Car Buying: GM Card, "Good Deals" and Financing

As I've mentioned before, I've got a GM Card. This card gives a 5% rebate on all purchases, with the caveat that this 5% must go towards the purchase of a new GM vehicle. There are varying amounts that you can apply towards different vehicles, based upon the vehicles' popularity, newness, and price. For example, you can apply $1000 in earnings towards a low-end Chevy Aveo, but the amount bumps up to $2500 on a Chevy TrailBlazer. Last year, I think the highest amount was $3500 on a Suburban. Right now, the Suburban amount is $1500 because the Suburban is new for 2007; I expect the earnings allowance will bump back up within a year. There are some caveats: earnings don't apply towards Saturn or Saab, for example.

One trick about this card is that you can count on "Bonus Earnings" about once a year. A couple of years ago, I got "Bonus Earnings" that bumped my earnings up to $2500, basically for free. These "Bonus Earnings" had to be spent within a month or two. More recently (I think it was in December), I got an extra $2000 in "Bonus Earnings" that could be spent only on Chevy Trucks and SUV's, and only for a limited time. So if you like to buy new cars and don't mind buying GM, you might want to get this card just to wait for the "Bonus Earnings" to come around; you won't have to pay a cent for them. In fact, these offers kind of negate the purpose of the GM Card in the first place, which kind of makes me mad. Why use the card to get Earnings when I can just wait for Bonus Earnings during the slow car-sales months?

I've got about $1200 in Earnings saved up right now. A few years ago, I applied about $370 in Earnings on the car that I'm currently driving. The process was pretty painless. You negotiate the sale price of the vehicle like normal, then tell the salesman about your GM Card earnings. You will fill out a little form, and the salesman will call in to verify some things. The amount will be considered as an extra down payment.

But, of course, there is a downside to all of this, especially if you would need to finance your new car (like most of us). Every time that I've gotten one of the "Bonus Earnings" offers, I've been tempted. Despite the fact that my current car only has about 55k miles on it, is still in good shape (except for the accident last week, damage from which is being repaired as I type), and still meets my needs completely, I have been tempted. I think to myself, "Wow! $3000 off the price! That's such a good deal!". My inner deal-hound starts to get the best of me.

But, last time I got one of those offers, I realized something. So what if I could get a new truck for $18k instead of $21k? After financing, I would still end up paying more like $22k. Financing a car (or most things, for that matter) basically negates any "good deal" status. Sometimes you can get a very good interest rate; if you can get 4% or below on a car, then it might be worth it to finance. But otherwise you should pay cash -- and probably buy used.

I am still kind of torn on the new vs. used thing. A new car with a warranty has benefits of its own. You're not inheriting somebody else's problems. But at the same time, you're paying dearly for it. So I am not sure. For the time being, I have curtailed my spending on the GM Card substantially, and if I do use my accrued earnings, it will probably be on an econobox like the Aveo. Either that or a big family minivan or SUV with lots of airbags and a built-in DVD player. I guess it will depend on my family status at the time.

As for the GM Card, it is one of the best deals around (I don't think any other card out there offers 5% on all transactions)... if you like to buy new GM vehicles. If you own a business that uses work trucks or delivery vans, this card is practically a no-brainer. For the average consumer, though, it becomes a more difficult calculation.