makers spent on vehicle incentives in January -- which includes money set aside to fund cash rebates or subsidize financing and lease rates -- increased to $2,418 per vehicle sold from $2,234 a year earlier, according to Edmunds.com. GM's Mr. McDonald says the company spent an average of about $3,500 per vehicle last month, mostly on its pickup trucks, up from about $2,400 a year ago.

Though many of the current deals expire at the end of this month, tough market conditions mean that many are likely to be extended, or replaced by similar deals, say industry insiders.

Buyers are likely to find lower financing rates through the manufacturers' financing units than from their local banks. "Generally speaking, captive auto finance companies have an incentive to move volume and are less inclined to tighten their credit standards," says UBS analyst Eric Wasserstrom.

The Federal Reserve's recent rate cuts are helping make it less costly for auto makers and lenders to offer lower-cost loans. Average rates on five-year new-car loans offered by the 100 largest banks and thrifts in the top 10 markets in the U.S. have fallen to 7.26% from 7.78% six months ago, while average rates on four-year used-car loans fell to 8.15% from 8.48% over the same period, according to Bankrate.com.

Earlier this month, for example, Capital One Auto Finance, a unit of Capital One Financial Corp., lowered the interest rate available on new car loans to 5.74% -- which includes a 0.5% discount if borrowers opt to have their loan payments automatically deducted from a checking account -- from 5.99%. Last summer, the rate was 6.19%. J.P. Morgan Chase & Co.'s Chase Auto Finance says its auto loan rates have dropped by nine-tenths of a percentage point since the Fed started cutting rates last fall.

"The lower rates suggest that we'll see more 0% to 4% financing on more types of vehicles than we would have if the Fed had not cut rates," says Paul Taylor, chief economist at the National Automobile Dealers Association in McLean, Va. Lower interest rates will also help auto makers offer more attractive leasing deals, either by shortening the lease periods or cutting the monthly payments, he adds. Honda's American unit, for example, is offering 36-month leases with monthly payments of $259 on its 2008 Pilot, a sport-utility vehicle set for a redesign later this year. A year ago, the company was offering 36-month leases with monthly payments of $289 on roughly the same vehicle.

But not all borrowers are likely to benefit from the deals, especially as lenders tighten credit standards. Car buyers with scuffed credit may have to come up with a bigger down payment or boost their credit scores to qualify for a loan. Marv Hedrick, director of finance for an auto dealership in Brooksville, Fla., says two of the credit unions that provide loans through his dealership have raised their credit-score requirements in recent weeks.

Consumers can boost their chances of finding attractive rates by getting approved for a car loan online and then visiting the dealership, says Jeff Ostroff, president of CarBuyingTips.com. Buyers should aim to pay at least 20% of the vehicle's price as a down payment, since the value of a vehicle typically depreciates by that amount in the first year, he says.