Overstuffed inventories and slow-selling models are making for some of the best deals ever on luxury cars. But bargain hunters should be prepared to haggle: Some discounts on 2007 model-year closeouts aren’t guaranteed.
Our list of the top 10 deepest discounts on luxury vehicles runs from a possible $8,635 off of a Saab 9-7X to upwards of $18,000 off a Cadillac XLR. Gas guzzling SUVs and high-powered performance cars fill the list and reflect consumers’ increasing concern over fuel economy, among other things.
The highest individual kickbacks on remaining 2007 models are on two-seat convertibles. Sales of most vehicles in that segment have plummeted by double-digit percentages this year, leaving unsold models collecting dust on dealers’ lots, according to CNW Marketing Research in Bandon, Ore.
The Cadillac XLR roadster boasts the top consumer cash rebate at $7,500, while the most lucrative direct-to-dealer incentives for 2007 models are on the BMW M Coupe and Roadster and the Z4 Coupe, also at $7,500.
The largest current incentive on a luxury vehicle is actually on a new 2008 model, the Mercedes SL550, which gets a whopping $9,000 dealer incentive. (Because it's a 2008 model, the incentive isn't considered a year-end closeout and doesn't qualify for our ranking.)
Our ranking is based on the value of consumer cash rebates or direct-to-dealer incentives combined with each model’s negotiable markup, which we consider to be the difference between the manufacturer’s suggested retail price (MSRP) and its invoice price. (A dealer’s true cost is actually a few percent less than invoice so that the dealer can cover financing expenses.)
As with any aspect of car buying, the laws of supply and demand and your own negotiating skills will ultimately dictate what you’ll pay. Though a dealership may be desperate to sell any models that it has on hand, you’ll still probably have to haggle with a salesperson for the best price, and for good reason — dealers are in business to make a profit; car salesmen have families to feed, too.
Half of the vehicles on our list offer a consumer cash rebate, while the others include a dealer incentive. Often called “secret” rebates, dealer incentives rarely are publicized and aren’t always passed on to car buyers. Knowing that such incentives exist, and even what they are, can give buyers an advantage when it comes time to negotiate a transaction price. “It definitely gives the customer added leverage once he or she makes this known to a salesperson,” says Robert Ellis, director of operations for the Washington D.C.-based non-profit organization Consumers' Checkbook, which offers lists on dealer incentives for $7.00 updated bi-monthly at www.checkbook.org.
Even if no current rebates apply, dealers are usually willing to shave profits to rid themselves of outdated stock, because when it comes to unsold inventory, time is money. "Most dealers don't own the cars on their lots — they are owned by their financing institutions like Ford Motor Credit and GMAC," Ellis says. "The dealer is, in effect, renting the car until he sells it. At some point, if the vehicle sits too long, the cost of carrying it gets too high, and would contribute to the dealer lowering its acceptable selling price."
As should always be the case when shopping for a new vehicle, consumers should look up the invoice price before even setting foot in a showroom, Ellis says. You’ll also need to learn which incentives apply to the models that appeal to you.
Domestic automakers often pass cash incentives directly to consumers to help boost sales. This means that if you buy a certain car, you automatically get money back — no haggling required.
Import brands — especially luxury makes — most often give their dealers certain allowances so they can sweeten a deal as they see fit. “Luxury brands rarely offer cash rebates, because they tend to devalue the product,” says David Wurster, president of market research firm Vincentric. These higher-end makes will also offer cut-rate financing and/or leasing programs. Just remember that because these two kinds of incentives are often controlled by the dealer, some bargaining is usually required.
There are downsides to deep discounts on cars. “Consumers should be wary, because year-end closeouts can be a blessing and a curse,” says James Bell, publisher of the ownership-cost tracker IntelliChoice.com. “They may be welcome, but the flip side is that this special money ‘on the hood’ can in certain circumstances accelerate depreciation and hurt resale value on vehicles that may have a long history of rebates," he says.
Depreciation is the biggest long-term ownership expense and it’s particularly critical when leasing because the monthly payments are largely dependent on a model’s worth at the end of the lease, called the residual value. “The key is whether or not the price has been reduced enough to at least match the reduction in residual values that you will see in a leftover model,” Wurster says.
To determine whether a year-end deal is right for you, consider whether you want to lease or own, how long you want to keep your vehicle, and look up residual values of vehicles you’re considering at Kelly Blue Book or the National Automotive Dealers Association.
And don’t expect to find your ideal car among a dealer’s remaining 2007 inventory. “Whatever price-leverage a buyer may gain from a year change is frequently offset by a greatly diminished level of choice,” Ellis says. “The vehicle you want, equipped the way you want it, simply may not exist any more.”
This means you may have to settle for a model that’s loaded with expensive options, or one that’s nearly devoid of popular features most buyers seek — or worse, one that’s a garish color.
The average manufacturer incentive, including direct-to-consumer cash rebates, direct-to-dealer allowances, and cut-rate financing deals, was $2,195 per vehicle in October, 3.9 percent less than the same period a year ago, according to data compiled by Edmunds.com.
Industry analysts cite production cuts, especially from domestic brands, as a key reason why fewer incentives are available this year. “General Motors in particular has shown restraint in the numbers of vehicles they built in 2007,” says David Wurster, president of market research firm Vincentric. With fewer unsold vehicles, manufacturers are less likely to resort to hefty deals to help make room for next year's models.
Still, year-end deals remain most plentiful on slower-selling domestic models — particularly large fuel-swilling trucks and SUVs — but are relatively scarce on vehicles sold by Japanese automakers, which by-and-large enjoyed stronger sales and leaner inventories this year. Incentives from domestic automakers in October averaged $3,145 per vehicle, compared with $2,042 for European brands and just $1,045 for Japanese makes, according to Edmunds.com data.
Large pickup trucks carried the highest average incentives in October, at $4,188 per vehicle. SUVs, a category into which all but three of our Top 10 vehicles fall, had incentives averaging $4,160. Compact cars had the lowest average incentives at $849 per unit, followed by sporty cars at $1,125.
Brand-wise, Cadillac dished out the most cash in October, at an average of $4,943 per vehicle, with Saab (another brand in the General Motors family) running a close second at $4,790.
About the ranking
In the accompanying slide show (see link below), we’ve identified the top ten highest year-end incentives among 2007 luxury vehicles. We’ve ranked them according to the greatest potential savings per vehicle, or the maximum discount obtainable by a shrewd negotiator.
To arrive at our ranking, we combined the value of available consumer cash rebates and/or direct-to-dealer incentives with each model’s negotiable markup, which is the difference between the manufacturer’s suggested retail price (MSRP) and its invoice price. Final transaction prices are determined by dealers’ immediate need to sell a given vehicle and buyers’ determination to negotiate the lowest fair price. In other words, incentives listed in the slide show aren’t necessarily guaranteed.
Many automakers offer low-rate financing as an alternative to cash incentives (a few offer reduced rebates in addition to financing deals); these generally range from 1.9 to 5.9 percent interest rates on loans, depending on the term and the model. By comparison, the average new-car financing rates in early November ranged from 6.84 percent on a three-year loan to 6.91 percent on a five-year loan, according to Bankrate.com.
Some manufacturers offer additional special incentives on select vehicles, which have not been factored into our rankings because they’re not advertised or even available to the general public. These include discounts for students, military personnel, repeat buyers, or members of certain organizations.
All rebates are current as of November 7 and were compiled from information provided by Consumers’ Checkbook and Edmunds.com. All incentives are dependent on available inventory, may vary by region, and are subject to change or expiration.