America's love affair with the automobile is changing. Once smitten with large, muscular, fuel-thirsty SUVs, we now lust after a different body type: smaller and more fuel-efficient. In 2011, eight of the 20 best-selling models were compacts or compact crossovers. Buyers have finally come to accept that high gasoline prices are probably here to stay, and they are gravitating toward smaller vehicles to trim outlays at the pump. But economy car is no longer synonymous with econobox. Automakers are packing in features such as Bluetooth and USB connections as standard items, adding more airbags for extra safety, and manufacturing vehicles with high-quality fit and finish. "Buyers are getting the most car they have ever gotten for their money," says Jesse Toprak, vice-president of industry trends and insights for TrueCar.
Sales of vehicles with alternative powertrains and turbocharged gas engines are growing as consumers hedge against the unremitting rise in fuel prices. Although hybrids, diesels and electric vehicles account for only 3% of total sales, government mandates on fuel economy will push these vehicles onto center stage in the next few years. By 2025, automakers will have to produce fleets that average 54.5 miles per gallon, a fuel-economy increase of 5% per year. Brad Berman, founder of PluginCars.com, says carmakers won't wait to make changes — they will gradually increase fuel efficiency by stepping up production of electrified vehicles (hybrids, plug-in hybrids and EVs) and turning more to turbocharging, direct injection and stop/start technology to help make the traditional gas engine greener.
Manufacturers are already using fuel-efficient technology in their most popular models. Volkswagen's Jetta, which comes in gasoline and diesel variants, is set to go hybrid soon. Chevrolet plans to add a diesel engine to the Cruze, which is already available with a turbocharged engine. Kia and Hyundai offer their midsize sedans, the Optima and Sonata, with turbo and hybrid powertrains.
Taking a different tack, Toyota is betting on the success of the ubiquitous Prius and expanding the lineup to include a plug-in version, a wagon and a smaller, compact model. After more than ten years, the technology has proved itself, a fact that helped convince Bart Wolther that the Prius v wagon was for him. His Subaru Forester, which provided plenty of cargo space for gear on camping trips with his wife, Nina, 9-year-old son and dog, had served his family well. But he wanted better fuel economy. "You’ve always had to give up space for efficiency or give up efficiency for space," he says. "But now I don't have to compromise." The Prius v has 34 cubic feet of cargo space and gets 42 mpg in combined city and highway driving.
Expect to see many more gas engines using fuel-saving technology. Turbocharged vehicles make up 10% of the 2011 fleet, and that number will double by 2015, according to Honeywell Transportation Systems. The technology helps gas engines achieve 20% better fuel economy, and it’s relatively cheap compared with electrification. Plus, smaller, turbocharged engines can rival the performance of larger, non-turbo engines.
Hybrid powertrains will become optional on many more models, and the price premium will diminish as we get closer to 2025. More plug-ins, such as the 2012 Toyota Prius Plug-in, will come on the market. So will electric vehicles, such as Ford's Focus Electric, which goes on sale later this year. Ford says that up to 25% of its fleet will be electrified by 2020.
The $7,500 federal credit for purchasing an electric vehicle (this includes the Chevrolet Volt, which is not a pure EV) should be around for a while — it doesn't begin to phase out until each manufacturer has produced 200,000 vehicles. But the tax credits offered by many states may end sooner. California has already cut its rebate from $5,000 per car to $2,500.
How to Find Value
Continuing a trend that started a couple of years ago, carmakers are dropping or holding the line on prices for redesigned models while adding equipment. Overall quality has improved as well, according to J.D. Power's latest Initial Quality Study (the top five automakers in the study are Lexus, Honda, Acura, Mercedes-Benz and Mazda). The 2012 vehicles have more safety features — and stability control is now standard on every model. More vehicles have airbags to protect the driver's knees and side airbags for rear-seat passengers (either standard or optional). Plus, these features aren't limited to luxury models: The brand-new Chevrolet Sonic (starting at $14,495) has both kinds of airbags as standard equipment.
We tweaked our rankings to award points for those additional safety features. We also gave extra points to vehicles that received four or five stars overall in government crash tests, as well as those rated a Top Safety Pick by the Insurance Institute for Highway Safety. In addition to safety features, Kiplinger’s rankings reward performance, roominess and our own driving impressions. We think fuel economy is such an important piece of a car’s overall value that we awarded a small bonus to green cars in our ranking system this year.
As the economy improved in 2011 and lenders extended more credit, car sales rebounded. Average transaction prices are up about 9% since 2008 to $28,108, on average, according to Edmunds.com. With more customers in the market, carmakers have largely been able to wean buyers off cash incentives — which recently averaged $2,314 per vehicle — and dealers don't have to slash prices to make sales. Also, carmakers have adjusted production so they don’t need to offer hefty perks to move supply.
There are good prices to be had, but you’ll need to shop around and be ready to haggle. To compare pricing and see available incentives on models you are considering, visit TrueCar's site. Pricing reports will show a vehicle's current average transaction price in your area, as well as how it compares with the sticker price and invoice. If you're not a born negotiator, consider using a buying service. TrueCar offers no-haggle pricing from dealer partners on its site; the discount from the manufacturer's suggested retail price averages $4,025.
TrueCar's service is free, but you may get a better deal by paying pros to negotiate for you. For $200, CarBargains will get five local dealers to bid on the car of your choice. When Kiplinger's asked CarBargains, the buying service of the nonprofit Consumers' Checkbook organization, to bid on our Best New vehicles at dealerships around the U.S., they found seven at or below invoice.
No matter how you choose to make your purchase, don’t forget about financing. Rates are still near record lows: Five-year loans average 5.3% at banks and 4.5% at credit unions. If you have good credit — a FICO score of 700 or above — you may find rates as low as 2.5%. It's a good idea to come to the dealership with preapproved financing, but rates from the manufacturer may beat it.
Lastly, leasing continues to be a good option if you tend to trade up before you've paid off the car loan, or are looking for more car than you can afford to buy.
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