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New cars can cost less than used cars as dealers add incentives

DETROIT — For cash-strapped consumers shopping for a car, used would seem like the place to start.

Not necessarily. A new one might actually be cheaper.

Consider this: The average cost of a used 2008 Honda Accord EX sedan, certified by the dealership, was $21,544 earlier this month, according to Edmunds.com, a car-buying Web site. A new 2009 model cost $80 less.

It's simple supply and demand. With new car sales at a 27-year low and desperate dealers piling on rebates and incentives, prices are plummeting. At the same time, demand is up for used cars, and their values are rising.

New cars still generally cost more than used ones, but a mix of drastic price cuts, rebates and financing incentives is narrowing the gap.

Automakers are subsidizing zero-percent or low-interest loans on new cars, while the average rate on a three-year used car loan is about 7.5 percent, according to Bankrate.com. Factor in the lower cost of financing, and the total cost of the new car can be less.

For example, a $30,000 car with an annual percentage rate of 2.9 percent would cost $662.70 a month over four years. By comparison, a used car at 7 percent would cost $718.38 a month — or $2,673 more over the same period.

Automakers such as Ford Motor Co. are banking on the phenomenon to drive consumers back to new car showrooms.

But zero-percent financing can be hard to get without excellent credit, and it's unclear whether the Treasury Department's cash infusions to GMAC and Chrysler Financial have loosened lending. So despite great new car deals, some consumers might be relegated to buying used.

New cars can cost less than used cars as dealers add incentives 03/19/09 [Last modified: Thursday, March 19, 2009 11:20pm]
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