Are Model-Year Closeouts a Good Buy?

Honda Accord Hybrid

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It’s not exactly Christmas come early, but automakers have gotten a flying start this year on model-year blowouts. At dealerships around the country, 2007 models are being hustled off the lots to make room for the incoming 2008s.

In particular, Honda and Toyota are trying to attract customers with higher-than-usual discounts offered seemingly earlier than ever, well in advance of the typical model-year clearance events. Honda’s average incentive per vehicle sold in July was $1,146, versus only $896 in July 2006, according to Edmunds.com. Toyota’s average incentive per vehicle hit $1,492 in July, up from $1,009 a year earlier.

Vehicle incentives can vary. They aren’t always just money off the sticker price. Import brands like Honda often prefer to offer discounts in the form of cut-rate leases, as opposed to customer cash rebates, which have been popular with domestic manufacturers. “We don’t offer cash at all, as a matter of policy,” said Honda spokesman Chris Naughton. That’s partly to avoid the appearance of a fire sale, but also because, according to registration data from the automotive research company R.L. Polk & Co., leasing is more popular on both coasts, where import brands sell the best. In the Midwest, people are less likely to lease or buy imports.

Through Sept. 4, Honda is offering a $199 per month lease for 36 months on the 2007 Accord four-cylinder coupe, with $2,399 due at signing, according to Honda’s website. That's the leasing equivalent of almost $3,000 off sticker price. Acura is also offering cut-rate leases or low-interest financing.

The fine print for the Accord lease puts the MSRP at $21,870, and the net capitalized cost is $18,895.89. The latter is the leasing equivalent of the amount financed on a loan, i.e., the amount of money borrowed.

Buyers can negotiate with dealers on the difference of $2,974.11, which would typically include things like a down payment, first month’s payment and acquisition fee, Honda's Naughton said. But the unspoken suggestion is that dealers are highly motivated to get people into the $199 lease.

Uncharacteristically, Toyota is also offering leases as low as $199 on the 2007 Camry. Luxury import brands including Infiniti, Lexus and Mercedes-Benz are likewise advertising “summer specials,” which often last until it’s time for model-year clearance sales, which themselves then segue into December clearance events.

In other words, with 2008 models on the horizon, and deals to be had on 2007s, it’s a good time to be a car buyer. The question is, what’s the better deal, buying the last of the '07s or the first of the '08s? It turns out, there’s no wrong answer; both have advantages, depending on your tastes and needs. Keep reading to find out the benefits of buying either the last of an outgoing model or the latest introductions.