Thursday, May 30, 2013

Tips for Buying a New Car

As you may remember, one of the potential items on our baby to-do list was to buy a new car. My car, a 2003 VW Passat, was getting up there in miles and the cost-benefit of future repairs didn't seem worth it. At the time, we were considering buying a used car.

After we John did extensive research, we decided on the Honda CR-V due to its safety ratings, trunk space, low maintenance costs, decent gas mileage, and the fact that it looks good. To the horror of some personal finance "experts," we came to the conclusion that buying new would be better for us. Hondas hold their value extremely well, so we'd have to buy a CR-V with a lot of miles on it to see any savings. And at that point, why not pay a little more and put the miles on ourselves?

After a bit more research, we put together our strategy:
  • Negotiate the car price.
  • Negotiate the trade-in.
  • Discuss financing.
It's important to negotiate and come to an agreement on each item separately because the dealer is always looking for ways to make a profit. And since we were buying as a couple, we were sure to be in agreement on everything before even starting the buying process.

How do you know what car price to negotiate?
While John did the research on which car to buy, I researched pricing and (of course) put together a spreadsheet. While the dealer may quote you the MSRP (manaufacturer's suggested retail price, i.e. list price), you never want to pay MSRP. Instead, you should know the car's factory invoice price and shoot for a price close to that. You can find out the invoice price by looking at Edmund's or TrueCar. Edmund's and TrueCar will also give the current market price, which is a good starting point for your negotiations.

TrueCar also has the option of locking in a guaranteed price at one of their certified dealers. While we didn't buy from a certified TrueCar dealer, we still printed out a Guaranteed Savings Certificate for our exact make and model and asked our dealer to match the price. We called the dealer and told them exactly what we wanted to buy, down to the exterior and interior color, and told them what price we wanted. They accepted!

Deciding on add-ons
At this point, the dealer might try to sell you all sorts of upgrades and add-ons. The only things we knew we wanted were leather and heated seats. At a previous trip to the dealership, we learned we could have leather and heated seats added to the CR-V's base level model (the LX) for much less than buying the primo level (the EX-L) with unnecessary bells and whistles. Fortunately, we had the price estimate for leather and heated seats in writing because when it came time to buy, our salesman tried to tell us that price was for the leather only.

Other options they tried extremely hard to sell us on were the extended warranty and The Protector, both with a healthy mark-up. The Protector offers rustproofing, fabric protection, and paint protection with a 10 year warranty...all at half of the usual price! (Please note the sarcasm.) There's no need to buy these additional services if you take good care of the interior and exterior of your car. And as John so politely pointed out to the salesman, "Are you suggesting that the paint job and rust-proofing on our new CR-V is subpar and that we need these additional services?" Not to mention our dealership will give us free car washes over the life of our CR-V. If you really want some additional paint or fabric protection, you can do it yourself or go elsewhere for a better price.

They also showed us a list of additional "stuff" we could buy, like a roof rack. We declined these items when signing the paperwork, but realized we wanted to get one thing when we picked up the CR-V. When we asked about buying the accessory, the salesman said he would call us with the price and availability. Guess, what? We never got the call. Shows where he's making his money...

What is your trade-in worth?
Next up is your trade-in. The trade-in price for your used car is one of the many places dealers will try to recoup concessions made for the new car price, especially if you declined their add-on's. We negotiated a darn good price on the CR-V, so the dealer tried to make up some ground with the Passat. Fortunately, we had done our homework and checked the car's value at Kelley's Blue Book, Edmund's, and NADA. I hadn't heard of NADA until I read about it on Words of Williams. While there was a bit of a range in estimates, we knew to walk away from the first (and ridiculously low) quote offered by the dealer.

Since you're not obligated to sell your used car to the dealership where you're buying the new car, we got additional trade-in estimates from Carmax and the local VW dealership. We then took the best trade-in price to the Honda dealership and asked them to match that. Yes, selling the car on our own could have yielded a higher price, but we didn't want to deal with the hassle and possibility of still having an extra car on our hands when the baby came. Plus, selling the car to the Honda dealership helped reduce the price of the CR-V further and lowered our sales taxes.

Negotiating financing
If you plan on buying your car with cash, this step is fairly straight forward. Decline financing, sign some papers, and write a check! Though the dealer may still try to talk you into a car loan to get a little bonus in their pockets.

Remember how I said to agree on the car price before financing? If you tell the salesman/financing department how much you can afford each month, they'll increase the term of the car loan (and possibly interest rate) to lower your monthly payment, but also increase their profits. You're better off knowing what you can afford and sticking to that.

If you do finance a new car, a good rule of thumb is to put down at least 20%, finance the car for no more than 4 years, and spend no more than 10% of your gross income on transportation costs. Another way so see how much you can afford it to get preapproved car financing from a local bank or credit union. Yes, you may ultimately go with a super-lower promotional interest rate at the dealer but it's good to have options and a little leverage in negotiations.

The car-buying process seems like it can be intimidating, but if you stick to your strategy, it isn't that bad. Just be prepared to walk away if the dealer is unwilling to negotiate or is taking advantage of you for their profits.
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1 comment:

  1. Bookmarking this! We're talking about trading in our car within the next year and didn't even know where to begin! Hope you're loving your new ride :)


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