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Big Incentives on Full-Size Cars, SUVs May Not Cover Depreciation Losses

June 24, 2005

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Car buyers will find vehicles boasting thousands of dollars in discounts this July 4th holiday weekend, but not all deals are created equal, according to Consumer Reports Auto Price Service.

Strong incentives from Ford Motor Company and General Motors are making some large cars and SUVs seem like attractive long-term buys.

After examining thousands of incentives and rebates from vehicle manufacturers, Consumer Reports' Auto Price Service found the 10 largest incentives currently offered are on large, American-brand vehicles from Ford and GM, reflecting the market move toward fuel-efficient vehicles.

"As the prices on full-sized sedans and SUVs are reduced, it is natural for consumers to think the discounts will offset their expected annual gasoline costs," said Rob Gentile, director of CR’s Auto Price Service.

"However, it is important to consider the vehicles' potential depreciation. These car prices are reduced because they are less desirable in today's market and buyers will assume the risk for their value in tomorrow's market."

To understand the potential cost implications, Consumer Reports Auto Price Service determined the likely purchase price for each vehicle and projected how the vehicles will depreciate over time.

At three years of ownership, current cash rebates on two of the 10 vehicles with the largest incentives -- 2006 Chevrolet Tahoe and Mercury Grand Marquis -- give these vehicles a financial edge in combined depreciation and fuel costs over better performing, higher-rated vehicles like the three-row Honda Pilot and Acura TL.

However, by year five, the balance favors CR's picks. The accumulated costs for the Tahoe came in at a few hundred dollars above the Pilot.

Although the full-sized SUVs cost more after five years, buyers who need a large vehicle for both cargo and towing may accept the cost difference. The only CR-Recommended sedan with large, seasonal incentives, the Grand Marquis, is an attractive buy with $5,000 in incentives available through July 5, 2006.

"Car buyers must be careful when considering highly discounted vehicles. The key to making a smart purchase is to be informed and not to get distracted by the incentives alone," Gentile said.

"With careful research, buyers can narrow their wish list down to proven, high-rated models and learn how to negotiate the best price before entering the showroom."

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