A few tips on buying a new car

[DickIsGone]

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You car dealers can go ahead and start hating me now.

So, ya wanna grab yourself a new ride because the ’73 Pinto (you bought this for nostalgia reasons only) is starting to make some odd grinding noises every time you hang a hard left when pulling out of the Rehab center.
Cool, let me see if I can maybe help ya just a bit.

Buying a new car 101

Car dealers absolutely love to use the expression, “Profit isn’t a dirty word”. The only issue I have with this statement is it’s usually heard when a customer is being hammered like a tied up chicken, with a full boat (maximum profit possible) on the front and back of the car deal. Read these next words very carefully and remember them the rest of your car buying days:

Dealers and car salesman are without a doubt, the greediest people who ever walked the earth.

I promise you, if it’s between these guys and jewelry dealers, you’d be better off buying something slightly used (only once!) from a suicide bomber.
Now some dealers are going to read this, then twist on me, which doesn’t hurt my feelings one little bit. Some of them will tell me they show the customer the invoice. Big damn deal, that means nothing. Ask them to show you their current dealer incentive sheet and bank buy rates, then we’ll talk about their being introduced into the next round of sainthood slots being opened.

So what do you do?

Go slow, pay close attention to what’s being said, and remember that you are the only reason their doors are still open.

So let’s start the process: You and your spouse clean out the old ride, grab the keys, and head down to LowBall Motors. Those are friendly people. They changed your oil once, and offered you a cup of coffee! Wow!
First things first;
Figure out your real price range for a car. A good rule of thumb here is to figure out how much you want to use for a down payment, and if you’re going to finance, how much you want your monthly payment to be, and do not forget to check on insurance rates and taxes. Do the insurance look-see before you fall in love or you’ll hate yourself every time. Drive everything you’ve considered within your price range. If you have questions about a car, don’t hesitate to drive it again.
When you decide on a car, pick the dealer you’d like to do business with first. Go by and check out their selection, maybe chat with a salesperson, make a call, or even zip off an email.

Remember this: The first salesperson who speaks with you is going to consider you his customers, and that’s fine and all, but do you like him or her? If you get bad vibes, or something funny stands out, simply ask for another salesperson. That easy.
If the dealership refuses to comply with your request, walk away and don’t go back. You didn’t need to give them your hard earned money and they obviously don’t need it.

True cost of the car:

With American built cars and trucks, the real cost is the dealer’s invoice, minus 3% holdback, which is 3% of the manufacturer’s MSRP, minus shipping charges. It’s the same for foreign rigs, less the holdback factor. Some import manufacturers have port fees. Now, what else is there? This is where it gets fun.

Different dealers have different advertising charges because they may or may not belong to a co-op advertising program. These programs advertise all of their group’s dealers equally, such as, “Your North Texas Chevy Dealers”, which adds about $100 to the price of each car and truck that leaves a Chevy lot in D/FW. Get it? Good.

How do you find out who has what? Ummm, your telephone and that computer thingy? Yeah.
Edmunds, KBB, Blackbook, Autoblog, TTAC, and this place should all have inside info on rebates, dealer cash, and coupons. If any of them claim they don’t, stop going to their page as they’ve just become useless to you. Unless they give you information that saves you money, what’s the point?
Am I setting Andy up? Maybe.

Now for incentives: Specifically, dealer cash. Dealer cash is not advertised to the general public because it’s an incentive the manufacturer gives to the dealers for each one of a particular model they sell. Dealers will try to suck this up on every car deal they make and it’s your job to take it from them.
That simple.

Coupons: Chevrolet loves the coupon. So much so that they’ll hand a dealer 100 coupons, each being worth $250-500. Up to four coupons ($2000) can usually be used in any car deal. They do this on a regular basis, but it’s not always available.

Rate or Rebate? Wow… Has any other question in history so boggled the minds of the buyers? And I’ve yet to figure out why.

First, look at the overall picture. How long do you intend to keep this ride, honestly? If you buy a new car every two or three years, always take the rebate. If you’re a traditional ten year owner and 0% @ 72 months is available, this should be a no brainer. Take the rate. If you’re a cash buyer and 0% is available, invest your cash elsewhere and let the manufacturer suck up your interest. The dealers on average get a $150 or so from the manufacturer if you take the 0%, so don’t feel bad about it.
If you see an incentivized rate being advertised, be certain to check the qualifications and requirements to receive the rate.

Last year, Honda offered 2.9% on their Accords and my wife and I bought her a new hard loaded one at that rate, but only after we fought with a dealer who wanted to play games, and sign us up at a higher rate of 3.9%. That poor finance manager caught my full unbridled wrath.
All dealers are allowed to make one point of interest on incentivized rates and they will tell you anything in order to make that point of interest.

Sales Tax and Out the Door Pricing: I can't speak for your state, but in Texas, sales tax on all motor vehicles is 6.25% of the trade difference. Title, license and inspection combined run about $225.

Texas only: VIT or Vehicle Inventory Tax: The dealers will try to push this off onto the final consumers, you.
Do Not Pay It. The State of Texas requires the dealer to pay VIT, not the consumer. Read the fine print regarding VIT.

Over the years, I’ve discovered that finance guys at car dealers don’t have souls, or hearts, or…
Financing with the dealer when no incentivized rates are available: Three words; Don’t do it.

Did you ever wonder what that skinny, pasty white kid felt like after his first night in the big house? Finance with a dealer, and you’ll find out.
Go to your bank, grab a credit application then sit down and fill it out. The entire process takes maybe fifteen minutes and will usually save you thousands of dollars.

Credit unions traditionally have lower rates than standard banks with USAA being the best in the business when it comes to car loans. They’re also tough to get credit with, so your credit better be stellar if you want to do business with them.
If a dealer tells you, “We work with your credit union and can do all the paperwork here!” They’re setting you up to be creamed. Don’t buy into that load of crap, because they’re lying. Go to your credit union to do the financial paperwork.

Credit Life, Health Insurance, Pro Lock, Seal Coat, Tires For Life:
I. Will. Not. Ever. Buy. Any. Of. These. Products. In my opinion, they’re Pure Grade A Crap, and that’s me holding back.

Of course the rebuttal from dealers on this nonsense will be, “We sold so & so a truck, six months later he died of cancer and his truck was paid for!” If you’re dead, you won’t give a damn. You’ll just have to trust me on this one.

Extended Warranties: In thirty years I’ve yet to buy an extended warranty from a dealer. With the Mahindra, that’ll change. Why? I don’t trust the engine or tranny just yet, that’s why. But the only way I’ll buy an extended warranty is if it’s a Mahindra extended warranty. After market extended warranties are jokes at best, nightmares at the worst. Don’t go there.

Your trade in: Should be sold on Craig’s List. The used car manager has only two jobs. Buy cars super cheap, and make huge profit on them as they’re sold.
On top of that, the new car sales manager will withhold money from your trade in as well. Here you’re trying to do battle with the salesman, his boss, and the used car manager. You won’t get what you want for your car so get off your butt and sell it yourself.

Now, if anybody wants debate me on any of these statements, knock yourselves out. If you want to add something, feel free.

[DREDnot]

Great post.
Very informative.

Nothing more I could add from my stealership days back in the 80s.

Bravo!

[gnorthern]

I agree with most of what you said, but I’ll add my two cents worth and talk about the way I do things.

To me the best deal on a new car is made of three things:
- What is the lowest price I can pay for the car?
- What is the highest price I can get for my used vehicle?
- What is the best deal I can get on the loan?

The goal of the car dealer is to confuse these three things. I 100% agree you need to know how much you can pay monthly before you purchase. I 100% disagree with people who negotiate on the basis of monthly payments, which is what most car dealers want you to do.

So how do you get the best price for the car? On my last new car purchase I found it super easy to get all of the costs, rebates and holdbacks by paying Consumer Reports for a new car report. On costs they list the wholesale and resale on not just the car but for every option also. My goal is to get the lowest price I can above the bottom line cost of the vehicle to the dealer (wholesale minus holdbacks and rebates). I decided before I purchased what I wanted on my car based on the cost.

Second, how do you get the best price for your used vehicle? I agree, sell it yourself. Nowadays rather than go to the library and use their copy of Kelly Blue book, I suggest using the Kelly Blue Book website (New Cars, Used Cars, Blue Book Values & Car Prices - Kelley Blue Book, and actually libraries may not have copies). My two cents worth is the wholesale value on that web site is the trade-in value, period. If the dealer offers more that that, they are not giving you their best price on the new car. But that web site will also tell you a suggested “private party value” which is the price you should be asking for your vehicle (retail is for dealers). And I got as many calls from AutoTrader as I did from Craig’s list, so consider AutoTrader also.

So how do you get the best deal on a loan? I agree, shop for the lowest interest rate, with credit unions probably being the best deal. However on my last purchase my credit union said to let the dealer do the paperwork since the cost was small (I seem to remember like $25, and in the past they said to come in and do the paperwork). Credit Unions are non-profit and therefore will be more trustworthy than banks. I also feel very strongly that if your credit rating will not allow you to get a good rate on a loan, you probably should not be buying a new car.

And I agree, never purchase an extended warranty. If you must do so, shop for the best price. The internet has much better rates then the dealer. My old credit union had rates that were less than half that of the dealer with slightly better coverage. That was one case I did purchase one since my wife decided the price was worth not worrying about repairs.

A side note - I feel a need to always be ready to walk away from a deal. In 2000 I wanted to purchase a Honda Odyssey. The dealer said the absolute best price they could offer for an Odyssey was $300 above MSRP (suggested retail. Since there was a several month waiting list for Odysseys, I believed him. I wound up purchasing a comparable Toyota Sienna for almost $3000 less.

[PimpSLAYER]

Great information guys, the more information a new car buyer has the better off they will be before they enter the stealership... (I am still a big believer in buying used, there are so many good deals out there too!) I do work for a few car dealerships in my area (computer stuff) and I always get a giggle out when I hear "what sort of payment do WE need to get you a month" Then moments later, their magic payment went up $200 bones... People need to stand their ground, do their homework, know what they can afford and start shopping... I also use the computer to my advantage (how Dick was saying) and fire off emails of what I want to EVERY dealer in a 50 mile radius (use a "throw away email, yahoo, gmail, etc so they can't spam you)... I let them do the work, locating what I'm after and have them send me back a price. You can see right away which guy is willing to deal and which guy is wasting your time... I'm sure we'll get plenty more insight to the buying game and in my opinion, if anyone doesn't like what Dick wrote, then you're a dealer trying to scam someone! Great post man!

[gnorthern]

The guy who sold me my 1981 Mazda GLC, whose father owned the dealership, became my best friend while I lived in that town. These posts make all of this sound so personal. It's just a game where we are out to get the lowest price and the dealership has the opposite goal. We do not have a winner and loser. We are just out to win more than the dealer.

And in all fairness, just a few observations:
1. The difference between wholesale and retail does vary greatly between cars, even for those that are similar. For example, the finalists for my last purchase was a Corolla, Nissan Versa, and a Hyundai Elantra. The Elantra had a much smaller mark-up.
2. I do not know of any dealers that cross the line now. To me examples of crossing the line are not having the loss leader in the ad in stock and giving you poor warranty service if you purchase the vehicle elsewhere.
3. Dealers seem to play fewer games then the did years ago. An example of an old game is years ago the salesperson always would go back and forth between the you and the sales manager to negotiate the deal. When I purchased my wife's Toyota in 2000, I was able to talk to directly to the sales manager. When I purchased my Hyundai Elantra last year, the sales manager came out without me even asking.
4. Some of it is just incompetence. For example, in my town one person owns the dealership for four difference brands, with four different buildings next to each other. Three out of four are run great and one has problems (my employer does business for that brand with a dealership 20 miles further away).

And what about the customers who do things that are not right such as:
1. Studies show that 90% of customers who say they will come back to a dealer will not.
2. They take up several hours of a salesperson time and put miles on to a dealer's vehicle test driving it, then undercut that dealers price by $150 somewhere else with somebody who only negotiated price. If you get the price to several hundred dollars above wholesale, I think you are obligated to take it.
3. Not keeping a salesperson card. That person depends on commissions. If you test drive a car with somebody, you should ask for that sales person when you come back.