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Using auto recalls as discount leverage

Auto recalls may be the key to haggling over any new or used car.

By Karen Datko Mar 9, 2010 10:35AM

This Deal of the Day comes from Kelli B. Grant at partner site SmartMoney.

 

Pointing out the flaws of an item is Haggling 101 -- and the spate of recent auto recalls has given consumers plenty to negotiate with.

 

Since November, Toyota has recalled more than 8 million vehicles worldwide, some 5.5 million of those in the United States. Congress is investigating the automaker’s response to malfunctions including faulty accelerator pedals and floor mats that jammed pedals. Smaller recalls in February covered glitches with brakes and front drive shafts.

 

Toyota isn’t alone in pulling cars from the market, either. Nissan recalled 539,864 cars in early March -- the largest recall in the automaker’s history -- for brake pin and fuel gauge problems. That same week, GM announced it would recall 1.3 million compacts to repair power-steering motors.

 

Recalls spur competition among car makers. A brand with a recent recall is eager to polish its reputation by keeping sales steady, says Jeff Bennett, a professor of automotive marketing at Northwood University in Midland, Mich. Other car companies are more willing to lower prices to lure away the affected brand’s loyal but anxious buyers. In either case, consumers may be able to pay little more than invoice price (i.e., what the dealership pays for the car).

 

But getting a good deal isn’t as simple as showing up at the lot with a Toyota and a nervous tic. Here’s what to consider based on what you want to buy:

 

Recall-affected brand. “What gets remembered is the [brand] name, not the particular model,” says James Brock, a professor of economics at Miami University in Oxford, Ohio. “The badge of dishonor is attached to the company as a whole.”

Toyota will be hardest hit because the widespread recalls have generated substantial negative publicity. Currently, most models -- even those unaffected by the recalls -- offer a choice of at least $750 cash back or 0% financing for up to 60 months. In the used-car market, all Toyotas have declined 2% to 5% in price, says Jack Nerad, executive editorial director for Kelley Blue Book.

 

New or used, individual dealerships hurting for sales may offer even better deals. Shop around.

 

Recall-affected model. Auto shoppers have the most leverage negotiating for a recently recalled model, but it’s a purchase that isn’t without risk. Don’t automatically shun a model that’s been subject to a recall, Bennett says. Vehicles today have nearly as many electronic and electric components as mechanical ones. “It’s made the cars people are driving much more sophisticated than even a few years ago,” he says. All that technology, much of it cutting edge, increases the risk of recall-worthy problems.

 

What matters more is your faith that the problem has been fixed, Nerad says. The National Highway Traffic Safety Administration is investigating complaints from more than 60 Toyota drivers that their repaired vehicles are still experiencing sudden accelerations. New or used, don’t purchase a recalled model without proof that the automaker-required repair has already been completed.

 

Unaffected brands. Other automakers have used Toyota’s woes to tout their own safety records and offer incentives. Honda, for example, is offering $750 dealer cash on the $19,800 Honda Insight hybrid, widening the gap against the $22,800 Prius (part of the braking-system recall). “If you tell them you were thinking about getting a Toyota but now you’re not sure, that might make them salivate,” Brock says.

 

Related reading at SmartMoney:

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