The Independent Investor: It's a Great Time to Buy a Car

By Bill Schmick
iBerkshires Columnist
07:18PM / Thursday, May 28, 2009

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Bill Schmick

General Motors teeters on the edge while Chrysler has already entered bankruptcy court. Vehicle sales worldwide are down 30 to 40 percent and the global recession continues unabated. 

Yet, now is the time you should be shopping for a car or truck. If you can afford it, chances are you will bag a great deal.

Whether you are looking for a domestic or foreign car, the average price for such vehicles is down almost 3 percent in the last six months. At the same time cash-back incentives have risen by almost the same amount. We're talking an incremental $2,500 or more in savings. In the meantime, financing has never been cheaper with record-low rates offered over a wide range of vehicles.

Last year, the number of dealerships closing reached 960 and the National Automobile Dealers Association is predicting an additional 1,200 by the end of this year. Now that Chrysler and General Motors are also reducing the number of franchise dealerships across the country, consumers can expect an excess supply of cars and trucks that dealers would like to move off their lots as soon and as fast as possible. 

Richard King, owner of McAndrews-King, Pontiac, Buick, and GMC Truck in Adams, has been doing business in the Berkshires for 36 years. He agrees that consumers can get really good deals right now.

"We are hungry, no doubt about it," he says, "and most dealers are paying more for used cars as well."

King found the last couple of weeks uncomfortable at best as General Motors sent over 1,100 letters to dealerships nationwide who received non-renewal letters ending their franchise status. Those who received these letters have until October of next year to come up with a new game plan if they want to survive.

"We have a superior rating from GM so, although we weren't worried, it was still torture waiting not to get a letter," King said.

Unfortunately, Dave Barden, owner of Rosetti Chevrolet LLC in Chatham, N.Y., was not so lucky.

"Yeah, we got a non-renewal letter," Barden said, glumly.

Barden, who has been in business since 1993, plans to close next month.

"I'm about retirement age," he said, "so I guess that's what I'll do, but I feel sorry for all those people around here who are going to have to drive to Berkshire or Greene County to get their cars serviced."

Fortunately, Barden can resell his GM vehicles back to the company but many of the closing Chrysler dealerships are not so lucky he says.

"It is true that most everyone is discounting deeply just to get the cars off their lots," he explained. "But some of the Chrysler guys are discounting an additional $2,000 to $3,000 off already deeply discounted prices plus rebates."

Although this summer will be an ideal time to pick up a bargain, I suspect the good times won't last.  Auto companies have already cut production substantially and at some point soon supply and demand will come back into equilibrium. And remember, the auto companies won't be in bankruptcy forever. Chrysler is already rumored to be on the short end of its 30-60 day period of reorganization outlined by President Obama just two weeks ago. A healthier Chrysler, combined with their new partner, Fiat, may mark the end of distressed sales at least among their particular auto lines.

Some believe if GM follows Chrysler into bankruptcy it may take longer to emerge. GM is a much larger company with worldwide operations and almost a dozen governments involved in their operations. GM's bondholders have also been reluctant to accept a deal. However, on Thursday there seemed to be a breakthrough with holders now ready to accept stock for some of their bonds.

There is also talk that the U.S. government is prepared to inject another $50 billion into the company, which would bring the taxpayer ownership to 70 percent or so. Negotiations will continue through the weekend with the government's imposed deadline expiring on Monday. 

Whatever happens, GM too will emerge from bankruptcy or some other kind of reorganization a much cleaner, healthier company without the overhang in inventory they have now. So don't count on continuing distress out of Detroit to keep these deals around for more than a few months.

So how do you find the best deals? In this age of internet, consumers can surf the net and comparison shop. Some Web sites such as Cars.com, msnautos.com and edmunds.com provide buyers with a wealth of information including cash-back and discounts that dealers are offering. There are also sites that will give you an idea of what your old clunker might be worth on a trade-in.

Still, Richard King reminds us that price isn't everything.

"Anyone can sell you a car but not everyone can service them," he argues, explaining that he has spent a fortune building an outstanding service center. King, like other successful dealers around the region, will survive and thrive through this downturn but, in the meantime, are more than willing to give their customers a deal when they can. And right now there are deals aplenty.

Bill Schmick is a licensed investment adviser representative as well as a registered financial consultant. All views and opinions expressed by Bill in his columns are strictly his own. Direct your inquiries to him at 1-51... or wschmick@fairpoint.net. You can also visit www.afewdollarsmore.com for more of Bill's insight.

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