BUYING A CAR

Update (1/16/09) - After you read this post, take a look at this article: http://money.cnn.com/2009/01/15/autos/car_buying.moneymag/index.htm?section=money_latest

Here at CHEAPIOSITY, we’re always happy to answer reader mail and reach out a helping hand. Don, a teacher in Studio City, California, wrote asking our help in buying a car. That just so happens to be one of our true time-tested talents. We walked Don through the CHEAPIOSITY process, and when Don didn’t exactly follow our guidelines to the letter, his misstep only created extra work for him in the end. You’d think a teacher would make a more diligent student. We finally beat Don into submission, and he now realizes that our way is the easiest way to produce cheap results. Here’s the CHEAPIOSITY way of buying a car. Pay attention. Don’t skip steps.


1. PICK OUT THE CAR YOU WANT.
Pick the color and all the options. (Do your homework and know EXACTLY what you want.) Drive the car and make sure you like it. Some people will even rent the car for a day or two to make sure it meets their needs. (We think it’s a good idea. Check our post about travel, and you’ll know how to rent a car on the cheap.) Don’t worry about what dealership you go to. Wherever you go, whatever you do -- don’t get chummy with a salesman. This is a fact finding mission only.


2. FIND THE BEST PRICE.
Okay, so you know what you want down to the final option. It’s time for the next step -- FINDING THE BEST PRICE. Go to either http://www.edmonds.com/ or http://www.kbb.com/ (The Kelley Blue Book website), and follow the links to the car you want. Then email several dealerships; choose the dealership most convenient for you and three or four others farther away. The reason you want to do this through the Internet Sales Department is because they are usually tied to the Fleet Department. They sell multiple cars to Corporations for their employees and have better prices. See what they respond with. They will want you to come in. DON’T GO INTO THE DEALERSHIP. The deal takes place via email and phone exclusively. The next time you set foot in the dealership is to buy or lease. Edmonds and Kelley will tell you about any promos, rebates, or dealer incentives so use this information to your benefit. Once you hear back from the salesmen, use their information to pit them against each other for your business. (For example, tell Dealer ABC: Dealer XYZ offered this lower price; can you match it?) Feel free to lie about a lower price than you’ve actually been offered. (Salesmen will do the same to you and complain they’re losing money on the deal. Yeah, sure. That’s gonna happen.) By this point, you should divulge whether you are buying or leasing. When you get to the point where the salesman says they can’t match the price, then you know they’re getting to their bottom line. That price should be very close to or below the dealer invoice that you got on the websites. Don’t feel bad for the salesman and the dealership; they are still making money from the manufacturer through back-end deals or volume sales that we are not privy to.
Consumer Reports offers a New Car Price Service that gives you their “CR Bottom Line Price” for $14. We’re way too cheap to use the service, especially since we do just fine on our own. But if you’re lazier than we are, check it out at:
https://ec.consumerreports.org/ec/aps/order.htm?INTKEY=nc5-nchome
The object here is to get the lowest price and at the dealership most convenient to you. Once you have achieved that price, FAX back and forth all the necessary information, applications, etc. that the dealership needs, so that your actual visit is short and sweet.


3. FINANCING
Depending on your credit score and whether you are buying or leasing, they will give you their rate through their banks or the manufacturer’s financial arm. If you are buying, check around to see if you can get a better interest rate through local banks, http://www.bankrate.com/, or your Credit Union. If you are leasing, make sure that they’ve given you the best deal they offer. For example, sometimes a 39 month lease is better than a 36 month lease, etc. With a lease, you want to put up either $0 or first month’s payment, drive-off costs (license plates, etc.) only. You do not want to pay any cap reductions (money to reduce the price of the car, to make the payments lower. Let the dealer reduce the price of the car. That’s money you never see again.)


4. TRADE-INS AND LEASE RETURNS.
You’ll notice we have made no mention of trade-in or lease returns until now. Why? BUYING A NEW CAR AND GETTING RID OF YOUR OLD CAR ARE TWO SEPARATE TRANSACTIONS AND SHOULD NEVER BE LUMPED TOGETHER! The salesman will press you to know what you’re doing with your current car. Your answer is, ‘I haven’t decided yet.’ If you have a trade-in, take the car to a CarMax-type place (http://www.carmax.com/). They will tell you what they will pay for the car; it will be lower than the price you’ll find on Kelley or Edmonds. It will however give you a realistic appraisal of your car; you will want to get more than that and you can. Armed with this information, go to the dealership and find out what they’ll give you (you are still in fact-finding mode; as far as the dealer is concerned, ‘you haven’t decided yet.’) When a big company or dealer buys the car, there’s an approximate $5,000 differential between what they pay and what they will sell it for once they spruce it up. There’s very little room to negotiate at a CarMax-type place, but the dealership wants you to buy a car from them, so negotiate away on the trade-in. Bring print-outs from Edmonds or Kelley to show them what they say the car is worth (you probably won’t get that amount, but you’ll get more than what they’ll offer if you come in empty-handed and unprepared.) With leased cars, most are sold at auction and then resold by used car lots, so there’s a lot of competition out there, which won’t help you with your individual sale.


Obviously, the most advantageous way to sell a car is to do it yourself, but a lot of people don’t want to bother. You do the math about whether it’s worth it to you, dealing with crazy people that might show up from an ad on your local Craigslist or eBay. (We don’t get how you buy a car or boat from a seller in another state, but that’s another story altogether.) Also, bear in mind that this is another way dealerships make money. They make money from the sale, from the financing. and from the trade-in. Your job as a smart consumer is to keep those amounts minimal. For example, if you’re buying and are paying cash, keep that your little secret until you’ve agreed on a price. Paying cash loses the dealer the income they make from financing or leasing.


If you’re leasing, take the car (or some car makers have people to come to you) and find out if there are going to be some additional expenses for bodywork, new tires, etc. and find out what the dealers are planning on charging you. It may be cheaper to fix dents and scratches or replace tires yourself. Also, if your lease isn’t up for a few weeks or a month, wait until then to pick up the car OR ask the dealership to credit your last payment. BOTTOM LINE: don’t spend what you don’t have to.


5. FINAL THOUGHTS
Check newspapers for special rates or promotions.


Buy at the end of the month when dealerships and salesmen need to meet their quotas.


Don’t finalize your sale or lease too far in advance. Every month, sale and lease deals change for the dealership. Don’t negotiate for a car in April that you want to lease or buy in May. Start your shopping at the beginning of the month and finalize towards the end when the dealerships are hungry.


Be realistic about the trade-in price. (We helped a doctor we know, and he was shocked at the trade-in price since both Kelley and Edmonds appraised it higher. Doctor X over-valued his car as in ‘good’ condition, when it was actually in ‘fair’ condition. All the “minor” scratches and dings required body work and repainting. The doctor thought his low mileage was a BIG factor; while it was a plus, the car was still 8 years old! We took him to CarMax for a reality check. The doc didn’t take into account that he was paying cash, meaning no finance profits for the dealership. We ended getting the dealership to kick in $2000 more for his old car. Lastly, he was buying a BMW, in an area where 80% of BMWs are leased; the manufacturer isn’t that interested in car buying since they make the majority of their money though the additional profits from leasing. That means a large amount of lease-end BMWs are being sold at auction, which gluts the market in used BMWs for sale. All these factors play a part in your deal which is why we emphasize doing your homework.)


If you buy, check with your auto insurance that you have ‘gap’ insurance which covers the difference between what the car is worth at a time when the car is stolen or totaled and what you may still owe on the car. If not, you might want to consider buying it, cut the price the dealer offers you in half, or buy it online.


Never buy a car you’ve leased because if you add up what you paid in the lease plus the cost to buy, you’ve overpaid exorbitantly for the car.


Don’t buy undercoatings, overcoatings, paint protectors, extended warranties, etc. All those frills and options can be purchased later online for much less…or even better, never.
When you pay, put as much as you can on your credit card and earn miles.

After your warranty expires and you want to know if the repair place is ripping you off, here are two sites that help you level the playing field and let you know what a fair price is in your area: http://www.driverside.com/ and http://repairpal.com/.

P.S. Back to Don for a moment. Don bought his Toyota Prius. Because the Prius is in demand, many wouldn’t even consider negotiating. Ha. And ha again! Fuel economy, environmental advantages and general coolness aside, our new best friend and follower Don got several thousand dollars off and a much higher price for his trade-in than he expected, all by following our simple steps. (Okay, full disclosure time. We went with him at the final transaction and bullied the saleswoman.) Don also got a very low interest car loan through his Credit Union, much better than what Toyota Financing offered even with his excellent credit score and previous Toyota owner status. The is the outcome we strive for. You can do it too. If you can’t have us go with you, invite an intimidating/cheap friend to keep you from buckling under sales pressure.