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The Best Car Deals 2002
Michael Frank

Overview

A year ago, in the wake of Sept. 11, General Motors took bold action to jump-start moribund car sales.

The world's largest carmaker initiated 0% financing to get skittish buyers to return to showrooms. Ford Motor (nyse: F - news - people ) and DaimlerChrysler (nyse: DCX - news - people ) soon followed suit. A short while later, Mitsubishi upped the ante, offering zero down, zero interest for the life of the loan, and even no payments for the first year of ownership.

Thanks to this bevy of offers, the car market picked up, and although the economy is still on crutches, sales of cars are quite brisk--2002 may prove to be one of the five best years in car-selling history.

But before we get into how this benefits car buyers (and cite our favorite deals), you've got to ask yourself, What do all these discounts do to the automakers?

If you ask most analysts, they'll say it really depends on the company. Some carmakers, like GM (nyse: GM - news - people ), have robust finance arms that can essentially discount rates on massive amounts of cash because, long term, it may result in more repeat GM customers, and, near term, it still means lots more positive cash flow for the corporation.

Which cash-back car can you afford?

Mazda Protégé ($16,000)

Lexus IS300 ($30,000)

2002 Porsche Boxster ($42,000)

Lincoln Navigator ($48,000)

Mercedes E430 ($55,000)

View Results

Also, not everyone qualifies for 0% financing or cash back. We've even heard GM officials cackle about how well the carrot approach works. Once they get a customer in the showroom, they say, even if he's been denied the lowest rate, he usually buys.

And, thanks to the Fed lowering rates, it's not as if it murders GM to knock a few points off a two- or three-year loan. Yes, it drains future cash from the coffers, but it's a tradeoff; all three American automakers have overcapacity at their North American plants and tight union deals that require them to pay workers whether these employees are building cars or playing gin. Better to have them building cars and dealers moving that metal than to make no money and still have to pay those assembly-line salaries.

And remember, too, that incentives have been around since the 1970s, and whether you're talking low-interest financing or cash back or a very low lease rate, you're just factoring in another marketing cost. Don't think for a second that carmakers haven't put that into the math of making up sticker prices and charging for optional wheels or that six-disc CD changer you want. Yes, there is tremendous cost pressure on carmakers, but there's a little wiggle room, especially with a more powerful yen and euro pushing up the price of Japanese and European cars, which allows American carmakers a few hundred dollars inflation on their prices as well.

Meantime, what's in it for you as a shopper?

Good deals. In some cases, very, very good deals. As we said, you are paying for these deals, because car prices overall have gone up as a percentage of average income more rapidly than, say, food prices. Nonetheless, if you need to upgrade your present car, are about to have your first child or are booting the extant ones off to college and need to replace the current machine because it's ill-matched to your new lifestyle--or you want a new toy--now's the time.

Six caveats before we dig in:

Not every offer shown here is available nationwide. It depends on regional strengths of certain brands (Subaru doesn't have to discount as heavily in the Northeast as it does in the Southeast, for example) and on regional inventory. It also may depend on 2002 supply. If the discount/cash back/low interest is on a 2002 model, you may be stuck with that beige one still on the lot rather than the hot red number you wanted. Or, the 2002 supply could be exhausted in your region, and you're out of luck.
The cars discussed here are ones we like already (or have misgivings about despite the markdown). But practically all Big Three metal is available with some kind of low-interest financing or cash back, so if you see a style of car you want below but not the make or model, check out that carmaker's Web site. You may find it offers a competitively low interest rate, at the very least.
You know that part in the TV ads when they talk really fast? One of the things they're saying is "Not All Buyers Will Qualify." What that means is that the bank has to approve your credit, and if yours isn't squeaky clean you may only get the low-interest loan, not the no-interest one. But remember, a 1%-2% difference over the life of a 36-month loan of, say, $25,000 will amount to only a few bucks per month.
Take the money or the low interest? To decide, first find out what kind of interest you'll get if you take the cash. If you don't like the rate, ask your bank for a second opinion then play the bank and dealer off against each other. This is one way to have your cash back and a low-interest loan. For example, Lincoln has been offering $7,000 cash back on the now-discontinued Continental and we doubt they're charging 10% interest on the loan (if they are take the cash and get a better deal from a bank!).
According to the IRS, a cash rebate is not taxable. So if you get $7,000 back on that Continental, drive straight to the bank and don't stop for any taxman.
Many of these prices/rebates/rates expire quickly, as soon as Sept. 30, so we recommend narrowing your search and getting on the phone with a few dealers before time runs out.


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