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Rebates & Beyond

The Bottom Line on Purchase Incentives

The latest auto-purchase incentives are full of consequences for consumers. For example, no-cost maintenance isn’t really free, and what it covers varies. Free upgrades for engines or parts could cost you in the long run. And, although they won’t disappear, cash rebates are getting smaller.

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If you shop for a new car in 2014, you’ll no doubt encounter incentives that are designed to make you believe that you’re getting the best deal that’s possible. However, today’s incentives go beyond the traditional lures of rebates and zero-percent financing.

For example, if you buy a luxury vehicle, there’s a good chance that the manufacturer will give you free maintenance for a defined period of time. That said, not all no-cost maintenance plans are created equal, and the value of each can vary depending on which vehicle that you buy.

Manufacturers also are trying to drum up business by adding free options, such as upgraded engines or performance parts and accessories, with the purchase of a vehicle. Some of these same automakers are pulling back from the hefty cash rebates that they offered in recent years. Finally, more automakers now offer zero-percent financing over longer loan periods, which means that your monthly payments won’t be as steep as they might have been in the past. However, free financing is not always the best deal.

FREE OR FEE? Deals that include no-cost maintenance represent a trend that experts with whom we spoke say provides good value for consumers. Although these maintenance costs actually are bundled into the sticker price and, thus, aren't really free, experts point out that carmakers pay less for labor and materials than do consumers, which means that manufacturers can offer maintenance at a significant discount through their dealerships.

Because the value of the plans is worked into the overall cost of the vehicle, it’s impossible to determine how much of a price markup that there is, experts say. The cost to the manufacturer of the routine service that these plans cover ranges from a little more than $100 to nearly $3,200, depending on what maintenance is covered and how many years or miles that the terms of the service last.

So although your maintenance costs are less with a prepaid service plan, the biggest benefit is that all scheduled maintenance up to a certain point already is paid, says Armaan Almeida, who is senior automotive editor for CarsDirect.com. No additional out-of-pocket expenditure for routine servicing means that consumers who buy a vehicle that comes with a no-cost maintenance plan are more likely to take their vehicle into the shop for all scheduled maintenance and have the documentation to back up the work that has been performed, Almeida says. As a result, the vehicle is more likely to bring a good price when it is sold or traded in, although other factors, such as a vehicle’s appearance and make, also figure heavily in calculating the value of a used vehicle.

Of course, automakers and dealers like no-cost maintenance plans, because they bring business to dealers’ service bays and give dealers the opportunity to cultivate a long-term relationship with consumers—not only to sell them another automobile in the future but also to persuade them to bring their vehicle to the dealer for repairs that aren’t covered under the plan.

However, no-cost maintenance plans have potential downsides for consumers. For starters, no-cost maintenance is offered—at least for now—almost exclusively on luxury vehicles that historically are more expensive to repair or maintain. Audi, BMW, Cadillac, Land Rover, Jaguar, Volkswagen and Volvo offer versions of free maintenance. Until recently, consumers typically would have needed to spend big (generally, at least $40,000) for a new vehicle that comes with maintenance thrown in. That changed in October 2010 when Toyota announced that it would provide no-cost maintenance on all Toyota and Scion models for 2 years or 25,000 miles.

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