After a long period of rightsizing, rebuilding and, in the case of General Motors, repaying government loans, the auto industry is back on track. "Development and strategy are taking over from the firefighting of the past 18 to 24 months," says Jeff Schuster, of J.D. Power and Associates, an automotive data provider.
But the slump will influence the industry for years to come. After dipping to 10.6 million in 2009 and 11.5 million in 2010, vehicle sales should stabilize at about 13 million a year, instead of the nearly 17 million a year that marked much of the past decade. Carmakers have curtailed production to reduce excess inventory and curb steep discounting, so incentives are down and prices are creeping back up.
To get a good deal, it's more important than ever to do your homework. Kiplinger's annual buyer's guide can help you find the best values. We sorted the 2011 models by price and category, and ranked them for performance, safety, roominess and our own driving impressions. In the tables (http://kiplinger.com/tools/autoguide/), you'll find the top 25 models in each category, as well as our picks for Best in Class and Best New models. Five additional vehicles in each category that scored high enough to be in contention for the top awards are highlighted as "Worth a Look." We also asked our partner, CarBargains, to shop for our winners at dealerships around the U.S. to see how good the deals can be. You won't see Hummer, Mercury, Pontiac and Saturn models this year; those domestic nameplates have all been retired. Saab was saved from the chopping block by a sale to Spyker, a Dutch automaker.
While 2010 was a year for reinventing the auto industry, carmakers continued to reinvent the automobile. Electric cars, such as the Nissan Leaf and Chevrolet Volt, have created a new, uber-efficient caste in the green hierarchy. More EVs are coming later this year -- the Mitsubishi "i" and electric versions of the Smart ForTwo and Ford Focus.
Sales will be limited to certain areas, and at prices of $30,000-plus, the new technology will be limited to early adopters with deep pockets -- although a $7,500 tax credit from Uncle Sam will help ease the sting.
Government regulations will soon require all vehicles to use energy more sparingly: By 2016, automakers' fleets must average 35.5 miles per gallon. Despite the considerable hype for EVs, manufacturers are taking a multi-pronged approach to fuel efficiency -- hybrids, plug-in electrics, diesels and more efficient internal-combustion engines.
For the traditional gasoline engine, downsizing is the trend. Turbocharging and direct injection help increase efficiency without compromising power. J.D. Power forecasts that a fourth of light vehicles will have turbocharged engines by 2015, and a third will have direct injection. Transmissions with more gears and CVT transmissions boost fuel economy, too.
Hyundai's new Sonata exemplifies these trends perfectly. The redesigned 2011 model forgoes a six-cylinder version altogether -- unheard of in the midsize market. With its 2.4-liter, four-cylinder engine, the Sonata achieved best-in-class efficiency of 35 mpg on the highway while beating the power of its four-cylinder midsize competition. Rodney English of Chevy Chase, Md., gets 37 mpg on the highway in his leased Sonata with no trade-off in power or roominess. For $219 a month, he says, "the driving experience for the price is very good." The Sonata is also available as a hybrid and in a powerful, 2.0-liter, direct-injected, turbocharged version.
The 2011 lineup brings several other new hybrids: the Kia Optima, Lexus CT 200h, Lincoln MKZ and Volkswagen Touareg. Federal tax credits for hybrids and diesels expired at the end of 2010, and as long as gas prices stay below $4, savings at the pump are unlikely to pay back a hybrid's price premium.
As in the 2010 model year, many redesigned models have lower starting prices than the outgoing models. Classic German engineering got less expensive with the debut of the redesigned Volkswagen Jetta and BMW 5-series. The Ford Explorer and Kia Sorento now have lower starting prices and better fuel economy, too.
For 2011, more cars are getting safety equipment that used to be available only on luxury models. Ford, for example, is offering collision warning with brake support as an option. The system uses adaptive-cruise-control radar to monitor the distance to the car in front. When it senses you're getting too close too fast, the system precharges your brakes to give them more stopping power. Blind-spot monitoring and lane-departure warnings are available on many midprice vehicles.
Manufacturers are also loading the smallest vehicles with extra safety equipment and premium features. Carmakers will have to sell more small cars in the future to meet the government's fuel-economy mandates, so "they have to take away the perception that compact cars are penalty boxes," says James Bell, of Kelley Blue Book.
One of the biggest parts of the value equation is the quality of what you buy. Dave Sargent, of J.D. Power, notes that the industry's initial quality has been steadily improving. In the company's Initial Quality Study for 2010 models, the average score for domestic models outpaced imports (although just barely) for the first time in the study's 24-year history. Ford broke into the top five, surpassing both Honda and Hyundai, which were sixth and seventh, respectively. The top four brands, in order, were Porsche, Acura, Mercedes-Benz and Lexus.
Overall, though, the average of reported problems remained nearly flat compared with the 2009 model year. Sargent attributes that to the effects of the massive Toyota recalls of early 2010, which had dealers working overtime to fix problems. Despite the publicity nightmare and Toyota's deep discounting to prop up sales, the carmaker regained ground it had lost in resale value -- but was the only nameplate to post lower sales for 2010.
Before you shop
Don't expect the bargain-basement prices of a year or two ago to return anytime soon. Prices averaged nearly $30,000 by the end of 2010, compared with $28,000, on average, each of the three previous years, according to www.edmunds.com. Incentives are down, averaging just $2,528 in December, and they're likely to stay relatively flat throughout the year.
You'll have to do some research to find the best price. Use the price reports at www.truecar.com to see average transaction prices in your area. Once you know what you should be paying, make dealers compete for your business -- e-mail several to see which one has the vehicle you want for the lowest price, then get the dealers to bid for your business. If you hate to haggle, consider using Kiplinger's partner, CarBargains (www.checkbook.org/auto/carbarg.cfm), the buying service of the nonprofit Consumers' Checkbook organization. For $200, CarBargains will get five dealers in your area to bid against one another for the car you specify. When CarBargains shopped for ten of our best new vehicles, it found seven below invoice.
Before you hit the lot, make sure you know what your credit score is -- you'll need a score of 740 or above to get the best rates. Five-year loan rates are averaging about 6.2 percent at banks and 5.1 percent at credit unions for those with good credit, according to www.bankrate.com. Carmakers' financing arms offer low rates if you have excellent credit. But don't head for the dealership unless you have an offer from your bank or credit union in hand. That way, you'll have leverage and a backup plan.
Leasing is one option if you aren't able or willing to come up with a down payment or if your trade-in doesn't cover it. Leasing makes financial sense if you trade in frequently and always have a car payment. As consumers seek to slash monthly expenses, Tarry Shebesta, president of www.leasecompare.com, expects the number of new cars that are leased to rise to 27 percent, up from 25 percent in 2010. Nonluxury Asian automakers have recently joined luxury carmakers in promoting lease deals.
How we choose the best values
We pick Best in Class and Best New winners based on performance, value and safety. About half the score is awarded for performance and value, including resale value, power, fuel efficiency, front and rear legroom, headroom, and cargo space (the space in the trunk or the space behind the second-row seats in a wagon, crossover or minivan). Sedans are ranked within price categories. Sports cars, crossovers, SUVs, minivans and wagons aren't broken out by price, so we also score on a scale that rewards lower prices.
A vehicle's safety features, such as anti-lock brakes, side and side-curtain airbags, and electronic stability control, count for about 35 percent of the total score. The remainder of the score comes from our impressions while test-driving the new cars. We assess design and comfort as well as dashboard layout.
Keys to a great deal. Only the most desirable vehicles actually sell for the suggested retail price. That's why we also list the invoice price (all prices include the destination charge). Our invoice price does not reflect the "holdback," which is money refunded to the dealer from the carmaker after a vehicle is sold. Ideally, you'll negotiate a price as close to the invoice as possible. At least aim for Kelley Blue Book's Fair Purchase Price, which represents the most common sale price for the vehicle. Before you shop, check www.KBB.com for price updates.
Another measure of a vehicle's worth is the resale value three and five years down the road. These figures, also supplied by Kelley Blue Book, are the estimated price a dealer would pay at trade-in, expressed as a percentage of the sticker price.
Don't neglect ownership costs. In our tables, service cost is an estimate of the cost of maintenance and unscheduled repairs over five years. Insurance cost is an estimate of the annual premium for each vehicle for a middle-aged driver with a clean driving record.
Finally, we choose the most fuel-efficient vehicles based on annual fuel costs, using gasoline prices of $3.10 for regular, $3.25 for premium and $3.35 for diesel and assuming 15,000 miles of driving each year.
(Jessica Anderson is an associate editor to Kiplinger's Personal Finance magazine. Send your questions and comments to email@example.com. And for more on this and similar money topics, visit Kiplinger.com.)
(c) 2011 Kiplinger's Personal Finance