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Desperate Automakers' Incentives Lower Prices

By sbup Staff

Even though General Motors (Stock Quote: GM) has said that the company won't need the $2 billion in federal funding it was set to receive in March, automakers remain on the ropes as sales figures have plummeted across the industry. While that’s bad news for automakers, it’s good news for consumers. And for car buyers hoping to strike a bargain on the car lot, now might be the best time to shop.

Automakers are getting desperate to shore up falling sales numbers. All of the major companies are hurting -- even the foreign manufacturers. February car sales were down 53% for GM compared to February 2008, while Chrysler, Ford (Stock Quote: F) and Toyota (Stock Quote: TM) posted losses of 44%, 48% and 37%, respectively.

To counter these sales numbers, manufacturers are piling on incentives such as financing deals and cash rebates.
On average, the true cost of industry incentives equaled around 10% of a cars sticker price in February -- but in some cases, such as Chrysler and Dodge, the incentives topped 20% of sticker price, according to data from "The discounts we've seen are already pretty steep," says Joe Spina, industry analyst at "In some cases consumers will find it's cheaper to take the discount on new car rather than pay for a used 2008 car."

Meanwhile, dealerships are scrambling to maintain profitability by leaning hard on the used car market. More than a quarter of consumers shopping for a new car in February decided to purchase a used car at the dealership, according to "Dealers are pushing consumers to used cars because that is where the higher profits lie," says Chintan Talati, senior PR manager at "Prices on used cars rebounded a few months ago, and haven't had time to respond to the drop in prices on new cars."

Dealers are coming up with other incentives too, including variations on the classic retail “buy one, get one free” tactic.

Whether new or used, now is a good time to buy. Though Spina says it's reasonable to expect prices to drop slightly on the one- and two-year old cars in reaction to the incentives on new cars, he doubts that overall prices -- for new or used -- will change significantly in the short term. "I wouldn't necessarily hold out to find a better price," says Spina.

If you're in the market for a new or used car, you can start shopping around for the best rates on auto loans at Enter your ZIP code to compare offers from local lenders. 

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