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Now might be the perfect time to buy a car

Closing auto dealerships are making for some fire sales — but you still need to be prepared before you walk onto a lot. Here's what you need to know.
Image: Auto dealer
Customers look over Cadillacs offered for sale at a GM dealership in Lincolnwood, Ill.Getty Images file
/ Source: msnbc.com contributor

Penny Shanks and her husband live just 10 miles from GM headquarters in Michigan and have felt anguish for their friends and neighbors affected by the automaker’s continuing turmoil.

But recently they’ve also really wanted to buy a car — in particular, the sporty Saturn Sky.

“From the minute we first saw the car we’ve called it the baby Batmobile,” says the 50-year-old chamber of commerce executive. “It’s a head-turner. And now, with GM selling Saturn, and bankruptcy looming, the Sky may be in its last year of production. We have been hunkering down financially, but it recently occurred to us that if we wanted a Sky, we better buy it now.”

The Shanks are like lot of people: torn between seeing the American auto industry’s troubles as a tragedy or — at least briefly — as an opportunity. General Motors and Chrysler each have announced plans to shutter a staggering number of dealerships — at least 1,100 by GM and 789 by Chrysler. With Chrysler in bankruptcy and GM perhaps not far behind, more dealerships could be on the block soon.

While the targeted GM dealerships will close by end of 2010, the Chrysler dealerships could be cut loose as early as June 9 and have a rapidly closing window to unload inventory while they can still offer manufacturer incentives, such as $4,000 on 2009 models or a $1,000 “loyalty” discount for returning Chrysler owners.

“Between now and June 9 is a golden period for buyers,” says Jack Nerad, editorial director and market analyst at Kelley Blue Book’s kbb.com. “Not only do you have two manufacturers in desperate straits, but you also have the whole industry down, so virtually every manufacturer must compete for buyers.”

But this doesn’t mean that shopping for a car is suddenly a cakewalk. Not every make and model has gone on sale, even within the troubled automakers (the more fuel-efficient, the less likely a deal). Financing has new challenges. Automotive News recently reported that some auto lenders — including Chase and Wachovia — have raised the standards for Chrysler vehicle loans, now only covering as little as 70 percent of your invoice; in better times, they might have covered 130 percent of your price tag.

“Today you may need to put a lot of cash down,” says Jesse Toprak, senior analyst at Edmunds.com. Meanwhile, if you thought car salesmen pushed hard before all this — gird yourself for some serious pressure out there on the lot.

According to Paul Taylor, chief economist for the National Auto Dealers Association, “there is a favorable trend for trade-ins that may not be there six months from now. In conjunction with, in some cases, historically low prices for new vehicles, this may be the optimal time for price shopping.”

Indeed, deals abound, both on and off the lots. GM is offering a variety of local incentives, including zero percent financing for many buyers and a free service package called GM Total Confidence. Plus, if you buy any new car this year, the IRS is letting most taxpayers deduct the sales tax for up to $49,500 of sticker price.

Toprak says he sees discounts from Chrysler and GM ranging from 20 to 40 percent below MSRP, “with the best prices, generally, in the metro areas” —and the deepest discounts from Chrysler, since they are feeling the most pressure. Even strong automakers are cutting some prices, he says — Toyota by about 13 percent.

Indeed, shopping in this market isn’t just about scoring one big discount, though, experts agree. Concerns about warranties, resale values and even getting financing to pay for that deal are worth exploring before you hit the lots. Here’s what you should know before you buy:

Don’t worry about your warranty
Even if the dealership where you bought your car goes under, the closest affiliated dealership will honor manufacturer-backed warranties for their duration — you just may have to drive a little further. And if the automaker itself goes under? The government announced on March 30 that it would also back the warranties on new domestic cars bought between that date and June 30.

Don’t worry about getting parts or service
Even if your model is discontinued, the availability of parts shouldn’t be affected, since many cars share similar parts. “After all, you can still get Oldsmobile parts,” Toprak says. Oldsmobile was slowly phased out in the early 2000s and stopped production in 2004. If your local dealership ends up closing, though, “be sure to ask them for copies of your service records,” says consumer advocate Michael Royce, editor of BeatTheCarSalesman.com. “You may need those records to prove that you did indeed maintain your vehicle according to the manufacturers' specifications.”

Do give yourself some credit leverage
It’s easier to get financing than it was six months ago, our experts agree, but it’s still far from the credit free-for-all from a few years ago. Your best strategy is first to check out the manufacturer’s incentives online —either on their sites, or by using the features on Edmunds.com or Kelley Blue Book. Next, get pre-approved before you step into any dealership.

“It takes 10 minutes to get a pre- approval from your bank, a credit union of even E-Loan,” says Toprak. “You don’t have to commit to anything, but the point is to determine roughly what rate you should be getting. Then, you go to the dealer and give them an opportunity to beat that rate. In a lot of cases they can.”

Do think about resale
The threat of models being discontinued can seriously ding your resale value, though experts debate how much.

“Super-cheap new car prices automatically bring down the value of used versions,” says James Bragg, consumer advocate and author of the "Car Buyer’s and Leaser’s Negotiating Bible." Toprak agrees that “GM and Chrysler resale values will be extremely volatile for the next few years,” while NADA’s Taylor sees a 20 to 30 percent reduction. They all agree, though, that buyers should be prepared to keep these cars for more than two or three years.

“The smart thing would be to drive those vehicles until the wheels fall off,” says Bragg, “then put new wheels on them.”

Don’t get blinded by the sales
The best bargains, no surprise, are on the big, gas-hungry vehicles that are crowding the lots the most these days: big SUVs and pickups.“It’s typical to see up to $9,000 off on maybe a $30,000 truck,” Taylor says — pretty tempting. Even so, he says, “the best advice is always to meet your family's needs — a good price, but also something you’ll be happy with.”

Penny Shanks would agree. She’s getting a $500 rebate from GM for that chili-red Saturn Sky, as well as another $750 from her lender. “Perhaps our purchasing it will help someone somewhere keep a job,” she says. “And on the plus side — we’re getting a car we love.”