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How to Buy a New Car Without Getting Screwed Print
Tuesday, 18th September 2007 (by J.D.)This article is about Cars, Money Hacks, Shopping
As a follow-up to yestereday’s discussion, if I had decided to get a new car — which isn’t the case — I would have had to face the daunting Car-Buying Process: the haggling, the scheming, the underbody protection. This can be intimidating. The game feels rigged against the buyer. Lifehacker recently unearthed a five-minute video that explains how to buy a new car without being screwed.
For those of you without video capability, here’s a brief summary:
- Obtain financing from your bank or credit union in advance.
- Allocate two full weekends to purchasing your vehicle.
- Phone 8-10 dealers for competitive bids on the FINAL price.
- Walk out if the deal changes.
- Don’t buy any extras.
- Sell your used car separately.
We’ve discussed a variety of car buying methods before [1, 2, 3, 4], but this is the only one that I’ve used first-hand. It works. In 1995, Kris and I used this technique to purchase a new Honda Civic (but we faxed dealerships instead of phoning them). We sent out a letter that looked something like this:
My name is John Roth. I would like to purchase a white Honda Civic with option A, option B, and option C. What is the best price you can offer me on an in-stock Civic that matches this description? I am faxing this letter to every Honda dealer in the Portland/Salem area. This weekend I will purchase the vehicle from the firm that offers the best deal.
Some dealerships refused to participate, but a few responded with competitive pricing. The one we chose offered a smooth, hassle-free transaction. It was awesome!
September 18th, 2007 at 1:52 pm
Hi,
I’m a new reader and am loving the blog. When I purchased my new car 2 years ago I had two additional tips.
1) Purchase near the end of the month. Dealers have more incentive to slash prices to get additional bonuses or hit their numbers. I purchased my car on the last day of the month and got an additional $1,000 off an already great deal.
2) I didn’t learn this until later but most salesman, used and new, will offer better prices on Monday and Tuesday because they have just come off a busy weekend and these two weekdays feel so slow that salesmen fear they won’t make their numbers.
Hope that helps those car shoppers out there.
~Greg
September 18th, 2007 at 2:07 pm
This method sounds good. I can see how it could be applied to the purchase of a used care as well.
But, it’s very similar and, probably based on the method described in one of the Motley Fool books. I think it was “You have more than you think”.
September 18th, 2007 at 2:27 pm
Another tip: use GrandCentral for phone contact and make up another e-mail address to give to the dealerships. Then when you finally purchase a vehicle you can set your GrandCentral to always hit voicemail (an you can record a nice message about how you are no longer in the market for a vehicle). And you can set an autoresponder on your e-mail address with a similar message. This worked great for me when purchasing a vehicle earlier this year!
September 18th, 2007 at 2:51 pm
The only thing I’d add to this is if you’re buying a vehicle where you’re pretty sure you’re going to be getting it serviced at the dealership (which was the case for me when I bought my Prius), check out their service department. One Seattle dealership wound up out of the running because their service department got poor marks from people who’d bought cars there.
(Ordinarily I prefer indie mechanics, but hybrids are just weird enough that relatively few places are certified to work on them.)
September 18th, 2007 at 2:59 pm
CarBuyingTips.com is a pretty decent site on car buying tips. Big emphasis on not getting scammed.
The site looks spammy and shady, but it’s one of those “old” web 1.0 site with plenty of content. Probably one of the first (in-depth) how-to on online car buying.
Jeff’s top 10 car dealer scam is pretty dead on.
September 18th, 2007 at 3:16 pm
three more ideas:
1) Go during a football playoff game on the last weekend of the month. Go on Saturday, stay a huge chunk of the day, then….
2) Walk out, go home, let them call you. They will.
3) Negotiate each part of the deal separately. When they agree to one part (say, price) pull out a notepad and a Sharpie and write it down in big letters.
September 18th, 2007 at 3:25 pm
If you don’t want to do that, but still get all the current incentives and a fairly competitive price, check out http://www.carsdirect.com . I use it to ball park what prices for new cars should be.
September 18th, 2007 at 3:35 pm
Most important advice that you talked about was not being afraid to walk out, like your commenter mentioned they WILL call you back. Stay in the driver seat. Man it is such a pain in the a$$.
September 18th, 2007 at 3:37 pm
sorry I should have been a little more descriptive. At carsdirect.com you can configure a vehicle and pick up at a dealer for a specific price, no negotiations. Seems like a pretty sweet deal, though I haven’t tried it.
September 18th, 2007 at 4:25 pm
As you and Kyle already said, but it’s worth repeating: you can walk away at any time!
I bought a new car for the first time last year and I don’t think I did a very good job, because I felt pressured by the dealership, by the time (I had a rental car and wanted to get the car this very week-end)…
So, I would add that it’s a good idea to go to the dealership without thinking you *need* to come home with a car.
And of course, get all the sales guy’s promises in writing before going to the finance department. And if the finance department tries to change the terms, walk away.
They do what they do all day long, but they can’t do anything if you leave
September 18th, 2007 at 4:51 pm
Also worth repeating: read everything you sign and carefully!
That’s obvious I know but even when you know it, the person in front of you will make you feel bad about it (because it takes a looonng time to read everything) so you might go quickly over it and miss something important.
Maybe you want to go there with the spirit that the car dealership will make money off your back by tricking you any way they can. Since you’re paying, you might as well use as much of their time as possible.
They see the paperwork everyday, you see it every 5 years at best. You might to take your time.
September 18th, 2007 at 4:55 pm
Great advice, very similar to what I did what our last car.
I emailed every Honday dealership in town…only 2 got back to me.
I demanded to pay invoice and not a penny more. Go the deal on exactly what I wanted. Better yet, they had to get the car from the Honda dealership just down the road from my house that refused to sell me the car at the price I wanted.
Also, try taking a calculator with you.
Finally, if you don’t get financing first. NEVER negotiate on monthly payments.
September 18th, 2007 at 5:52 pm
I did most of the usual techniques (pre-financed, market-priced, etc), plus I travel to Atlanta every month, so I got quotes from the big ATL Honda dealers, then used the lowest one to drive down the price on my local dealer. If my local dealer wouldn’t come down, then I would have flown to ATL, bought the car, and driven it home. (Expensing the trip home too!) My local dealer unhappily (I guess unhappily since they’re pros and they always act like you won) dropped $1500 on a Honda Odyssey.
September 18th, 2007 at 6:19 pm
I have found the single biggest thing you can do to improve your bargaining power is to buy the car before you absolutely have to. Knowing you can drive home in the car you came in gives you infinately more power than if you have no way to get to work on Monday. If you don’t have to buy a car that day, you can just sit there and wait until they give you the deal you want. And if they won’t, you go home.
This is one case where squeezing every last drop of value out of the car you currently own could backfire on you. If you’ve driven the old one until it dies and isn’t worth repairing, you’re stuck and you’ve lost all your advantage.
September 18th, 2007 at 6:20 pm
When you have decided on a make and model of the car you’d like to purchase, see if there is a forum devoted to it. When my wife and I decided we wanted an Acura, we found a thread in the forum that was totally devoted to what prices people were paying and where.
At the time, we found out that the Acura RDX didn’t have their marketing in full gear and that they were also far behind their sales numbers. This allowed us to use the techniques that you described while also being able to call their bluffs when the dealers were trying to tell me they were flying off the lot.
Another trick is to check dealers’ websites. Many of them list their inventories. If they have a lot of models in stock, they’re much willing to negotiate than on the models that they can’t keep in their lots.
September 18th, 2007 at 6:40 pm
I seriously need an article on buying a used car. I was in the market recently on a very tight budget and things were dismal–I picked out about 9 or 10 cars on various web sites and all of them had “just been sold” (hah) when I went in to the dealership. (Would I like to look at a more expensive one?) I think that I have finally found the car I want for a fair price… but it has been a very unpleasant experience, unpleasant enough to make me understand why people buy new cars despite the depreciation.
September 18th, 2007 at 7:54 pm
I think the great tip about buying before it’s absolutely necessary applies to used cars too. At my local university, every spring the noticeboards are plastered with advertisements of students selling their cars before they graduate and go back to their home countries. Some great deals there! I got a 7-year-old Toyota in great shape with 24,000 miles on it for $1200. I paid in cash, and now I have $23,800 left over from what I would have spent on a new MINI. Six years later, the car has never had a problem.
September 19th, 2007 at 4:43 am
I don’t think that it is really possible to buy a new car without getting screwed; seeing as how most new cars lose between 25% to 40% of their value in the first two years. Even those cars that are known for holding their value still lose, on average, 12.5% in the first year alone. I think people who rave about getting a good deal and financing at a low or even 0% interest are just under the illusion that they have done well.
A secondary consideration for buying a car with a couple of years and a few miles on it is that you also are less likely to get screwed by a car with a lot of inherent problems. For instance, the 2002 Camry (when they changed the body style) had both safety and mechanical issues. If you bought it in 2001 or 2002, you would not have had a way to know this. If you waited until 2003 or 2004, you would be able to read about recalls and TSBs for the vehicle.
If I were a cash millionaire, I still would not buy a new car.
September 19th, 2007 at 7:41 am
A few more tips to add to this great list:
1. Never offer an amount on a car. Let the dealer tell you how much they want to sell it for. Why? A couple things. If the dealer accepts your bid, then you have, frankly, bid too much. If the dealer doesn’t accept your bid, you’re now in the process of haggling. Dealers are great at haggling and you aren’t. You will lose that game. Never offer.
2. Obtain information about the car’s MSRP, Invoice cost, and dealer holdback. You should know EXACTLY how much the car costs BEFORE you go in there. Dealers can spot a sucker a mile away. A site I used was http://www.fightingchance.com/. Fighting Chance will send you an info packet that costs $40, but it’s worth it. Lots of websites list the MSRP and Invoice price for a car, but this packet will let you know the dealer holdback, quality ratings for the car, and what real-life other people have been actually paying for that car. I used that information to save me about $4000. That’s worth $40.
3. DO YOUR RESEARCH! Do you know what MSRP means? Invoice? Dealer Holdback? Do you know what your credit score is? Do you know how much adding a sunroof adds to the price of the car you want? No? Well, then you haven’t done enough research!
4. Never talk about monthly payments. Always talk about the final purchase price. Dealers can hide all sorts of charges, fees, and price hikes by just talking about your monthly payment.
5. When in doubt, wait.
September 19th, 2007 at 7:56 am
I agree with poundwise and Keith W. Twombley. The best route is to never buy new. Even if you are buying a high end, luxury car, you are better off buying used. Let the original owner lose 1/3 or more of the value to depreciation. Plus, you can avoid any manufacturing flaws by buying used.
If you do decide to buy new, then Keith W. Twombley is solid when he says you MUST know what the car costs - MSRP, invoice, dealer holdback. If you don’t understand this information, you can still get hog-tied by employing the method described in the video. If all the dealers offer a high bid, you could end up paying more even if you do accept the lowest offer. These numbers give you a good idea what the dealer makes on the car.
Another subtle point about this method is to ask for tax, tag and title when requesting bids. Some will include this while others won’t. Dealers will avoid disclosing this fee in hopes that once you get to the dealership you will just go with their bid, rather than walk out.
As far as when to buy, end of the month and during the beginning of the work week are good times, but the best time is when the new model years roll in. You can get a 2007 at a nice price right now since the dealers want to make room for the 2008 autos.
September 19th, 2007 at 10:11 am
Consider the cost of insurance. A used car will be much less.
September 19th, 2007 at 10:26 am
CarBuyingTips.com is indeed a great resource
September 27th, 2007 at 8:37 am
I’d like to echo the sentiment that CarBuyingTips.com is a fantastic resource.
The bottom line up front: I save thousands of dollars on my custom ordered Porsche Boxster S, at a time when most dealers would not come more than $1,000 off of sticker price.
For me, the real moneymaker was filling out a spreadhseet showing, line by line, the price for your base model car and all the options you desire AT THE PRICE THE DEALER ACTUALLY PAYS (Not Blue Book and not MSRP). Then, add a reasonable mark-up (in my case 3%) and emailing the spreadsheet and offer to dealers all over the COUNTRY.
The trick here is to determine the actual dealer cost by using the BLACK BOOK. The loan officer at my credit union had a copy and allowed me to peruse it and take notes.
I sent the offer to dealers from North Carlonia to California. Bear in mind, it only costs about $600 to ship a car and the dealer may agree to pay for it, mine did. I got a LOT of “Nos” but I only needed one “Yes”. If you get multiple “yes” responses then can play the dealers against each other and take the best offer.
Imagine a a salesman walks into work to find some guy in Kalamazoo emailed him and offered to order a car from him at a small mark-up. It may not be a great profit but it would be easiest money he made all week, all he has to do is the paperwork!
A final tip… I don’t understand the incentive system that dealers operate under but it does seem like the bigger dealers in distribution “regions”, metro areas where lot of dealers selling the same-brand (ie. Miami, Atlanta), are more willing to cut you a deal. Apparently, they benefit from incentives tied to sales volume and are in a better position to reduce their mark-up.
Good luck and have fun!
October 3rd, 2007 at 7:07 am
I just purchased a new car and it had 49 miles on it. I didn’t question it and now I have after thoughts. What mileage should be allowable for a new car? Can anyone give me some advice. Thank You
October 3rd, 2007 at 7:11 am
I just purchased a new car and it had 49 miles on it. I didn’t question it and now I have after thoughts. What mileage should be allowed for a new car before being concerned? Can anyone give me some advice….Thank You
October 12th, 2007 at 11:34 am
Rob rocks. He saved me tons of money. Probably $1,500+.
October 13th, 2007 at 7:18 pm
[...] How to Buy a New Car Without Getting Screwed ? Get Rich Slowly (tags: finance cars Money) [...]
August 25th, 2008 at 7:59 pm
I sell cars and enjoy reading sites like this believe me there are lots of opportunities for a car dealership to make money. Front of the house profit, is derived from the MSRP less the invoice price, or the price the dealer actually pays for the car. Each deal has a “pack charge or lot fee” of $200-600 or more that goes in as part of the dealer cost, so when a dealer tells you for example, our invoice is $22145, you can subtract $200 to $600 for the lot fee, and there are dealer rebates and consumer rebates to factor in. On the sales contract there is always a Doc fee of again several hundred and a fee for title processing and sales tax, all but the sales tax can be negotiated. Never trade your car in, unless it has major problems,and you just need to dump it. You don’t really know how much you are getting off the new car for the value of your trade, most dealers I have worked for use “rough black book” which is a number that they can start with before they do an appraisal on your car.
The back of the house profit comes from the finance office, lets say you have great credit, they could qualify you for 5.5% loan or less, the finance manager may hit you at 7.5% and tell you that’s the best he could get, this can be negotiated too, there is a lot of money being made on raising your interest a couple of points, and do not buy any add on service contracts and warranties, the profit on those is 50-100% and the finance manager is a commissioned salesman remember that. Do not try to bluff or BS anyone in the dealership, they are a lot better at it than you are, they do it more often.
One thing that I like to see is a customer came in and told me he and his wife would like to check out a couple of cars and he would give me $20 to work with them for a while if they did not buy. Now the salesman is motivated to work for the customer as well as the dealer, he can’t lose either way. Most salespeople do not make a lot of money, I have made as little as $300 a week and as much as $3500 in a week, my average is around $40000 a year working 5 days and 55 hours a week, so it is a difficult job. The salesman is trying to negotiate between you and his sales manager, he is more on your side than you might think, he wants referrals and he will work you hard after the sale so he wants you to understand that he is going to get you the best deal he can and still make a profit.
Most deals on new cars pay minimum commission, $100 to $150, because the profit margin on new cars is lower and the competition is higher, you can easily compare prices on new cars because every dealer sells the same car. Used cars have more profit built in and there is no simple way to price shop because condition and mileage on each car varies so much.
Do not lowball and offer a price that is way too low, be realistic, we are there to make a profit and we must not sell cars at a lose, give us a break and don’t lie or steal from us and we will treat you right.
The best time to buy a car is end of the month and before the new model year comes out. Monthly bonuses for volume can be very good so they might be more willing to do a loser sometimes and make up for it on bonus.
Most dealers and salespeople are good honest, hard working people with families and lives like yours, treat them with respect, they deserve it.
Driving thru a lot drives us crazy, if you are really interested in looking at cars, stop and get out and let one of us open the car up and give you a demonstration, if you aren’t really ready to buy go to the lot after hours so you are not wasting anyone’s time but your own.
July 7th, 2009 at 9:08 am
Are you kidding me???!!! Don’t come to my lot during business hours unless I’m ready to buy, because I’m wasting your time? I’ve worked for a dealership for 21 years…If anyone told a potential customer that, it would be their last day on the job!