I have recently purchased a new car. I love it. I really, really love it. Never thought I would ever purchase a new car in my entire life, but through a combination of current car decay (it had a lot of problems), a terrible used car market, and aggressive year ends deals…I couldn’t pass it up.
Buying a new car can be exciting, but more than that it’s an incredibly long, draining, patience testing battle of attrition. You’re going to need a game plan, otherwise you’re going to overpay for your vehicle.
I’ve done a *lot* of research on this. I spent a week preparing and gathering information before closing the deal on my new car. Here is what I learned. Here is what I would recommend to do if you’re thinking about purchasing a new car for yourself (and not looking to get ripped off).
Step 1 – Determine what you want
Seems like a no-brainer, but this is quite important. You cannot go into a dealership wishy-washy. You need to know exactly what you’re looking for and what you intend to buy. If you don’t, the sales people are going to take advantage of your ignorance.
When looking for a car, you need to determine what your needs are. You need to carefully consider:
* Performance – Are you the type of person who wants something flashy or something that will get you to work and back? The answer is going to dramatically influence your price.
* Safety – To be honest, this is literally very low on my list. That’s not to say I don’t want a safe car. It’s just that today’s cars are generally pretty safe. There’s not going to be a whole lot of variance here (well I suppose if you buy one of those Smart cars…).
* Cargo Space – The smaller the car, the cheaper it’s going to be, but the more you’re going to take a hit here. Keep this in mind.
* Fuel Economy – Huge point on my list, and I’m sure it’s one of the main reasons people are buying new cars in this economy. The strides made in MPG over the last few years have been very impressive. I could not live with my old car getting 22-24 MPG any longer.
* Cost – How much are you willing to spend? Sub-10k? 10-20k? 20k+? You must have a realistic expectation of what you’re looking for and what cost range it falls under. You’re probably not going to find a new truck or an SUV for sub-10k.
Taking all of the above into account should help you get a feel for what you’re looking on spending. Personally, I would never spend more than $20k on a new car. The way cars depreciate…I just could never do it. Then again, I told myself I would never buy a new car in the first place! You can thank “Cash for Clunkers” for my change in opinion (it destroyed the used car market).
There are numerous websites out there to help you here. My favorite for reviews was edmunds.com. I also did a lot of Youtube searches for videos on what the car looks like (especially the interior) and how it performs. One of the best things you can do is to look for user reviews on cars you’re interested in; especially real world MPG tests. Do they meet your goals for the five metrics above?
For example, I bought a 2012 Ford Fiesta SE. Why? I was looking for a subcompact car. I care very little about cargo space. I hardly ever have more than 2 people in the car (and 90% of the time it’s just me). Overall cost and fuel economy were my two highest criterion. Safety? It has side airbags and a knee airbag. Good enough for me. The Fiesta isn’t the cheapest car you’re going to find, but it has SYNC (I suppose “Extra Features” should be a sixth metric), and it gets great fuel economy (30-40 MPG; some people get 40+). Plus I wanted to support an American car company…and one that didn’t take bailout money. That narrowed down my options a little bit.
Whatever it is you’re looking for, try to narrow it down to 2-3 options. The more research you do in this phase, the more time you’ll save later. The more you know before you go to a dealership, the better.
Step 2 – Go to a dealer to test drive
One could argue that you should first figure out much it’s going to cost for your new ride before you drive it. But I would say it makes little sense to worry about that before you even know if you *want* your new vehicle. You should have a “ballpark” figure of how much it’s going to cost, so don’t worry about haggling yet; first find out if you will actually enjoy driving what you’re looking at.
Your first trip to a dealer is a recon mission. Find a dealer that’s closest to you or is the “biggest” in the area. You basically just want to find a dealer that has the best selection. You’re not interested in getting pricing yet, you just want to see the product.
To save everyone time, make this clear up front to the associate who will help you. Ask to browse by yourself for awhile and narrow down some vehicles you’d like to test drive; make sure you choose a vehicle that’s as closest to the trim level that you would buy. It makes little sense to test a high-end trim if you’re only going to buy a low-end one. Trim levels are “options” that can come with a car. It depends on the maker, but normally there are at least three variants. For example, Ford has a base model, an SE, and an SEL on most of their cars. These determine what features come standard in the car (leather seats, tires, interior trim, etc).
Once you’re ready, ask to test drive what you’re interested in. Don’t let anyone know at the dealership that you’re excited; put your business hat on and show little emotion. Do not discuss a trade-in. Do not discuss pricing. This phase of the game is to simply determine if you will like your new car.
It’s incredibly important to do as thorough a driving examination as you can. Does it handle like you prefer? Is there enough cabin room? Do you like the AC? Is it quiet (make sure you get it to at least 50MPH)? How’s the acceleration? Transmission? How’s the cabin layout? Is it easy to reach? Can you adjust your seat in a way that makes you comfortable? Are there enough ports (USB, Aux, chargers)? Is it comfortable? I’m sure you can think of some other questions, but you’re going to get about 10 minutes or so to gather as much information as you can. Use it wisely. While driving, if you really love the car, keep it to yourself. Don’t let an associate see you infatuated with your new toy. This is a poker game, don’t show your hand.
If possible, bring a friend or significant other to this mission. Ask them how they liked the ride, were they comfortable as a passenger? What were their impressions? Bringing someone else on this trip is a good idea for other reasons as well. It leaves you a whole lot less vulnerable, and forces them to work on two (or more) people. Make no mistake, the associate is trying to make a sale. They’re not your friend. When you’re done driving…you’re done with this step. You’re leaving the dealership now. You’ve got what you came for: information.
Repeat this process until you’ve driven everything on your list from step 1. This may involve going to other dealerships (if they’re from different manufacturers). This may take a long time, but this recon work is very important. You don’t want to have buyer’s remorse later and regret purchasing something because you didn’t do your due diligence first.
Step 3 – Find out how much it “should” cost
Great, now you should have some idea of what you’d like to buy. At this point, you should have narrowed it down to 1-2 favorites. Now comes the part where you figure out what’s a good deal.
Without a starting point on what a deal a “would be”, you’re playing a losing game trying to haggle. The dealer pays an “invoice price” for the vehicles on their lot. This is not the MSRP price. Expect to pay somewhere between the invoice price and the MSRP price. Unless you’re getting a really great deal, you’re going to be paying over invoice (although this isn’t always true, I’ll explain in a bit), the dealer is not trying to lose money after all.
For example, the invoice price on a 2012 Ford Fiesta SE w/ automatic transmission and the 201A package (SYNC and sound system) is $16,497. I paid $15,550+ a $400 bogus Environmental Package fee (thought I got it waived…I didn’t; I’ll get to the part where you really need to read what you sign) – $500 manufacturer rebate = $15,450. That’s $1k off of the invoice price. I was happy with that.
The only way I can explain how you can get a deal like that is the dealer must be getting volume bonuses (I bought the car on December 31st). To get a great deal, you need to take advantage of manufacturer rebates (the dealer doesn’t eat this cost; the car maker does) plus end-of-month, end-of-quarter, end-of-year volume bonuses that dealers get for selling more units. By this logic, the last day of the year is the best day to buy a car…and this is what I did. The dealer will take a small hit on a unit because they may get a greater “bonus” for selling an incremental unit. This is the only way to pay below invoice price (unless you’ve got friends in the business…).
The best way to find out “what” is the invoice price is to check out edmunds.com (there are others, but I really like edmunds). It will let you choose trim and options and will give you an invoice price, an MSRP price, and a good “deal” price. You should normally expect to pay 3-6% above the invoice price. If the MSRP price (the sticker) price isn’t even close to the invoice price…then you have some haggling to do.
Step 4 – Solicit Dealer Quotes
Get a list of all dealers in the area. Next you can either ask them: a) what’s their best out the door price (all fees included), or b) offer your own price and see how dealers respond (something reasonable is 3-6% above invoice). I would start with a) just because it’s easier. If they don’t match what you would have offered, move to the next.
The best way to do this, I found, was to use the website truecar.com. Dealers who are a part of the service will automatically offer you their best price for the car you’re looking for. This is how I found the best price on my car. I would highly recommend this website in getting dealer quotes. For dealers that aren’t a part of this service, take the best price for which you received a quote and then email / fax (don’t talk to them on the phone yet…) them asking if they can beat that price. Simple enough, right? Keep doing this until one emerges as the clear winner for one that will sell you what you want for the cheapest price.
It’s not always this easy though; obviously not everyone is going to have to have similar things in stock to get a true apples to apples comparison. You need to do some research by going on their website for what you’re looking for and find as close of a match as you can to haggle like this effectively.
From my experience the undisputed “volume” leaders are not going to give you a good price. Be wary if you see a dealership that has lots of commercials. They’re paying for ads. Who do you think pays for this? You. Most likely you will be charged an “ad fee” when you sign for the car. I got mine waived. Your mileage may vary.
In general, be on the look out for hidden fees. They’re everywhere. Ad fees, prep fees, ADM fees. Don’t pay them. The only fees you *have to pay* are title and tag fees, doc fee, and a destination fee. The destination fee is the cost to ship the car to the dealer. It’s non-negotiable and should be included in the MSRP; it’s around $800. The doc fee is also usually non-negotiable but is completely arbitrary; the dealer can charge anything (only in some states is this bound). I paid $500 for a doc fee; this is about average. Title and tag fees should be under $100. You can try to get this reduced, but it’s probably not going to happen. Just keep this in mind when you’re calculating the final price of the car and use this to determine which dealer is going to give you the best out the door price.
It’s really important that you break down all fees in an EMAIL because you can then print this information out. You can also use this as price matching bait to other dealers. Narrow down the best price from a few dealers and weed out the ones not worth your time. If you get a dealer that beats an offer, take that offer and offer it to other dealers. Keep getting them to bid down until they exhaust themselves. Be careful though, don’t just blow off someone who doesn’t give you the best price. Once you actually go to the dealer to finalize things (oh, we’re not even close to done yet…), they may try to play games with you in terms of fees. If they do this, you need to walk or be aggressive and say this is not what was discussed. Don’t give your business to dealers who do shady things, go the next dealer who offered the next best price.
Step 5 – Going Into Battle
OK, this is it. It’s time to buy yourself a new car. Most of the work should be done now. You know what you want. You know you will like your car. You know who you’re buying it from. Now it’s time to make sure they’re not lying and finish this. The best thing you can do is bring a notebook into the dealership with you that has: a copy of all email conversation with them, copy of MSRP sticker off their website for the vehicle, copy of other dealer quotes, and anything else you might find pertinent. Fill it with blank pages. Make it look big. Someone who comes in looking prepared isn’t going to get taken advantaged of…as much.
If the car you’re interested in buying isn’t one you’ve test driven before…you’re going to need to test drive it again. This time you’re going to need a more discerning eye. Make sure there is nothing concerning you before going forward.
This is where it got weird for me: the dealer that had my car…didn’t have it at the dealership. It was still on order from the manufacturer. This actually was a bonus for me in terms of price, let me explain. The dealer wants the car to be on their lot as short as possible. They lose money the longer it’s on the lot. An alternative to this is to buy cars that no one is buying…the longer the car sits on the lot, the more the dealer just wants to get rid of them, and the higher the chance of them offering you an incentive to take it off their hands. But, I digress…
All right! It’s time to wrap this up. You should have already discussed pricing before even coming to the dealership, now it should just be to confirm it. You will be taken into an office to look at paper work. They will take this time in the office to wear you down. They want to waste your time. They want to slide a hidden fee past you. IT WILL HAPPEN. Read everything carefully. Read. Everything. Take another person with you to ask questions and look at documents with you. Bring a calculator. Calculate fees and taxes yourself. You’re almost done, don’t make a mistake now.
I made a mistake. To even get me in the dealership they were going to waive an Environmental Package fee that was “standard”. It was $400. When I got there, they said since it was a standard fee, they couldn’t just waive it, but instead they would take $400 off the MSRP of the car. They tricked me. They took $500 off (and made me excited because…hey look, I got an extra $100), but it was the manufacturer’s rebate that…I WAS GOING TO GET ANYWAY. Don’t make this mistake. I failed…even though I got a good deal, I shouldn’t have had to pay this fee. If I would have paid more attention, I would have walked.
Repeat: take your time here, read everything, ask any question that you might have, don’t assume anything you talked about in the past is true unless it is in writing and signed.
Step 6 – Trade-in (optional)
Never, ever, ever mention that you’re offering a trade-in until you lock down a final price on the car. You must treat this as a separate transaction, and this is really where the dealer will get you. They may give you a “great” price on the car you’re buying but rip you apart on the trade-in. It will happen.
If you’re going to trade-in your vehicle it should be brought up during your visit in the associates’ office. They will take a look at your car and give you a price. It’s probably not going to blow you away.
As pretty much everyone knows, you should check Kelley Blue Book for prices on used cars. What a lot of people *don’t* know is that you should never expect a dealer to pay that much for it. To get a better idea of what a dealer might offer you, check out Black Book USA. If the difference between what KBB says versus BB is small enough for you to feel comfortable with, sell to the dealer. If not, sell second-hand to someone else. It’s that simple.
To be honest, I lost this battle. I honestly just wanted to get rid of my car and avoid the hassle of getting a quote for my old car from other people or even selling it on the open market. My car was only worth *maybe* 2-3K, and I ended up selling it for 1k. They got me. I acknowledge that. I didn’t think I could get much more anywhere else, but was hoping to get at least 1.5k. Normally, I would fight tooth and nail for far, far less, but the experience will wear you down. At this point, you just want it to be over…
So depending on your situation, you may want to fight this battle a little harder than I did. Get quotes from other dealers or just list it on craigslist if you’re comfortable with that. If you have something with relative value, I would strongly suggest *not* selling to the dealer because you will leave money on the table. Remember, trade-in should in no way affect what you’re paying for your new car. Unless, the dealer has a temporary incentive going on. In this case, I would be very, very careful…because they’re going to try to get your used car for dirt cheap.
Step 7 – Financing (optional)
Home stretch time (and this may not be even necessary if you’re buying your car outright). Most likely you’re going to need a loan to pay for your new car. And this is the time when you drop your guard. You think you’re done. You’re not.
They’re going to either give you a crappy interest rate, a bloated term, or crafty fees. This is most likely where you’re going to sign final documents. You’ll be talking with a different person now. Remember, they’re not your friend.
The best thing I would recommend to do is to secure alternate financing before even coming into the dealership. This is a whole other topic to go into, and I’m not going to go into it here, but you should be able to get a loan with better rates than what you can get at the dealership. Even if you secure financing at the dealership, you may want to shop around after you’re done. There’s no reason why you can’t pay off the loan and go with another company. I didn’t even consider this at first, so it’s important to bring up.
Anyway, as for what I would suggest, it really depends on what you’re looking to achieve. Do you want to pay off the loan as fast as possible? Or can you not afford to pay a lot right now (if this is the case, I would say perhaps you shouldn’t be buying a new car…). The best way to save money is pay a significant down payment, choose the lowest term possible, get the best rate you can (you should view your credit report beforehand to determine what rates to expect).
The finance officer is going to push you to the longest term possible. I had to tell the guy at least three times that I wanted a 36-month term. “But, you won’t be paying as much a month if you go with this plan”. Yes, you will. It’s called interest. Unlike mortgage interest, you can’t deduct it from your taxes. If you have to take out a loan, try to pay it off as soon as you can.
Step 8 – Closing the Deal
OK, seriously, this is it! You’ve found your new car, you’ve driven it, you’ve got a great price, you dodged all the traps the associates play, you read everything thoroughly and asked the important questions…it’s time to sign and drive.
What you really need to do here is double-check all the math. Write down on a sheet of paper what you “thought” you were going to pay, and see if it comes out to what’s in front of you. If there’s a discrepancy, do not be shy, tell them about it. I found two problems with the math to determine tax and interest (I really can’t tell if it was intentional or not…). I have a feeling this happens all the time.
If they play games of serious significance, like fees that suddenly come out of nowhere that were not discussed and they won’t budge on., as hard as it may be to walk…leave. You may have spent a lot of time on this, but you have the power here. This is your decision. There is always someone else that will give you an equivalent deal. You shouldn’t have signed anything at this point, there’s nothing binding you to anything.
If all goes well, you won’t have to be in this position. Hopefully everything was clear upfront and no games were played. It’s not going to happen, but if it did, good for you.
Closing Thoughts
Expect to put in at least 20-30 hours (even that may be conservative) in completing this transaction. If not, you’re going to lose a lot of money. This is probably one of the biggest purchases of your life, don’t take it lightly.
The absolute best resource I can recommend by far is carbuyingtips.com. Much of my advice here came from firsthand experience and that website. It’s packed full of stuff you probably don’t know about the car buying experience. It’s comprehensive. It has advice on anything you could possibly think to do or ask while buying a car. Highly, highly recommended.
I also would like to thank truecar.com. Without this service I would not have: a) found the dealership I bought the car from, b) gotten as good a price as I did. I just used their basic (free) service and that was enough to get a price “under” dealer cost (which still doesn’t make sense to me; they must have had some great year-end incentives from Ford…).
Again, truecar.com will solicit dealerships close to where you live (or many hours away) and ask them to submit what price they are willing to sell for. This is essentially like the same service as Lending Tree (for home loans); “when buyers compete; you win”. I did not use their advanced service which costs a small fee, and allows for dealers to continually “bid” against themselves for your purchase (lower price for you). Sounds intriguing, but the price was good enough already for me not to use it. And…it’s not like this isn’t something you can do yourself over email.
Well…that’s what I learned while buying a car. I hope it’s something I don’t have to do again for at least 10 years. It’s not a pleasant experience, but if you make it through (and didn’t fall for traps), you’re going to feel knowledgeable, proud, and excited to own your brand new car!
Resources:
http://www.carbuyingtips.com/
http://www.edmunds.com/
http://www.blackbookusa.com/
http://www.kbb.com
http://www.autotrader.com/
http://www.truecar.com/
