Business Goals Play Bigger Role In What Consumers Pay For Cars, Edmunds.com's Analysis Shows

Business Goals Play Bigger Role In What Consumers Pay For Cars, Edmunds.com's Analysis Shows

SANTA MONICA, Calif. - The business goal of a car dealer and the health of a financial institution may have more to do with the price a consumer pays for a car or the credit terms a consumer receives on a car loan than anything about the consumer personally.

An analysis by Edmunds.com, parent of AutoObserver.com, of vehicle prices paid by consumers and finance rates on their car loans shows an unusually wide range depending on where the consumer does business.

"The car business has been pummeled by the economic downturn, and individual dealerships are dealing with tough times in different ways," explained Edmunds.com CEO Jeremy Anwyl. "Some are offering substantial price cuts in order to close as many deals as possible, while others are striving to earn the highest possible profit on each sale."
 

The variance in new car prices increased by 62 percent from July to December. In other words, today's buyers could pay substantially more or less for a vehicle depending on where they shop, the Edmunds.com analysis shows.
 
For example, in December:

        -- At the low end, a BMW dealership's average transaction price for the typically equipped BMW 3-Series was $40,924, while at the high end, the average was $47,458.

        -- At the low end, a Ford dealership's average transaction price for the typically equipped Ford F-150 was $27,082, while at the high end, the average was $36,641.

        -- At the low end, a Honda dealership's average transaction price for the typically equipped Honda Accord was $22,036, while at the high end, the average was $28,966.
 
The variance for 2009 model year vehicles was 34 percent more dramatic in December than July, while the variance for 2008 model year vehicles rose an astounding 119 percent.
 
"As automakers strive to clear out old inventory at the end of a model year, they generally put more generous incentives on those older vehicles," stated Edmunds.com senior analyst David Tompkins, PhD. "Now, dealers are operating under very different theories about whether to extend the generosity or not - for example, whether to pocket dealer cash or pass it through to customers."

Indeed, the most recent analysis by Edmunds.com shows incentives spending for January up dramatically from a year ago due largely to bulging inventories of leftover 2008 models combined with overall slumping sales.

Variance In Loan Rates
 
Edmunds.com's research also shows that anyone who seeks a car loan from a variety of lenders is likely to be presented with a range depending on the fiscal health and the competitiveness of the lender.

Car shoppers with good credit are likely to be offered rates from 4.5 to 8 percent for a 60-month loan. Pursuing the lowest rate could reduce the payment by more than $50 per month on a $25,000 loan. Those with lower credit scores will see even more variance in the range of rates presented to them.
 
"In the past, different lenders generally offered similar rates to consumers in the same credit tier," commented Anwyl. "Today, not all lenders are in a position to fund a large volume of loans, so many of them offer higher rates that deter some customers."

More Shopping, Less Buying

It appears the consumers who are in the market shopping have discovered the dizzying variance in car prices and loan rates.

As Anwyl points out, shopping activity on Edmunds.com is up, indicating people are interested in buying new cars. But that shopping isn't translating into higher sales. Automakers report January sales Tuesday. Edmunds.com forecasts January's U.S. car sales will come in at a weak 730,000 units, down 18 percent from very weak sales in December and 30 percent from last January.

Anwyl suggests some shoppers may simply take themselves out of the market. He further notes that they may be opting instead for Certified Pre-Owned vehicles sold at dealerships. While overall used-car sales were down in 2007, used-car sales at dealerships were up. New-car dealers sold 49.7 percent of all used cars, up from 47.3 percent from 2007. And sales of Certified Pre-Owned vehicles, which are sold through new-car dealers, rose 1 percent from 2007.

Anwyl notes consumers are more value-conscious than ever so they are opting for Certified Pre-owned vehicles instead of new ones.

Consumers Beware

While today is a buyer's market, the would-be buyer has to work harder to get the best deal.

"More than ever, it is time to do your homework," recommends Edmunds.com Senior Consumer Advice Editor Philip Reed, who offers consumer tips on the Web site. "Now, when you talk with dealers it isn't so much a matter of negotiating, but getting someone to match or beat the deal you've designed using all the research at your disposal."  
 

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.