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Originally published Friday, October 24, 2008 at 12:00 AM

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Automakers pump up deals on small cars

They're this year's hot vehicles. But as the effects of the financial crisis deepen, even small and midsize cars' sales have declined &...

The Wall Street Journal

They're this year's hot vehicles. But as the effects of the financial crisis deepen, even small and midsize cars' sales have declined — and that means better deals for prospective buyers.

Manufacturers had generally pulled back on incentives for smaller vehicles this year, after record-high gas prices spiked demand. And the discounts still aren't as juicy or widespread as those on fuel-thirsty sport-utility vehicles, or even car-based crossovers. But customers can now get good deals — including cash-back offers, low-interest-rate financing and lease specials — on some best-selling cars. And they have newfound leverage when negotiating, as dealers are desperate to move vehicles off their lots.

The best deals will likely be found on cars made by General Motors, Ford and Chrysler, as Detroit has suffered the worst of the sales downturn. The Big Three have also had trouble competing with Asian and European automakers in small and midsize cars.

Shoppers can get back between $500 and $3,500 on some cars and will see financing rates below 2 percent on both 2008 and 2009 models. Some automakers are offering 0 percent financing deals, and even some luxury brands are being discounted now, as a broad downturn takes its toll on the entire industry. Auto sales tumbled 27 percent in September, according to Autodata Corp., amid the nationwide credit freeze and other economic strains.

"Consumers are just not in the mood to buy anything," says John Casesa of Casesa Shapiro Group, a New York consulting firm that owns some dealerships. "It's that simple." He says that dealers will be "anxious" about having too much stock during typically slow winter months. "There's going to be motivation to deal on anything except the absolute hottest models."

Two briskly selling small cars, Ford's Focus and Toyota's Corolla, are currently carrying manufacturer discounts through early November. Both get about 35 miles per gallon.

A 2009 Focus sedan with a manual transmission can likely be had for less than $14,000 after cash-back deals of more than $2,000 in many areas. Ford is also offering 0 percent financing for 36 months in many cases. Ford recently boosted Focus production to meet surging demand.

Toyota's Corolla, meanwhile, which goes for about $15,900 with a manual transmission and $16,655 with an automatic, carries up to a $1,000 rebate. Customers can also get 0 percent financing for 36 months.

Nissan's Sentra and Versa have $750 and $500 cash-back deals or financing rates below 5 percent.

Beyond promotions, car shoppers also have increased bargaining power. James Holmes, a 52-year-old sales consultant in Nashville, Tenn., used several discounts when buying a 2008 Aura XE last month. The list price was $22,500 and he says he shaved off about $8,050.

He received a $2,000 discount from GMAC Financial Services, which financed his loan; a $1,300 discount from GM; and a $1,750 rebate from Saturn — and he cashed in $3,000 in rewards from his GM credit card.

"I'd say I got a good deal," Holmes says.

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Sales of small cars are up about 6 percent for the year through September, compared with last year, while midsize cars are off only about 5 percent. But both segments plunged about 20 percent last month. Dealer inventories of these cars, meanwhile, have picked up recently after low levels in the spring.

Car buyers are "going to find better deals and better selection on small cars than they did four months ago, when the pickings were slim," says George Pipas, Ford's top sales analyst.

Jesse Toprak, an Edmunds.com analyst, expects demand to remain stronger among these better-mileage vehicles. Many midsize and small cars get better than 30 miles a gallon.

"Although gas prices are lower, they're still high," Toprak says. "That will continue to fuel demand for anything gas-efficient."

Consumers could see attractive deals on nearly all vehicles through next year. Research firm J.D. Power & Associates expects automakers to sell 13.6 million light-duty cars and trucks this year, down 16 percent from a year ago. Next year, the firm predicts a potential "outright collapse" in the auto market, leading to sales of just 13.2 million light vehicles.

The upshot: Manufacturers and dealers likely won't be able to command high prices for some time.

Copyright © 2008 The Seattle Times Company

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