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Buying a Car
Buying a Car
The price you see on the
sticker isn't the price you pay! Prepare yourself to negotiate.
What you should know
before buying a car!
1.
Make sure you buy something practical.
This seems obvious, but you could wind up a very unhappy car owner if
you
haven't thought carefully about how many people, and how much luggage
or gear you need to carry.
2. Assess the worth of your old
car.
Whether you plan to trade it in or sell it, your
current car can be an important factor in your negotiation. Checking
the right web site and maybe your local newspaper will give you a
realistic valuation.
3. Are you going to buy new or used?
New cars are built more efficient today than they were in the past. But
a used car will cost less per month to own and a new car will cost more
per month to own.
4.
Does leasing or buying make more sense?
Leasing provides lower monthly payments than buying with an auto loan.
But it's not for everybody. If you don't have money for a down payment
or if you trade your car every two or three years, you may be a good
candidate for a lease.
5. Doing your homework and knowing what price you
can afford.
The Internet has made it easier than ever before to find out the
dealer's cost
for each vehicle and its options.
6. Shop for a loan before shopping for your car.
If you plan to buy with a loan, check your credit union or local bank
quotations (on web sites) to find the lowest rate. Getting a
pre-approved loan will give you added confidence in negotiating a good
price.
7. Spend time negotiating your lease.
In the complicated world of leasing, the dealer will have the upper
hand unless you learn the jargon and how to negotiate the various
segments of a lease deal.
8. Negotiating a purchase price.
If you are doing it yourself, get bids from several dealers, keeping
the focus on the dealer's invoice price. We suggest ways in which you
may be able to get bids without going to showroom after showroom.
9. If you hate negotiating, then consider hiring
help.
Online auto-buying services make things easy with pretty good,
no-haggle prices. But with most of them, you get quotations from only
one dealer. Consumer services that shop several dealers near you may
deliver even better prices.
10. Just say "no"!
The finance manager isn't there just for the paperwork. He or she wants
to sell you high profit financial and mechanical add-ons. This is where
they make their real money!
Make sure you buy something practical
Before you shop, think about what type of vehicle you
really need!.
Don't
start shopping at the car dealer just yet. Are you sure that the car,
pickup, sport utility, or van you have in mind is what you really need?
If you rush into a deal without carefully considering how you will
really use the vehicle, you could be making a $20,000 mistake, at the
average new car price.
Buy the car that will make you smile. But consider the purpose of most
of your driving. Is it commuting? Hauling kids? Weekends? Vacations?
If you drive more than half an hour to work every day, a combination of
a comfortable ride and reasonable gas mileage become very important. If
you frequently drive clients or co-workers to lunch, you probably need
a four-door sedan. If you frequently haul your kids and their many
friends or classmates, a minivan or sport utility with three rows of
seats may be essential. If weekend errands involve hauling building
materials or large bushes, that same utility or van will come in handy.
Be honest with yourself. What is the largest number of people you carry
regularly? What is the biggest pile of gear, luggage or haul from Home
Depot? Once you have made this practical matchup, however, you still
have lots of choices.
Planning
carefully, you can get a vehicle that you need AND that you really
want.
. How much can
you afford, when buying a car?
Add
up all the costs and alternatives before you decide which car best fits
your image. After your mortgage or rent, car loan or lease payments are
likely to be the next biggest item in your monthly budget. So calculate
carefully what you can really afford. And don't forget to take into
account such items as insurance costs and property taxes. In pricing
the car itself, don't forget state and possibly local sales tax, which
can run as high as 12 percent, but more typically 5 to 8 percent of the
purchase price.
A new (or used) car calls for a new state registration, with fees
typically running from $50 to $125. These items usually figure into the
total amount you borrow with a loan or finance with a lease and
therefore help determine your real-life monthly payments.
Financial planners say a good rule of thumb is to plan on spending 10
to 15 percent of your total monthly budget on all automotive expenses.
If you are buying a new car, your warranty will cover major repairs for
at least the first three years. But remember that warranties do not
cover routine maintenance such as oil changes or replacement for items
such as batteries, windshield wipers or tires. You can save money by
doing some maintenance on your own.
A new car means higher insurance costs. (Opting for a used car can cut
insurance costs.) Your premiums for liability coverage, required of all
drivers, may not change much from your old car. What will increase is
the so-called collision and comprehensive portions of your policy.
Collision pays to repair accident damage to your car, while
comprehensive covers theft, fire and natural disasters. Since you will
want these coverage’s for a new car, your costs could shoot up sharply!
Especially if you have been driving an older car or truck and have
dropped collision and comprehensive coverage to save money.
Check the record. One way you can cut your insurance costs before you
buy is to choose a car or truck that has a good safety record and/or a
low theft rate. Insurance costs vary not only by model but by
metropolitan areas.
So
when you have narrowed the number of cars or trucks on your wish list
to a handful, call your agent for a rate quote, or you can check theft
and safety records on the Web. For federal crash test results, go to www.nhtsa.dot.gov. The site
operated by the insurance company sponsored Highway Loss Data Institute will give
you rankings for injury and property losses for any vehicle, plus a
list of the most and least stolen models.
Both those
factors affect insurance costs as well as your safety and peace of
mind.
New
or used car buying?
There's
nothing like that new-car smell. Buying a new car has a lot of allure:
It's brand new and it's all yours; nobody has abused it. You can get
the vehicle equipped just the way you want, and you get the full
factory warranty.
But
still, your best deal could well be a late-model used car.
The used-car market has changed dramatically in the past few years. To
start with, today's new cars and thus used cars are simply made better.
Overall quality and durability has increased as U.S. manufacturers
pushed hard to catch up to imports.
A
second factor is the rise of leasing. About one third of all new cars
now are leased up from 20 percent as recently as the early 1990s.
Nowadays, the torrent of well-kept two- and three-year-old cars
returning from leases is providing a supply of attractive, reliable
used cars. And new used-car superstore chains are making it easier than
ever to buy with huge inventories and no-dicker shopping. The kicker is
that if you opt for a three-year-old model instead, you could save as
much as 30 to 40 percent over a new car.
In response to the competition from superstores like CarMax and AutoNation USA, car
dealers, backed by manufacturers, have introduced what they call
"certified" used-car programs for newer used cars (usually up to three
years old). Manufacturers insist that a used car must pass a series of
inspections before it can become certified. And once a car passes, the
manufacturer adds a fresh warranty of 12 months or more.
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If you want a
used car, start by checking prices of the vehicles that
interest you. Among the best Web sites are Edmunds.com, run by Edmund's, the
publisher of paperback guides to automotive prices, and Carpoint.msn.com, Microsoft's
automotive site. Both are free, and both will let you check the going
prices for almost every make, model and year you can imagine. (They
offer new-car prices as well.) |
These sites also offer classified ads for used cars, mostly from
dealers. Enter your Zip code and you'll get a selection of cars within
100 miles or so of your home. While ads for these same vehicles
undoubtedly also are running in your local paper, you get more detail
on the net. Additional used-car classifieds are available at Cars.com.
Once you zero in on some possibilities, you need to double-check them.
Unless you are buying a certified used vehicle, or a car that's still
under the original warranty, spend a little extra to check any specific
car, truck or van you are close to buying.
The
first step lets you make sure the odometer is honest and that the car
has never been totaled (the used car business may have become less
sleazy than it used to be, but problems still do occur). For $14.95 per
vehicle on the Internet (Carfax.com) or $29.50 by fax (800-274-2277),
the database firm Carfax will
track down the history of your prospective vehicle by its Vehicle
Identification Number (VIN), usually listed on a metal plate just
inside the windshield. If, for instance, the car had 50,000 miles when
its title last changed but now shows 30,000 miles, take a pass. If the
car has ever been sent to a junkyard, a salvage title will show up on
the report.
Once a car has passed those big hurdles, you still need to get it
checked by your own mechanic, if you have one. If you don't, many
cities have specialized mechanic services that will make on-the-spot
inspection of used cars. One such franchised inspection firm, carcheckers, is in eight locations
including Atlanta and Denver. If you are considering spending $15,000
for a used car, that $100 to double-check it could be well spent.
The most important thing to remember: Anything's negotiable except the
right to inspect. If the seller won't let you and your mechanic inspect
the car, walk away, no matter how nice it runs.
Often, this rule of thumb means you'll be buying from an individual
rather than a dealer, for many dealers don't allow inspections. Those
who do typically won't let you take the car off the premises.
Confining your search to individuals usually means you'll get a lower
price, but it's more time-consuming because there's only one car at
each location. Regardless of where you buy, there are some rules you
can follow.
Jack Gillis, director of public affairs for the Consumer Federation of
America, recommends what he calls the "touch and comment" technique
often used by new-car dealers when they inspect trade-ins. "When you
review the car, visibly point out the various problems that you note,"
he says. "An exaggerated touch of some loose parts or running your hand
along body damage can put the seller in a defensive position."
This tactic can be used effectively when your mechanic is conducting an
inspection within an earshot of the seller. Have your mechanic mention
each problem, allowing you to comment grimly.
Having your expert on hand can make all the difference, because even if
you know a lot about cars, you need an expert witness to present the
damning evidence. Like any expert witness, however, mechanics must be
paid. Some shops offer a pre-purchase checkout for a set amount that
can vary widely depending on the shop and the procedures performed.
Others offer on-premises inspections for their hourly labor rate, which
can range from $40 to $70 an hour, depending on the region and the type
of shop.
Here are some pointers:
Before going to look at cars, visit your nadaguides.com and peruse the
Official Used Car Guide of the National Automobile Dealers'
Association. It lists recent prices fetched by specific year models in
your region. The range between the trade-in value and retail value is
your room to maneuver. If you can by a decent car from a dealer for
less than its NADA book trade-in value, more power to you.
If the seller touts the car as an immaculate jewel, be sure to
negotiate an acceptable price before bringing in your mechanic. Failing
to do so could leave you with no bargaining leverage if the car
actually is in great shape. Make sure the seller understands that the
agreed-on price is entirely contingent on the vehicle passing the
inspection. Once your technician determines the car's shortcomings,
it's your job to figure a generous price on each repair needed. After
all, the initial sales price was based on perfection.
Before buying, try to arrange a test drive at night and another on a
rainy day. Nothing reveals a cheap windshield like oncoming headlights,
and a replacement shield may mean the car's been wrecked and then given
a convincing paint job. Also, it's impossible to know if trunk and door
seals are leaking except when it's raining. Again, leaking seals may
mean that the car's been wrecked, especially on a car only a few years
old.
There is a point at which too many glitches should eliminate the car
from consideration. "If you find a major problem, or if you rack up
enough minor ones, forget the car."
In return for your rigors, you will be assured that you won't regret
the purchase?
Does leasing or buying
make more sense?
Those
low lease payments look great, but there's no such thing as a free
lunch.
In those new-car ads on TV, lease payments look awfully low. And they
are, compared with loan payments for buying the car. But leasing is not
for everyone.
Leasing is the easiest way to get a new car every few years while
letting the dealer or leasing company worry about disposing of the old
one. But leases have some major disadvantages. One of the biggest
drawbacks -- (if you are not accustomed to leasing), is that you are
forced to make a major financial decision when your lease expires. You
must either turn that car or truck back and buy or lease a new one, or
decide to exercise your option to buy the vehicle at the lease-end
price. (Typically, the value of your car or truck at the end of the
lease is set in advance.)
On the other hand, if you buy a car or truck, you can postpone any
decision about replacing it at least until mechanical trouble forces
your hand. And some people just like knowing that they own the car once
the final payment is made.
If
you don't mind driving an older car, then don’t buy a new car. Your
monthly auto expenses will be much lower, up to a point! When your
spending as much each month on a used vehicle as you would be on a new
vehicle, then it’s time to get rid of the car!
If
you can afford a much large auto bill each month, then buy a new car
and keep on driving it long after your loan payments have stopped.
Note: You must keep it for many years after, in order to recoup your
investment.
So which is right for you? If you typically trade
for a new car every four years or less, and want to avoid the loan down
payment of 10 to 20 percent, drive close to but not more than the
15,000 miles a year allowed in most leases and typically keep your
vehicle in good condition to avoid end-of-lease penalties, you might
well be happy leasing.
Even so, before you opt for a lease, keep in mind that that there is a
reason why those low payments look so attractive: Instead of paying for
the entire car, you're only paying the estimated depreciation over the
time you are leasing it. So to get a really good lease deal, you need
to look further than just the payments. You need to understand how
leasing works, do your homework and negotiate as hard as if you were
buying the car.
Here
is our step-by-step guide:
Master the jargon. You can't successfully negotiate
a lease without becoming fluent in the industry's terms. Here's what
you need to know before you start to dicker. The capitalized cost is
the equivalent of the selling price, which you want to get down as low
as possible. The residual value is the estimated worth of the car at
the end of your lease. Your monthly payments are determined by the
difference between these two figures, plus an interest charge known as
the money factor. Thus, raising the residual value or lowering either
the capitalized cost or the money factor will lower your payments.
Look for a manufacturer subsidized lease. These
deals, often promoted in splashy ads in newspaper auto sections, are
likely to be the cheapest available. To identify a generous subsidy,
look in the ads' fine print for a residual value that's two percentage
points or more above that published by Automotive Lease Guide, an
independent research firm. To check the ALG value for a car, go to Carwizard.com, pick your model,
and then select "Residuals and Factors."
Set a target and negotiate hard. You can find out
the so-called dealer's invoice cost for any car or truck by checking
web sites such as Edmunds.com,
run by the publisher of auto price information, or Microsoft's Carpoint.msn.com. Set a target
price about 2 percent above the dealer's cost ($400 on a $20,000 car,
for instance). Start bidding below your actual target price, in order
to wind up near that figure.
Do
your homework, to know what price you can afford
It's easier than ever to learn just what the dealer's cost is on any
vehicle.
Having
more information gives you more power. Not long ago, auto dealers had
the upper hand because they had most of the information about price.
The Internet has changed that with an estimated 25 percent of those who
shop for new cars today check the price’s on the Web first.
With a little effort, you now can find out the dealer's cost for any
vehicle. You can find out if price rebates, subsidized lease deals or
other special breaks can cut your cost. And best of all, you can decide
exactly what you intend to pay for the car before you ever go near a
showroom.
The number most often cited as the dealer's cost is the so-called
invoice price (the wholesale price that the manufacturer bills the
dealer on shipment). But that is not the whole story. A additional
amount called the holdback is paid by the manufacturer to the dealer
later, (in effect cutting the dealer's cost). When a car model is in
oversupply, a dealer eager to get it off the lot may negotiate a price
that will cut into his holdback, typically around 3 percent of the
Manufacturer's Suggested Retail Price (MSRP). Thus strike a selling
price below the invoice price.
The manufacturer may offer so-called "dealer incentives" for
slow-moving models. In effect, rebates paid to the dealer instead of
the car buyer. Unlike heavily advertised consumer rebates, these dealer
incentives are rarely publicized. But if you have done your homework
and know such an incentive exists, you often can negotiate half or more
of that amount for yourself.
Shop
for the loan before shopping for the car
Getting
your loan approved in advance lets you focus on price negotiations.
When you go to a car dealership to negotiate for a new car, you're in a
stronger position if you have a loan pre-approved. Unless your model
has a special low-rate financing offer backed by the manufacturer, a
local bank or credit union is likely to give you a better deal on a
loan. And in most cases, you can take a rebate in place of any low-rate
financing and use that to lower your purchase price.
Credit unions typically charge one-half to one percentage point lower
interest than bank car loans. You may have access to a credit union
where you work, or may be eligible through a professional organization
(teachers, government employees).
If you don't have ready access to a credit union, check out your local
bank offerings. Web sites specializing in loan information will give
you
a quick rundown on average rates and the best rates in your area. HSH Associates gives you one car-loan
rate per city, among the best found for each location in their survey. Bank Rate Monitor gives five or
more quotations for each major city, including the lowest rate
available. Note: bankrate is a very good resource when dealing with
financing.
When you get a pre-approved loan, that commitment usually is good for a
month or more. So you can shop for the car you want knowing your
financing is ready to go.
Spending the time
negotiating the lease
Know
your target price and be ready for dealer’s tricks.
Before you head for the dealership you will have already done your
homework, so you will know the dealer's invoice price, whether rebates
or dealer incentives are available, and your target price, as well as
where you plan to start bidding. You want to start the bidding as low
as you reasonably can, but not so low that you will seem like an
uninformed buyer just making a low ball offer.
Pull together a folder showing your data and sources on these details
where you can readily refer to them yourself or show them to the
salesman.
In the showroom. Establish quickly that you
are a serious buyer, not a browser. If you come across as just
shopping, the salesperson will be eager to move on to another customer.
Don't say: "I'm looking at the Ford Taurus." Say instead: "I’m looking
to buy a Ford Taurus LX within the next few days. I will buy when, I
get the best price.
That keeps you in control. The salesman wants to know as much about you
as possible to start spotting potential profit points. Stay pleasant,
but just turn away questions and say: "We can talk about me later.
Let's talk about the price." Also, another thing to keep in mind is, if
your married the salesman will usually start working on your wife right
from the start! As soon as he has her in his control, you have lost
your leverage! Because the salesmen will play her against you when
negotiating the deal! So, it might be best to leave your wife at home.
Unless she can negotiate as hard as you, bring her along!
Focus on the invoice price. As soon as you
can, try to switch the discussion away from the MSRP, or list price to
how much you intend to bid over the dealer's invoice cost. Bring out
your Internet printout to show you have done your research. The
salesman may well say: "That is not the right invoice price for the
car." He or she may in fact know less than you do since traditional
dealer training focuses on the MSRP and many dealers do not give
salesmen the invoice prices. Say: "This is the invoice price for the
car I want with the equipment I want." Show him your printout.
Start low. Though your target is $200 above
invoice, you need to leave room for the dealership to budge you a
little. So start out bidding at the invoice price on a car like the
Taurus, where a rebate signals you to negotiate hard. You know you are
entitled to the $500 consumer rebate that was offered recently, but
don't bring that up yet. If that $500 had been a dealer instead of a
consumer sales incentive payment, you would start out bidding to try to
capture at least half that money. In that case, you would bid $300
below invoice and make it clear how you got that figure. "Since the
dealership stands to get a $500 payment from Ford as a sales incentive,
$300 below invoice seems fair."
He who hesitates loses. At this point, the
salesman is likely to say something like: "I think this is way too low,
but I will take your offer to my sales manager and see what I can do
for you." He or she may not even intend to talk to the sales manager,
but plans to keep you waiting in the glassed-in office to pressure you
into a higher offer before even seeking approval. Tell him or her you
do not intend to wait long. Then don't just sit there. Wander around
the showroom or go outside to look at other cars. That usually brings
the salesman back quickly. It's likely that he will bring the news that
your initial offer was not good enough. At this point, if you started
the bidding at the invoice price, agree to $100 over invoice.
If you get your price, take it. If the
dealership has a car in the color and equipment you want, and the
salesman offers $200 over invoice, accept the offer. If not, get the
best offer and take it to another dealer. If the second dealer beats
the original offer, keep the competition going, play it back to the
first dealer. When you hit your target or come as close as you think
you can, agree on the price. Now, and not before, is the time to talk
about a trade-in. You already will know what your car is worth from
checking local ads and looking up your model on Web sites such as Edmunds.com and the Kelley Blue Book. If your car is a
popular model in good condition and you are sticking with the same
brand, you might match or slightly beat that price with your new-car
dealer who sees potential profit in selling your used car. If the
trade-in offer is a good one, say yes. If not, plan to sell it yourself
or take it to the used-car lot of other dealer for a price quote.
Closing
the deal when buying a car
Don't
let your guard down at this crucial moment or you might close out your
savings.
The salesman may call it "doing the paperwork" or some similarly
innocuous description. But the finance manager you are about to meet
hopes to boost dealer profits at your expense with attractive-sounding
offers of mechanical and financial add-ons. In most cases, just say no.
But there are some exceptions.
If you already have financing approved, just say so and you can avoid
the financing pitch. The one exception: If you already know that the
manufacturer is sponsoring a promotional deal with really low rates.
The next pitch you are likely to hear is for an extended warranty.
Whether you want to consider this depends on how long you expect to
keep the car. If it is the three years or less that matches the typical
warranty, reject it immediately. If, however, you are almost sure you
will keep your car for five years or more, you might consider an
extended warranty contract. Ask when the extended-warranty coverage
kicks in and what it covers. (So-called "power train only" warranties,
for instance may exclude expensive electronic repairs common in today's
cars.) And an extended warranty can cost $400 to $1,200. Also be sure
you know how long the manufacturer's warranty runs.
Buying
on the Web
Web buying services can be a great way to purchase a car.
Auto-by-Tel, the leading online
car-buying service, claims to have generated $26 billion in car sales
in the year 2000. The service and its competitors, such as autoweb.com and Microsoft's carpoint.msn.com, must hold
some attraction for car shoppers.
The main attraction is low hassle. You can go to one of these sites,
see the MSRP and invoice costs, and, if you are ready, fill in exactly
the model you are looking for and your Zip code and possibly your
e-mail address. You then will get a phone call or e-mail from a
dealership offering a fixed, no-haggle price. If that offer is as low
as $100 or $200 over dealer's invoice (and if they have a model and
color you want), you have struck a great deal with a minimum of hassle.
The drawback: Most Internet services guarantee participating dealers
exclusive territory. So while you will almost always get a good price
with Web services, you may not get the best price that results from
competitive bidding.
If you want to use the Web to help you do your own shopping, General
Motors' gmbuypower.com lets
you see what specific cars local dealers have and negotiate by e-mail
if you wish.
If you don’t have the time, there are companies that will shop for you.
They started as an 800-number telephone services and now with web sites
as well, these shoppers will, for a fee, find the best available deal
near your home:
AutoAdvisor: $247
to locate and negotiate for your car, (Communications only over the
Internet). $637 for more comprehensive service over the telephone, $457
for comprehensive service over the Internet (800-326-1976)
CarQ: $475 full-service
fee (800-517-2277)
CarBargains: $190
for competing bids from local dealers (800-475-7283)
Buying a Car
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