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New Car Buying Strategies

Shel Horowitz's Monthly Frugal Fun Tip for November, 2004

Yesterday, when I should have been writing this tipsheet, I was off buying a car. It took most of the day, because we went to a dealer over an hour from our home.

Why did we go so far away when there was a dealer for this brand less than 20 minutes away? Because in an online search, we found the exact car we wanted. We would have paid about $2000 more to buy locally, paying for items that we neither wanted nor needed, such as a moonroof. And because our local dealer, where we went first, did not have the smarts to call us when a car that was closer to our needs (though not an exact match either) showed up—which probably would have been a very easy transaction. So we called up the less convenient dealer, established that they still had the car, and did most of our negotiating on the telephone.

And why does the King of Frugal Fun buy new instead of used? Doesn't he know that a new car loses something like 25 percent of its sticker value as soon as the title is transferred? Yes, I know that. And often, I buy used; before this one, our most recent purchase was a 1997 sedan that we bought with 35,000 miles on it, for which we paid around $8000 in 2000. But in the small wagon or hatchback category, it doesn't seem to make a lot of sense to pay over $10,000 for a car that already has 50,000 or even 80,000 miles on it, knowing that we'd have to replace it a whole lot sooner. Besides, that sedan already has over 90,000 on the odometer, and the wagon we bought new in 1994 has 153,000. This is the third new car I've ever bought. The first one was still going strong until I wrecked it at 5-1/2 years, and would have lasted quite a while longer (we still see a lot of them on the roads). And the second one is over 10 years old. Other than our current one, we haven't ever gotten more than three years out of any used car, and one low-mileage private sale vehicle only gave us nine very expensive high-maintenance months. And in fact, at three years, our current sedan had a catastrophic radiator failure that cooked the whole engine—but it was cheaper to replace the engine than to replace the whole car. We figure, barring accidents, we should have the latest acquisition ten to twelve years. Two years in the future, when my older child starts college, we hope to give her the sedan (which will be nine years old by then) and buy an inexpensive used car.

So anyway...car buying has changed a lot in ten years, because, thanks to the Internet, consumers are a whole lot more informed. You should always walk into a dealer having researched the car's safety, economy, reliability, and handling...knowing approximately what the dealer paid...what your car would be worth as a trade-in or on the open market...and the cost and availability of the options you want. When I made my call to the dealer, the first thing I asked was if the car was still available—and the second thing I said is that we knew the dealer invoice cost. Car salespeople negotiate differently with informed consumers. I asked for the best price she could give me, and she called me back a few minutes later with an offer that was definitely "in the zone." So we shlepped up there, and asked for her by name.

Another difference is what I call the "Saturn culture." Most dealerships at least around western New England have adopted some of Saturn's strategies. They are much less aggressive, much more customer-focused.

And there's a much smaller spread between list price and dealer invoice. In 1994, we were able to negotiate a reduction of several thousand dollars; these days, there's far less wiggle room, but more possibility of finding the exact right car, if you don't mind traveling a little. Since dealers will work much harder to sell you something from existing inventory than they will to custom-craft a build-to-suit vehicle, this can be a very important factor.

Comparing reliability, safety, road-worthiness, and price enabled us to save many hours, by eliminating a number of choices. Figuring a minimum of an hour per dealership, the five or six brands we didn't have to visit more than compensated for the two trips we'll have to make to New Hampshire (the first one to buy the car, and the second to pick it up after getting a cassette player installed). Still, there's work to be done after that. Over the course of a month, we test drove eight cards. One of them we liked a great deal—until we took it up on the highway and it couldn't climb even a very modest hill and maintain 65 miles per hour. Another we rejected because it drove like a truck. A third had too small a cargo bay and too much gas consumption. And one, which hadn't surfaced in our search and which therefore we hadn't researched, didn't get great write-ups in Consumer Reports; we would not have test driven it if we'd checked it out ahead. Oh yes, and we didn't even get that far with the Ford Focus. I saw no reason to even visit a dealership whose corporate policies consistently determine that it's cheaper to pay a few wrongful death settlements than to fix safety problems (I cite them as a negative example in my book, Principled Profit: Marketing That Puts People First).

Where to find this stuff? A lot of it is available without charge at http://www.edmunds.com and http://www.kellybluebook.com You can search for new or used vehicles by brand, by category, by price, etc.—and these sites can also not only help you locate dealers, but actually view their inventory. Look at both; in our case, Edmunds didn't show the dealer we ended up using, but Kelly did.

If you still want more facts, it's worth a few bucks for a one-month subscription to http://www.consumerreports.org (just remember to cancel after you've found what you need).

Note that there may be some variances from actuality. The salesperson showed us the actual dealer invoice, and it was about $300 higher than the Internet had led us to expect. We ended up paying about $300 more than the actual invoice price, but that's pretty small potatoes when you're talking about a $17,000 purchase.

Also, always ask about incentives. This dealer was offering a $5000 rebate on the next model up, but only on current inventory, and there was no vehicle in the configuration we wanted. So we bought the cheaper Mazda 3. Had they had the Mazda 6 with a 5-speed and cloth instead of leather seats, we probably would have bought it, because it would have been about the same price. But all their cars were loaded automatics, which cost more and which we really didn't want.

Finally, don't get snookered on the trade in. We knew from Edmunds and Kelly that our 1994 Corolla wagon should have been worth about $1000 on a dealer trade, and close to twice that in a private sale. The $600 they offered will make it well worth it to put notices on bulletin boards or maybe even spring for an ad in the paper, and sell it ourselves.

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