(MONEY Magazine) – When Ray Adams of suburban Denver decided to retire his 17-year-old subcompact, he went to the local Nissan dealership expecting to settle for a used car. Then he discovered that he could buy a brand-new 1998 Sentra for $10,990--only about $1,000 more than the two-year-old used cars he had been pricing. It didn't take Adams long to figure out which was the better deal. "With the used car," he says, "I wouldn't have had the three-year, 36,000-mile warranty I got with the new car."

Nissan made that bargain possible with a $3,000 incentive payment to the dealership, which could then sell the Sentra at $2,400 below normal non-incentive dealer cost. Such cash lures are part of the new math of global competition that has reduced car prices in the U.S. for the first time in 20 years. While the average decline for all 1998 models was slight--0.6% below the 1997 level--some stickers have been cut as much as 8%.

Here's why prices are falling:

The strong U.S. dollar. Up 9% against the yen in the past seven months, the strengthening dollar allows Japanese companies to set lower prices in the U.S. for their vehicles and parts imported from Japan. U.S. car makers in Detroit, naturally, have been forced to respond to this competitive pressure.

Turmoil in Asia. Economic and currency crises abroad mean the price-cutting will likely continue. "With little prospect of growth [in auto sales] in Asia," says Susan Jacobs, president of auto industry consulting firm Jacobs & Associates in Rutherford, N.J., "the North American market becomes even more important for Honda and Toyota. To keep U.S. sales growing, they will have to keep prices down."

Growing supply and slipping demand. Car makers keep rolling out totally new models (a total of 17 for 1998). Meanwhile, demand seems to be softening, with analysts projecting that U.S. sales will dip from 15.2 million cars and light trucks in 1997 to about 14.9 million this year. "The strongest demand--by people who had no choice but to replace older vehicles--was satisfied in the early 1990s," says consultant Jacobs. "To entice consumers to trade in newer cars, the automakers must offer really good deals."

In other words, the balance of power has rarely been more in a car buyer's favor. To get the attention of discount-hardened shoppers, companies keep pounding away with new promotional rebates paid directly to consumers, especially on Detroit products (recently $1,500 on the Dodge Neon and $1,000 on the Chevrolet Blazer sport utility, for example). Manufacturers also offer sales incentives to dealers--as Nissan did in the Denver example.

So how do you make the most of this enticing landscape? The starting point for negotiating your best deal is, as always, knowing the dealer's cost. That, in part, is what the tables beginning on page 132 can tell you. As a target price, aim for 3% to 4% over dealer cost for vehicles with list prices under $25,000 and for most vans, sport utilities and pickups. Aim for 6% to 7% on higher-priced vehicles (where dealers are usually less flexible). Incentive deals could lower your target further still, but they are constantly changing. The trade paper Automotive News, available in many libraries, lists rebates and incentives weekly. You can get similar information online from auto-price service Edmund's (www.edmund.com).

Another tip: In place of rebates, some Detroit manufacturers are offering low-interest loans--even on the Ford Explorer, the top-selling U.S. sport utiltity (4.9% to 6.9% financing, about two to three percentage points below similar auto loans from banks). In some other cases, you can make a choice between a rebate and low-interest financing, but if your vehicle costs less than $20,000, it almost always makes sense to take the rebate--since reducing the amount of the principal does more than lower interest rates to trim your monthly payments and total cost. Above $20,000, you need to do the math carefully. Our Website Money.com (follow TOOLS to AUTO) offers free specialized software that will help with such comparisons.

Of course, some people get a migraine just thinking about negotiating with a car dealer. Following the lead of Saturn, about 10% of all dealers adopted a high-courtesy, no-haggle sales approach in the early 1990s. That trend faded, but in 1996 and 1997, Republic Industries swept into the showroom, buying up more than 200 new-car dealerships--encompassing all major brands--and switching them to no-haggle selling. While no-haggle deals are easier, there is a trade-off: They offer good prices but not as good as a negotiator can get.

Now comes the fun part. What follows are our Best Buys for sport utilities, vans and pickups, plus five price categories for cars. Obviously, we made sure all of the contenders fared well in the total ownership cost figures compiled for our tables by IntelliChoice, an automotive research firm in Campbell, Calif. that supplied the data for our tables. We also wanted vehicles with good looks and curb appeal. And we made some coolheaded assessments to ensure that you get the most room and equipment for your buck. We obtained feedback and recommendations from specialists at three national buying services--AutoAdvisor in Seattle, CarSource in Larkspur, Calif. and CarBargains in Washington, D.C. When we came to the final selection, we looked for one special feature that set the winner apart.

The target prices that we cite are those our pros believe a reasonably good negotiator could achieve as of early 1998. They reflect any current rebates or incentives and the optional equipment a typical buyer would choose. (Our prices in the tables beginning on page 132 are for the base model before adding on options.)

The envelopes, please.

SPORT UTILITIES

Subaru Forester S Target price: $22,167. With bigger sport utilities attracting criticism for their gas-guzzling, high-polluting ways, smaller, more carlike utilities have posted among the biggest percentage gains in sales. Subaru was already well positioned to move into this category, thanks to its long-popular all-wheel-drive wagons. For 1998 it has introduced the Forester--more of a genuine sport utility than previous Subaru entries like the Legacy Outback.

Toyota's RAV4 got the small-utility category revved up. But the Forester has a more powerful engine than the Toyota and handles better on curvy roads. Its hauling capacity (64.6 cubic feet) tops the RAV4 as well. The Forester can be had at a target price just $500 over dealer cost and at least $5,000 less than a number of bigger, more luxuriously equipped utilities.

A year ago, the big sport utility news was the Mercedes-Benz ML320--which Mercedes astonished analysts and competitors by pricing at just under $35,000. Even now, you have to wait several months just to buy it at sticker price (if you can get it). If you do need something bigger than the Forester, last year's Best Buy in the sport utility category, the Ford Explorer XLT (81.6 cubic feet), is selling at about dealer cost of $25,770 with typical options.

VANS

Chevrolet Venture Target price: $22,845 in the four-door extended version. General Motors minivans used to be a joke even in the movies. In Get Shorty, the John Travolta character charmed everyone into thinking that the Oldsmobile Silhouette with its "dustbuster" shape was a great van. But with the Chevrolet Venture (and its siblings), GM has put that image to rest. From cupholders to easy-to-remove seats to driver headroom, this design has what a family van needs. And the Venture is the first minivan to install side-impact air bags.

You can get the Venture at a target price $300 over invoice. For maximum space and convenience, go for the extended-wheelbase version with sliding doors on both sides.

Last year's winner, the Dodge Caravan, is still the biggest-selling minivan. But Venture's safety equipment and better price give it the nod. Our buying pros liked the Toyota Sienna, new for 1998 and Toyota's best van effort to date. But with a list price of $23,975, the LE version can't compete with Venture on price.

PICKUP TRUCK

Ford F150 XL Super Cab Target price: $18,074. The F150 and its larger siblings are the biggest-selling vehicles in America--746,111 in 1997. Ford and its dealers aim to keep that distinction, which is why you can get it at a target price of just $100 over dealer's cost.

The F150's standard 210-horsepower V-6 gives it the most power in its class, and its suspension will keep you happy either in mall parking lots or on muddy, rutted roads. The Ford truck has a standard third door in its Super Cab for easy entry to the back seat, and the interior is more comfortable than the competition's.

CARS UNDER $15,000

Chevrolet Cavalier LS Target price: $13,362. Among small cars, where back seats can be cramped, the Cavalier handles four adults more comfortably than any other small sedan. The Cavalier has more passenger space (92 cubic feet) than its chief competitor, the Ford Escort (87 cubic feet). And if those passengers have luggage, the Cavalier stashes it better (13.4 cubic feet of trunk space vs. 11.8 cubic feet for Dodge Neon and 10.4 for Escort). In a category where price counts most, the Cavalier simply gives you the most for your money. That's why it is one of two repeats (with the Ford F150 pickup) from last year's Best Buys list.

Safety is another special concern with small cars, since occupants of bigger vehicles almost always fare better in a crash. In federal crash tests, Cavalier scored above average for protecting its occupants. And, unlike most competitors, the Cavalier offers anti-lock brakes as standard equipment.

Hard bargainers can get our target price, which dips under normal dealer cost by $750, the amount of the factory rebate.

$15,000 TO $20,000

Nissan Altima GXE Target price: $17,465. In this category, Altima offers one of the biggest sticker-price cuts in the market: $1,500. And at a target price just $100 over dealer cost, it includes a CD player as standard equipment.

Nissan redid the aging five-year-old Altima design for 1998. While some loyalists liked the old look better, this still attractive sedan delivers more room where it counts: for rear-seat passengers and for luggage. Nissan achieved that by making the redesign three inches longer and two inches wider while using the same wheelbase. Interior wood accents add a luxury-car look borrowed from Nissan's higher-priced corporate sibling, Infiniti.

Last year's Best Buy pick, the Ford Taurus, also remains competitive with a $740 price cut below 1997 to a list price of $18,245 in its LX version. But if you are a shopper, in this highly competitive mid-size segment, price counts. And the Altima is delivering price.

$20,000 TO $25,000

Honda Accord LX-V6 Target price: $20,050. The Toyota Camry wound up the best-selling car in America for 1997--ending Taurus' five-year reign. But we see the newly redesigned Accord as the better buy.

Honda has added comfort, power and crisper handling while keeping your budget in mind. At $21,550, the list price on this V-6 model is $1,000 lower than the 1997 equivalent. The V-6 engine, which it shares with corporate sibling Acura, is up 30 horsepower to 200 but can still burn regular gas (the 194-horsepower Camry engine requires premium). The new version has seven cubic feet more interior room than the 1997 model, moving the Accord from compact to mid-size sedan in EPA mileage classifications. Reviewers say the responsive handling in the new Accord reminds them of Honda's Prelude, a sporty model known for its sports-car-like road manners.

Like the Camry, the Accord beats domestic models in holding its resale value (still about 60% of the original list price to a retail buyer after five years). Obviously, lots of buyers love Camrys, but Camry's LE-V6, the equivalent model to the Accord, has a list price $1,000 higher. Our target price for the Accord is $1,000 over dealer cost.

$25,000 TO $35,000

Volvo S70 GLT Target price: $31,200. You still know it's a Volvo. But this new line of Swedish sedans (replacing the previous 850s) has a slightly racier, rounded front end to go with the distinctive, boxy roof line and rear. Safety, a major Volvo selling point, hasn't been compromised: The roomy, mid-size four-door S70 GLT still leads the competition, offering standard safety equipment that includes side-impact air bags, which help prevent injury in broadside collisions. A built-in child booster seat in the rear for school-age kids is optional. And, proving Volvo knows what Americans care about, the S70 has tuck-away cupholders.

Volvo showrooms will deal on this sedan, and our target is $200 over dealer cost. In this so-called near-luxury category, the Volvo seems like a bargain compared with many of its rivals. The Audi A4 with the Quattro all-wheel-drive option, listing at $30,040, also gets high marks from pros and consumers. Especially in northern climates, the all-wheel drive adds a safety factor. But dealers are sticking to the sticker price, which keeps the Audi from being this year's Best Buy.

OVER $35,000

Mercedes-Benz E320 Target price: $42,945. Getting a Mercedes in the lower reaches of this stratospheric price category seems like a real bargain. And this Benz gets a new, more powerful engine for 1998.

The E320's target price is $2,000 over dealer cost but still compares favorably with the competition, considering the comfort, options and safety (including side air bags) you get for the money. New for 1998: an all-wheel-drive version with a list price of $48,250 and a target price of $44,980.

Reviewers loved the sportier feel of the new GS 400 from Lexus, a company that has specialized in quiet rides. But this one, with a sticker price of $44,800, is in too short supply for prices to fall enough to make it a Best Buy.

You may have strong loyalty to a company or model. Or, you may just be looking for the best deal. Either way, you will start out ahead if you use the information we've provided here and in the shopping tables that begin on page 132. Whether you intend to do your own haggling, go to a no-dicker dealership or hire a buying service, the advice will get you started toward a deal on wheels.

Reporter associates: Luis Fernando Llosa and Elyssa Yoon-Jung Lee