If you're looking for a new car, the good news is it's a buyer's market. The better news is it could stay that way for a while.
Automakers have ratcheted up sales promotions this spring, spurred by Toyota, which is trying to goose sales after millions of safety recalls. That's touched off a fight for consumers' wallets that analysts say could continue through the summer. Among automakers, no one wants to be the first to blink and take away the deals.
At the beginning of March, Toyota rolled out a slate of customer incentives. The deals — which included zero-percent financing for most recalled models, discounted leases and free maintenance — sent Toyota's March sales soaring more than 40 percent.
Not long after, rival Honda Motor Co. followed with cheap leases covering most of its lineup. General Motors Co. also rolled out low-cost financing across several models, as did Chrysler Group LLC and others. Most manufacturers, including Toyota, continued their promotions into April, although some eased incentives slightly.
"The troubles of Toyota caused a chain reaction in the industry," says Jesse Toprak, vice president of industry trends and analysis at the car pricing website TrueCar.com.
Automakers deny that their incentive programs are in response to Toyota. But the deals have been benefiting car buyers like Desiree House, who in April traded in her 2001 Ford Explorer for a 2010 Toyota Prius. She got financing at an interest rate of 2.9 percent over 60 months. The car came loaded with options, including a solar charger on the roof. House negotiated the price down to $30,600 from around $32,000.
House, a systems analyst who lives outside Scranton, Pa., says the low interest rate was an "added bonus," but she ultimately settled on a Prius because of its fuel economy. She shrugged off the fact that the Prius had been recalled.
To be sure, incentive spending by car companies is down significantly from this time last year, when the recession pushed down vehicle demand to historic lows and automakers were desperate for sales. This March, manufacturers spent $2,951 per vehicle, down $600 from the same month a year earlier, according to market research firm J.D. Power & Associates. This April, the firm expects that figure to come in at $2,800 per vehicle, a slight drop from March.
Still, incentive levels are not likely to fall much more, says J.D. Power analyst Thomas King.
And even if incentives were more generous a year ago, the frozen credit markets made it tougher to get financing then. That locked many buyers out of the market. Automakers focused their incentives on cash-back offers.
Credit is now thawing, helping propel sales because dealers can offer cheaper financing. In March, consumers bought a record number of new cars and trucks using zero-percent financing, according to the auto research website Edmunds.com. Among new Toyotas, 71 percent were bought at a zero-percent interest rate. Overall, sales of new cars and trucks climbed 24 percent in March.
But as with any big promotion, buyers become less receptive to incentives as time goes on. In April, automakers are unlikely to enjoy the big boost in sales that incentives bought them the prior month, analysts say.
"We're not seeing a lot of traffic (in April) as we did at the beginning of March," says Edmunds senior analyst Jessica Caldwell.
That leaves Toyota in a tough position. If it lets incentives run out, it runs the risk of losing sales. If it extends them again, it might be even harder to take them away later.
Truecar's Toprak predicts that Toyota will have no choice but to keep the discounts flowing until its 2011 lineup arrives in the fall.
That would be just fine with Tom Santospago, general manager at Lee Toyota in Topsham, Me. Santospago says incentives have been a huge help, giving his March sales a hefty boost and keeping them at a similar level into April.
Santospago is only slightly worried about the long-term impact of the incentives, saying they could hurt used-car values. For now, they're bringing in lots of customers.
"We barely even hear about anything being recalled."
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