This is part one of a three part series on purchasing a new car. In this section we will discover how to and how important it is to research the vehicle before ever sitting down with a salesperson to talk price. In the second section we will further discuss research by discussing what you need to do and have before going to the dealership. Section three brings it all together with that dreaded trip to the dealership and Finance office.
Section 1 – Research – Discovering the vehicle you want to buy.
It is a widely held belief, not entirely untrue, that buying a new vehicle is a scary, painful experience. With just a little research under your belt and the confidence that knowledge brings, you can play with the big boys. The most important word in vehicle purchasing is RESEARCH. I’ll say it again, RESEARCH. Taking the time to do the research, you can go to the dealership without those anxiety pains and leave not feeling like you’ve been ripped off.
I’ve purchased 11 new vehicles from the period 4/1997 to 2/2006 – yes that’s an average of more than 1 per year. I’ve spent most of my childhood and early adult life around the automotive business and I’ve even walked out feeling like I’d been ripped off. Every one of those times was because I had gone in without doing research and let myself get emotional about the vehicle I had found. In the last 9 years though, I’ve more often than not come out feeling like I’d worked a good deal. Though, in a couple of cases, the dealership might not have felt that way.
First things first. You probably won’t get that newly introduced or hot car without the dealer making a good profit. In any case of vehicle purchasing, the dealer must make some profit or else why would he be in business selling cars? Oh but you’ve heard about all of the “back end” profit that the dealer makes. Well I’ve been there and, in the vehicle sale transaction itself (not the things you add to the price in the F&I office) there is little room to make hidden profit. That “Holdback” that just about every “car research” site insists that you figure into your deal may or may not be there. More on holdbacks in section 3.
The second thing you need to know is that the time that you purchase your vehicle and the price you pay for it makes a LOT of difference. Here are a few important things to remember. The end of the year (last two to three weeks) is a good time. The dealership has to pay Ad-Valorem tax (if applicable in your state) on all of the vehicles that are sitting on their lot on 12/31 so they have incentive to sell, even if they don’t make much profit. Also, dealerships don’t order a lot of vehicles after the 10th of November so the vehicles on the lot have probably been sitting on the lot a while, which means they have no or little holdback left and they are paying flooring interest. The end of the months of March, June, and September are also good months. It’s quarter end and the dealerships will be dealing and the manufacturers will be offering incentives to sell vehicles. When are the worst times to buy a new vehicle? The first three weeks of January. You’ll be hard pressed to find any manufacturer incentives and the dealership personnel have been pounded with how much the dealership didn’t make last year. They aren’t going to be pressed to deal. Other than that is any time a vehicle is being introduced as “All New” or “Substantially Revised”.
So you’ve decided that now is the right time for you to buy a new vehicle. What should your first step be? Well you’ve already made it. Yes, it’s the INTERNET. There are several places in which to find information about cars and there are some different methodologies for going to the different types of sites. I’ll take two scenarios and break them out for you:
Scenario #1: You’ve seen or rented a certain vehicle, or know someone who has a certain vehicle, and you’re pretty sure that’s the one you want. This is a great place to begin. The first thing you’ll want to do, research wise, is pull up the manufacturer’s website. Most vehicle manufacturer websites can be found by simply typing in the name.com. Others you may have to Google (I’ll use “Google” as my generic “search engine”. You can use anyone you feel comfortable with.). Either way, you should find it quickly.
Now take a tour of the vehicle you are wanting. Here you’ll find the different trim levels for the model you like. You’re friend, or that rental vehicle you had, may have been the low or mid trim level but you may find you want the extras in the high trim level. What’s important in this step is that you burn the hell out of that website. Go everywhere, look at every picture, look at the models above and below the model you came there to look for (You may have loved your friends 9 seat mega-SUV but may find that the next step down would be perfect for you!). Next, search the research sites in the next paragraph for reviews, prices, etc.
Scenario #2: You know you need an SUV. You’re not brand loyal and don’t’ really know what’s out there. No problem. Go to one of the automobile research sites. (Edmunds.com, carsdirect.com, cars.com, vehix.com are all good sites.) There are several ways to research cars there. Go for it, find your dream car and see what they have to say about it. Once you’ve narrowed it down, go to the manufacturer’s site (detailed above) and research the vehicle. You may find out that car you think you may want isn’t available anymore or isn’t available with the items you want (Example: You really like a manual transmission but many cars these days aren’t even available with them.)
So now you’ve decided on a vehicle (or two or three) that you’d like to consider. You’re research isn’t over yet. I always go to the website carsdirect.com to check the pricing. This has served as an invaluable tool. First, it lets you “build” the vehicle you want and gives you real time pricing. Not only the retail price and the “invoice price” (theoretically what the dealer paid for the vehicle) but it also gives you THEIR price (yes, you can actually buy the car through them but I’ve never done that). Sometimes this may be thousands less than the “invoice price”. Not to worry, they’re taking into account any incentives and/or rebates along with special pricing. A good thing about this is that you get to see how you would like your new car configured, if it can even be configured the way you would like it, and if it is even in your price range.
Ok, so you’ve maybe ruled one or two out and let’s say you’ve decided there are two cars that you think may fit your needs, budget and wants. Now it’s time to take a test drive. I suggest two methods, if you have the time and means. I always start at the rental car agency. If you have chosen a main-stream vehicle, chances are some rental car agency has some version of it. Call around to your local rental agencies, the ones the local dealerships use are the best bets. Be up front with them and let them know which vehicle you would like to rent for a day. If they have the vehicle they’ll be happy to help you – it’s just money for them. No you may not get the same trim level, or even year that you are thinking of buying, but as long as it’s essentially the same car (Meaning the car hasn’t been revised in the last couple of years or you want a 6 cylinder and they only have the 4 cylinder version.) then you’re ok. If they have several of the cars you would like to drive, ask for the one with the HIGHEST miles. Why? Let’s face it, rental cars are driven hard. How better to get an idea of how a vehicle is going to feel, handle, stay together 12 months, 24 months down the line. It may seem like a pain but, if you don’t have friends with the vehicle or don’t know much about the vehicle, this is a great tool to use and really worth the time and minimal expense.
Once you (and the car) have passed that test, now it’s time to go to the dealership. Don’t call or email the dealership beforehand. That is what a real buyer (meaning one who’s not shopping) does. You’re still shopping so be up front. As much as their reputation precedes them, if you’re up front and honest from the beginning, a good car salesperson is happy to earn your business. The first thing you need to do is tell the salesperson who greets you (or the receptionist if in a luxury/low-key dealership) that you are there only to research a certain vehicle. You will not be buying today; you don’t even have a checkbook or credit card on you. IMPORTANT: Ask the salesperson what their “customer walk-out” policy is. Many lower-end dealerships have a policy that the salesperson cannot (meaning he/she gets punished) let a customer walk out without buying unless they speak to the Sales Manager first. This is the practice I most abhor in a dealership. I’ve heard the Sales Manager literally tell customers that it may be their fault if the salesperson’s kids don’t eat tonight! In any case, if the salesperson cannot or will not answer that question, looks down when it is asked, or says that they do have that policy. Kindly excuse yourself (it’s not the salesperson’s policy, trust me, they hate it) and walk away. There are other dealerships and that’s not the one you want to deal with.
Hopefully the salesperson will respond with a negative to that question. At that point ask the salesperson if has the time to help you in your research. If you happened to meet the “Sales Leader” of the dealership he may tell you he has an appointment soon and hand you off to a newbie or someone who is having a slow day. DON’T BE OFFENDED! He is there to do a job, sell cars and make money. Plus, someone who is newer is less likely to be pushy or feel the need to tell you everything about the vehicle. If you are comfortable with your research, you may also tell him that you’ve done a ton of research and know probably as much as he does, you just want to see how the vehicle drives and handles. This will alleviate any feelings that you’ve wasted his time later. Ok, so guess what’s going on right now, if you’ve followed this advice. YOU’RE IN CONTROL. Now, salespeople hate this, but, as long as you are polite and honest with the person you are dealing with, you’ll be fine.
So you’ve driven the car(s) and you’ve decided on one that you really like. Now you go back to your trusty computer and go to one of the pricing sites (I rely on carsdirect.com and kbb.com). You play around until you have the vehicle configured exactly as you want it. Only now do we talk about price. There is no one set formula you can use to determine how much you should pay for the vehicle. Some cars are very common and may have lots of sales incentives. Some cars are rarer and you may get no discount at all. This is where the research comes in. Every salesperson in his right mind is going to tell you that the price of the vehicle is right there on the window (“Monroney”) sticker. And he’s correct and he’s perfectly fine in asking you to pay that. Don’t be upset or offended and, for Pete’s sake, please don’t “pssshht” at him. When was the last time you brought a bottle of salad dressing up the checkout in the market and then huffed at the cashier about the price? Politeness is one of those things that goes a long way in this process.
I can’t give every scenario so I’m going to give the most common. The vehicle you want is one of the more readily available and a good seller. You price it out at the two sites and you get three final “prices”. (I’m going to use numbers from a search I just did, it doesn’t matter what it’s for, they’re just an example.) The first number is the “M.S.R.P Price” (Manufacturer Suggested Retail Price). This is the amount you’ll see on the sticker of a vehicle on the lot equipped EXACTLY like the one you configured. In this example that number is $39,975.00. Next you’ll see the “Invoice Price”. This is the wholesale price of the vehicle from the Manufacturer to the Dealer. And no, that is not necessarily what the dealer paid for the car, but we’re not concerned with that. In this example that number is $37,141.00. Next you’ll see a number under “[website name] Price or New Car Book Price”. This is the number that they are saying you should pay for the vehicle, exactly as configured. In this example that number is $35,141.00. This may include any rebate or customer incentive (look for negative numbers at the top of the list of options).
Ok, so what now? The first thing I do is back any rebate/incentive out. Rebates and incentives are not part of the purchase price and they may not even be offered if you decide to take any Manufacturer financing or lease deal. So this tells you exactly what you should pay for the vehicle. In the above example, there is a $2,000.00 rebate from the manufacturer. So, in this example, the vehicle can be purchased for invoice price. Not bad. In the case of carsdirect.com, this is what they are offering to sell the vehicle to you for so this is a HUGE bargaining tool. Your next steps are detailed in Section 2.