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Your mind will officially be blown... what to know about buying a car!Sep 30 '07 Write an essay on this topic.
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The Bottom Line Be smart, think ahead, and don't be afraid to walk away on a deal and let them call you back in with a better price.
I have been involved in the car industry for numerous years from a variety of different angles. I have been in sales, I have been a supplier, worked in finance, and have essentially seen and done all of the major aspects of the business. What this means to you is that I know how each aspect of the business makes money and how they do it without you even realizing what is happening. When you walk onto a car lot you essentially start a process that by the end will have brought into play numerous parties with a variety of different interests. You have your salesman, you have your warranty/protection salesman, you have your sales manager, finance manager, etc. By the time you get through all of these people you could find yourself paying upwards of $10K more for a vehicle than you realized. First things First The first aspect of the car deal is the negotiation. You already have the vehicle selected, you know the color you want, and you are ready to buy it and start the process of negotiating. In this situation there are several different scenarios, Buying with cash no trade, cash with trade, loan with trade, loan without trade. Each one of these scenarios can change things significantly for you. ALWAYS start negotiation first with the purchase vehicle and worry about your trade later. This gives you more ammunition to get a better deal. Now, keep in mind that an average vehicle has a 4-5% margin. They used to have 10% so even though you got thousands off your vehicle several years ago, it is no longer possible, there just isn't that much to play with anymore. To keep the negotiation simple and easy tell them you are willing to pay $500 over invoice. This will require the sales manager to come out with an invoice and make you an offer. They aren't going to go any lower than this, and hold your ground because they will attempt to get more out of you. Make sure you know about the rebates FIRST. Once you negotiate the price down to invoice plus $500, now remove the rebates and you have your price. That is an excellent price. New vehicles don't have that much margin anymore, so don't be suprised if the price isn't all that much lower than what is marked. If you are using a trade, ALWAYS get DEALER TRADE IN value from Kelly Blue Book or kbb.com. When you do this, you can walk into the dealership and demand that price minus $100-250. You will never get that price and if you do it will kill the price you are getting on the vehicle. Now that introduce your trade, and demand the KBB price on it. Once you have done this and they accept it, and don't you dare budge on that price no matter what they say, you have officially given yourself the best possible chance for a deal. Finance or Cash... that is your option If you are financing, try to obtain a loan PRIOR to going to the dealership OR find out your beacon score and the average rate of interest for that particular score. For example if you are a 600 score and the average rate is 9.2%, then you should tell the dealership that you won't do more than 9.2%. This gives you a huge advantage on the best way for dealerships to make money. A dealership generally makes very little money these days on the front end price of the vehicle after you are done negotiating. In fact, in my experience for finance customers they generally will take a loss, because they know they can make it up and then some elsewhere. So, dealerships have a method of making money called HOLDING PERCENT. Essentially what they do is get you approved for 8.5% for example and they come back and tell you that they got you approved at 10.5%, they then keep that 2% difference. That is a huge amount of money in their pocket and could cost you a SUBSTANTIALLY higher payment dependent upon the cost of the vehicle financed. Get the package? or not? And finally a way that dealerships make money is off of their paint protection, seat protection, extended warranties, etc. In reality most manufacturers have such good warranties that you are generally paying a whole lot for nothing. If you want an extended warranty order through an outside company, those sold through the dealership are almost pure profit for the dealership, and really don't benefit you all that much if at all. Next, avoid the paint protection packages. The clear coat is more than enough. If you have bugs stuck to your vehicle body just take dryer sheets, get them wet, and the bugs will rub right off. If you still want a protection package, order it and apply it yourself, it's just like applying wax, very easy to do and will cost you a fraction of what it would cost at the dealership. Finally, don't bother with the interior protection packages unless you have children and purchased a vehicle with cloth seats. In reality you might as well avoid it altogether. You can go to the store and easily buy 3M seat protectant and for about $20 you can apply multiple coatings of the product and completely protect the inside of your vehicle for MUCH less than it would normally cost you. The main reasoning you don't want these products is that you are paying FAR more than what they say you are. Remember, you are paying interest on these items and they add up fast. For example, if you got warranty and full protection, you could pay around $4k which is added to your loan. If you got a 10% interest rate that costs you an addition $400/year in interest or $2K extra on a 5 year loan. In other words, you have now just added $6k to the total price of your vehicle meaning you will have to own it for around 4-5 years for you to break even if you wanted to trade it in. Final Thoughts Overall people tend to put most of the emphasis on the beginning of the deal when in reality it is the end of the deal that is most important. If you stay smart, you can and will get ahead and get a good price.  |
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