The Clunker Debunker

Chrysler’s bankrupt, and Pontiac’s going bye-bye. GM’s on eBay, claims its Chevy Volt will get 230 m.p.g. and boasts that a $4,000 compact is in the works. Volkswagen is merging with Porsche. TV car guys with names like “Dealin’ Doug” are screaming about incentives this and rebates that. And the government’s porky cash-for-clunkers effort is ridin’ herd on gas hogs.

So does that mean it’s a good time to acquire a vehicle?

If you’re not financially underwater, the answer is probably yes, according to industry experts and recession-whipped car sellers, who point to low-interest loan rates, government givebacks, manufacturer come-ons, desperate dealers willing to haggle and the specter of rising prices down the road.

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Auto sales couldn’t be much slower, and the near future isn’t looking that much better, says Bruce Rapp, who sells GM cars, Subarus and Jaguars in Syracuse, N.Y. “There’s incredible change going on in our industry, and it hasn’t shaken out yet,” he adds.

That uncertainty is translating into savings. But before you put yourself behind the wheel, ask two big questions: Should I get a new or a used car? And should I lease or buy? The experts’ short answers are the same as they’ve always been: it depends on your finances, what you want from a vehicle and your number-crunching acuity.

Buying a new vehicle carries several advantages. Beyond the intangibles — billboarding your economic status, that new-car smell — there’s always a great selection of vehicles across all price ranges. You can customize features and technologies (Bluetooth phone systems, iPod terminals, etc.). You can drive the vehicle as long and as hard as you like. And you gain equity as you pay down your loan.

Then there’s the current-day math. A good many carmakers — among them VW — are offering no-interest loans for new cars, while others are advertising rates ranging from 1.9% to 3% for 24-, 36- and 60-month loans. (Compare that with the 5%-to-6% rates for used cars.) “This has been some year,” notes Craig Rosenfeld, founder of the Vision Auto Group in Leesport, Pa., which sells Porsches, Audis and VWs. “There have been a lot of changes in marketplace dynamics, in buying habits, sales strategies. We’re seeing a lot of traffic, a lot of interesting things happening.”

Combine manufacturer rebates, dealer incentives and cash-for-clunkers rebates of up to $4,500 (which end in November), and there are some huge deals out there. The $16,000 list price on a 2009 Nissan Versa at Boulder Nissan in Colorado can be whittled to under $10,000. A buyer could drive off with a new $18,000 Pontiac Vibe from the Bill Rapp Super Store in Syracuse, N.Y., for $10,000 if he or she does the numbers right. And Lakewood Fordland in suburban Denver will conceivably trim up to $17,000 off a loaded 2009 Ford F250 XLT listed at $49,223.

Watch TIME’s video “The Secrets to Cash for Clunkers’ Success.”

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Still, a new vehicle loses a chassis-size chunk of its value to depreciation when you drive it home. If that thought makes you carsick, a used car might work. Of course, used cars are less expensive, and insuring them costs less. Sure, a used number carries more risks, but in this certified-preowned-vehicle era, a model that has historically retained its value — say, a Honda Accord EX or a Subaru Outback — can often promise years of strong, relatively maintenance-free driving.

Be aware, though, that according to dealers, used-car prices — especially for popular foreign makes — have climbed more than 10% in the past year. Recession-scarred consumers are holding on to vehicles longer, and the clunkers program is destroying a fair number of older models. Dealers, in turn, are paying more for units at auctions and at trade-in time, and they’re not shy about passing their costs on to you. “It may get to the point where used cars are so expensive that it may be worth buying a new car for a few thousand dollars more, and the market will be back to the way it used to be,” says Ed Olsen, the sales manager at Boulder Nissan.

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Say you want to drive some hot number off a dealer’s lot this afternoon, perhaps a higher-priced, geeked-out cruiser you might not be able to afford. Despite all the sales rebates, leasing is still a viable alternative. It’s not as popular as it was among manufacturers, whose bad arithmetic cost them a fortune a few years back. But if you can find a leasable model you like — GMAC Financial Services and GM are offering packages for the 2009 Cadillac CTS, several new Chevrolet models and the 2010 Buick Enclave and LaCrosse — the numbers might work if you drive fewer than 15,000 miles a year, want to keep a warrantied vehicle for only a few years and don’t have lots of cash (say, 20%) for a decent down payment. One example: a Nissan Sentra priced at $20,000 will cost a buyer who puts nothing down about $420 a month with a 60-month loan. Leasing? About $210 a month over 39 months.

A caveat: if you drive more miles than the lease allows, return the vehicle to the dealer in lousy shape or terminate the lease early, you could be on the hook for some heavy fees, which can dramatically add to a car’s overall cost. That’s one reason Consumer Reports, among other reputable research outfits, has long determined that purchasing, rather than leasing, makes better financial sense for most individual drivers.

Another thing to consider, besides doing something very un-American by paying cash for a vehicle to save a good bundle of money: hire a broker — that is, an independent agent who will shop dealerships for the vehicle you want, find the best prices in your market and negotiate for you. In many cases, it won’t cost you anything. The broker is often paid by the dealer as well as by the loan’s originator. Bottom line: two motor heads can be better than one.

For more stories on how the economy is affecting the average American, visit time.com/moneyandmain

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