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Lower prices on cars create buyers' market

Published Oct. 1, 2005

It's a good time to consider a new car.

Thanks to stiff competition, a slew of new cars and a move toward competing on lease prices, monthly payments on many midsize cars have been dropping.

Meanwhile, people who are buying are seeing more rebates and other incentives.

For example, at Sutherlin Toyota in Pinellas Park, a $20,000 Toyota Camry CE with a V-6 engine can be leased for just $169 a month with $2,000 down. Stadium Toyota in Tampa is offering a lease for the higher-volume LE model, which retails for about $23,000, for $209 a month plus $1,944 down.

Attractive lease deals and a lower sticker price have sent 1997 Camry sales surging. Through February, the Camry is the best-selling car in America.

It is unusual for a model's sticker price to drop at all. In addition, the Camry has been redesigned, with features like antilock brakes _ which last year weren't standard and cost more than $1,000 extra _ and bumpers that withstand higher-speed collisions. After a redesign in 1992, the Camry's price rose more than 11 percent.

The best deals are suddenly coming in bread-and-butter midsize cars; in recent years, most price competition has been limited to the luxury-car market. The trend has been slower to affect light trucks _ which include popular pickups, minivans and sport-utility vehicles _ where demand far outpaces supply.

"For the next 18 months, we're going to have midlevel sedan warfare," says Lincoln Merrihew, a consultant with DRI/McGraw Hill Inc.

The lease deals also point to a new frontier for competition: As more consumers opt to lease instead of buy, automakers are touting lower monthly lease payments instead of lower sticker prices. "We lease about 75 percent of our new Camrys," said Kevin Ichter, new car sales manager at Sutherlin Toyota. "It's higher and higher every year."

The lease battles were launched by Japanese automakers, who lease nearly 40 percent of their cars, while U.S. automakers lease only about 25 percent of their cars on average. The weaker yen and other factors give Japanese automakers more flexibility to make aggressive lease offers.

Lease payments are based on the difference between a car's purchase price and its predicted value at the end of the lease. Most foreign cars hold their value better than American cars, so it costs American companies more to offer cheap leases.

Some U.S. automakers are replying with discounts on car purchases, like sales incentives to dealers and rebates to customers. GM is even offering $700 gas cards with its Chevrolet Lumina. Chrysler Corp. introduced its 1997 models last October with cash rebates of as much as $1,500 on many cars. Ford Motor Co. followed with a $500 rebate on the 1997 Taurus _ the top-selling car in the United States for five years in a row. Some dealers have tripled that offer to $1,500.

Rebates and other forms of price discounting are at their highest levels since 1992, says Smith Barney analyst David Garrity. Analysts say car prices are set to continue becoming more competitive because of the auto industry's faster pace of introducing new cars and its current overcapacity. The bargains are not a short-term phenomenon but likely to become a series of "persistent, ongoing battles," says Paul Ballew, chief economist of J.D. Power & Associates, an industry consulting group.

_ Information from the Wall Street Journal and Times staff writer Ameet Sachdev was used in this report.