The Pros and Cons of Buying a Car Now

The triple threat of high fuel prices, slower consumer spending and the credit crunch has put the brakes on auto sales. For car shoppers, that means incredible deals -- and some just-as-incredible headaches.

Today, the "Big Three" auto makers -- General Motors (GM), Ford Motor (F) and Chrysler -- are expected to report an almost-30% year-over-year plunge in auto sales for the month of October, making it the slowest sales month since the recession in 1992, according to industry analysis site Edmunds.com. "It's pretty dismal out there, there's no doubt about that," says Jack Nerad, executive editorial director for Kelley Blue Book.

While these wretched sales figures have pushed some auto makers to the brink of financial ruin -- GM and Chrysler are desperately seeking a Hail Mary merger to save themselves -- they've also given rise to a number of great deals for car shoppers. "The supply is so great and the demand is so weak -- it really is a buyer's market," says Tom Libby, senior director of industry analysis for J.D. Power & Associates.

Thanks to the credit crunch, however, landing that great deal on a new car won't necessarily be a cakewalk, especially if shoppers need to secure a loan or leasing agreement. "Although they really want to sell you that car, the dealership is going to have a hard time finding financing [for it]," says Libby.

Both good and bad, here's what consumers can expect when venturing onto the car lot:

Hoping to clear their lots of aging inventory, auto makers continued to boost their buying incentives through October (typically these incentives disappear by the end of September). Shoppers can expect more of the same in November, predicts Jesse Toprak, senior industry analyst at Edmunds.com. "You're going to see some of the best deals ever out there," he says.

Among some of the deals shoppers can expect, GM is offering $6,000 in incentives on its $38,700 Saab 9-5 Aero -- twice the total amount it offered in September. Look to slow-selling SUVs, trucks and luxury cars for the biggest discounts. The $59,900 Cadillac Escalade now carries incentives worth $6,000 -- $1,000 more than what was offered last month.

Mortgages aren't the only area hit hard in the credit crunch: Auto lenders and financing companies have tightened their lending criteria dramatically. GMAC said in mid-October that it requires a minimum score of 700 on FICO's 300-to-850-point scale to secure financing. "They've never publicly stated a threshold before," says Libby. Other financing companies, including Chrysler and Wells Fargo (WFC), have stopped leasing altogether.

But that doesn't mean buyers are out of luck. "There are a lot of banks lending still," says Nerad. "Dealerships want to sell vehicles, so they will go the extra mile to get you financed right now." To better your odds, try to get preapproved for a loan by a bank or credit union before setting foot on the lot. That way, you don't spend hours in the showroom only to learn you've been declined.

At this point, the merger between GM and Chrysler is far from a done deal, says Libby. Should it go through, however, it could help stabilize the ailing auto makers by allowing them to better diversify their vehicle offerings, consolidate their operations and put extra cash toward customer incentives. The deal also helps ensure that the GM and Chrysler brands consumers buy today will still be around for post-warranty parts and service. (By offering warranties, auto makers already commit to providing such things for a set period after they stop producing a particular model.)

The National Automobile Dealers Association anticipates 700 dealership closures nationwide this year. Nerad puts the number closer to 1,000. Typically, fewer dealerships mean less competition, thereby giving dealers the upper hand to negotiate prices. But since there's such a glut of supply out there, lot closings will have little short-term impact on car shoppers' leverage on the lot. "Dealerships are beating each other over the head to survive," says Nerad. "This isn't a situation where they can hold out for a better price."