May 28, 2017

How to buy a New Car below Invoice

This entry is part 7 of 8 in the series Internet Sites

Except for buying a home, a new car or truck is likely the largest single purchase you’ll make. Unless you do your homework, you should expect to overpay by thousands of dollars. Most dealerships are honest, but they are in business to make a profit. If you don’t show them they should sell you a car below invoice, they won’t. The following will guide you step-by-step in researching car pricing, and getting the best price possible on your next new car.

When You Won’t get a Great Deal on a New Car

In a free market, if demand exceeds supply, prices are pushed higher. If a specific model has a long waiting list of people willing to pay above-invoice prices, don’t expect to get that car below invoice anytime soon. If you want a good deal on that model, try again in a few months.

Another hurdle is if there’s no competition among sellers. This is why you must get competing quotes on a car, even if it means visiting, emailing or calling dealers in neighboring towns or counties. Finally, if you don’t know what’s a good price, don’t be surprised if the well-informed dealer gets the better of you.

What’s in a (Car) Price?

Every new vehicle sold in the US has a detailed printout describing the vehicle, its specs, options, fuel efficiency, etc. At the top of that printout, in large bold numerals, is the so-called MSRP, or Manufacturer Suggested Retail Price. This is the price the car manufacturer (i.e. Ford, Honda, Audi, etc.) would be thrilled if you paid for the car (that’s why they’re suggesting it). There’s little or no relation between the MSRP and what informed buyers will pay for that car.

Next is the Dealer’s Invoice price, which is nominally what the dealer pays for the vehicle. Why nominally? US auto pricing is byzantine, and there’s no way to know what a dealer really pays for a vehicle unless you’re working in their accounting department (possibly not even then). Dealer’s invoice excludes such things as dealer holdbacks, dealer incentives, etc. that carmakers give dealers outside the public’s view.

This brings us to the dealer’s cost, which is what the dealer really paid, accounting for everything. Short of a great deal of trouble, and potentially breaking the law, you’ll never learn this cost. Some services offer to sell you that information, but it seems far-fetched that anyone who knows it would continue to have access to such information once they’re caught selling it to the public. Nonetheless, some free services mentioned below do manage occasionally to provide some information about dealer holdbacks, incentives, etc. If you can get this information, mention it in price negotiations and you may get some of those incentives taken off the price you’re quoted.

Finally, there’s your negotiated price, which following the advice below should be somewhere between dealer’s invoice and dealer’s cost. The dealer has expenses, such as rent or mortgage on the dealership, marketing, salaries, etc., plus he’s in business to make a profit. The point of this article is not to bankrupt dealerships, but to help you limit them to a reasonable profit.

Before we continue, if you’re reading this, getting a good deal is important to you, so consider buying a late-model car off-lease instead of new. Such cars have unusually low mileage relative to their age, and are available at auction (using the services of a dealer specializing in auctions for a $500 – $1000 fee), at substantial discounts to market price. Such cars also avoid the 30% or more depreciation suffered by new cars in their first two years. Since the car should have about 12,000 miles of manufacturer’s warranty remaining, you’re protected against most problems.

Step 1: Select the Right Car for You

If you’re still reading, you’ve apparently decided to buy new, possibly to avoid buying “someone else’s problems”. If so, buying a reliable model and keeping it for at least 10 years and 150,000 miles is your best bet. Your first step is thus to research what cars that fit your needs are reliable. Begin by making a list of criteria important for you, starting with the following.

  1. Class of vehicle (e.g. mid-size sedan, crossover, pickup, sportster, etc.)
  2. Engine size
  3. Options (e.g. stability control, air-conditioning, towing capability, keyless entry, etc.)
  4. Specs (power, turning radius, interior space, trunk volume, etc.)
  5. Fuel efficiency
  6. Price range
  7. Estimated 5-year cost of ownership
  8. Reliability scores (e.g. from Consumer Reports annual automotive issue)

 

 

 

 

 

 

This image, showing a new 2011 Jaguar XJ8 luxury sports sedan was taken at the Washington DC auto show in January 2011, and posted to the public domain on Wikimedia Commons by user IFCAR; A full resolution image is available at http://upload.wikimedia.org/wikipedia/commons/e/ed/2011_Jaguar_XJ8_L_–_2011_DC.jpg

Once you compile the criteria, identify your top 3-5 choices. Visit local dealerships and test-drive each candidate, being upfront that you expect to buy within the coming couple of weeks, but you’re still narrowing the list of cars you’re considering. State what other models you’re considering and ask the sales rep to point out their car’s advantages (but don’t gush over anything). Immediately after the test drive, write down what you liked and didn’t like.

No matter what the dealer says, don’t start negotiating. You haven’t done your homework and don’t want to give away anything yet. Once you’ve test-driven all the models you’re considering, choose your two favorites. Even if you like one far better, having an alternative will improve your frame of mind when it’s time to negotiate.

If last model year’s car is very similar to this year’s, consider buying the former. You may not get all the options and colors you want, and may have to accept some you don’t care to pay for, but flexibility here will help the dealer give you a better deal on a car he wants off his lot asap (e.g. accepting an unpopular color car makes no difference in your car’s comfort, convenience or performance, but may net you a better deal).

Step 2: Collect New Car Quotes – Not Just from Dealerships

Find several dealerships in your area for each of your target models. Request an email quote from each dealership, specifying the model, year, trim level, options, colors, etc. Quotes should come within a day or less. If a dealership refuses to provide a firm quote without your visiting their lot, move on to the next. Try to collect at least 5 quotes for each car.

While waiting, request free quotes for both models, again, with the trim, options, colors, etc. from the following free services:

Before shutting down your computer, find on Edmunds.com the “True Market Value” (TMV) price paid for the two cars as specified above. At times this will include incentives and rebates (for example, as of this writing, the 2011 Toyota Camry XLE V6 has a $1000 “customer cash” offer, bringing the TMV for a fairly comprehensive set of options to just under $28,500, about $800 below dealer invoice.

Craigslist Cars for Sale is another great resource, so don’t forget to search for new car deals on Craigslist as well.

Finally, visit the AAA website and request quotes there as well. If you’re not a current member, becoming one now could be the best $65.50 you’ve spent in a long time. The 10% AAA hotel discounts are nice, but where AAA really shines is, surprisingly, in pre-negotiating car pricing for members. When I bought my most recent car I saved $1500 over the lowest competing quote, paying nearly $1000 below dealer’s invoice.

 

 

 

 

 

 

This image, showing a new 2011 Toyota Camry Hybrid was taken in Clinton, MD in January 2011, and posted to the public domain on Wikimedia Commons by user IFCAR; A full resolution image is available at http://upload.wikimedia.org/wikipedia/commons/5/56/2010-2011_Toyota_Camry_Hybrid_–_01-17-2011.jpg

Compare all the quotes you get back from dealerships, car pricing services, and AAA and pick out the lowest 3 for each car. Decide which of the two cars you’d prefer at the current best quote and go to Step 3 to start negotiating.

Step 3: Negotiate your Deal – the Only Negotiation Tactic you Need

If you’re like most people you’re not a trained negotiator. Getting the best of a dealer who negotiates dozens of car deals monthly is just not going to happen. What you can do is show him (or her) you’ve done your homework and get the best deal you can expect. The dealership won’t take a loss on the sale, but neither will they gouge you.

With this in mind, contact the sources of your second- and third-best quotes for the car you prefer, tell them you have in hand a better quote, and you’re contacting them as a courtesy prior to making a deal with the lowest bidder. Ask if their quote is the best they can do, or if they care to “sharpen their pencil” a bit and offer you a better deal. Perhaps they forgot to throw in a customer incentive, maybe they really want to close another deal before the end of the month, or possibly they just have a few too many copies of your dream car on their lot.

The may well decline, in which case visit the dealership that offered the best deal and buy from them. However, they might sweeten their offer, possibly throwing in extras that save you money (e.g. free maintenance for a year or three, etc.), or even reducing their asking price.

While some suggest you tell these other bidders what the lowest quote was, I’d counsel against it. If asked, tell them you consider it unethical, and you’re sure they’d not want you sharing their quotes with the competition. This will probably get you the best offer possible given their situation, which is all you can reasonably ask for.

Step 4: Avoid Losing your Hard-Won Gains

After negotiating the best sale price you can get, don’t give up your gains by accepting a low-ball trade-in offer, an overly-expensive interest rate on your financing, or a high-priced extended warranty.

In general, you should be able to get a better price selling to a private party than trading in your old car. If you want to avoid the hassle, at least get a free offer from Carmax before trading in where you’re buying, so you know if their offer is reasonable.

Having an approved loan from a financial institution will let you know what interest you qualify for, so you can evaluate the dealership financing offer. Even if they offer 0% APR, check if they can give you a further rebate instead, and compare the monthly payments for the same term between their 0% offer and the bank’s low-interest rate for the lower price you’d get with that rebate.

If the specific sales rep you’re negotiating with is not working in good faith, just leave and come back another day. Most likely you’ll meet another rep whose turn it is to talk with the next customer coming through the door. With the large number of reps in each dealership it’s not likely you’ll be stuck with the same one. This is also where getting an online quote can help. The rep you work with will likely be the Internet or fleet sales rep who gets rewarded as much or more on volume than per-sale profit, making him (almost) your partner in a successful deal.

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