In this final installment, I'd like to sum up what I've learned, and offer a few things that can help you the next time you shop for a car. I've decided to divide this chapter into two sections: Car-Buying Concepts and Specific Recommendations. The Concepts are general thoughts underlying the car-buying process. In some cases these are simple, fundamental realizations that you might already know. But it doesn't hurt to revisit them before we move on to the Specific Recommendations.
Concept 1: The Stakes Are High
This realization hit me very strongly while I was selling cars people can lose a lot of money by making the wrong choice when buying a car. This is a serious decision for the average household budget. If you are unprepared for the encounter with the salespeople and make a poor decision you can lose money. A lot of money. How? Well, say Joe Consumer decides it would be nice to have a new car. Without doing any research he heads on down to the car lot and hooks up with a sharp salesperson. Joe Consumer might be talked into buying a car in too high a price bracket. He could also be switched to leasing without his knowledge or consent. And he might also put down too much money. In the F&I Room he might be talked into buying protection packages, road safety kits and extended warranties. What would these mistakes add up to? Over the course of five years (the length of some lease contracts) this could mean he pays thousands of dollars too much for that car. This might convert into hundreds of dollars too much per month. Many people are on tight budgets. Paying a hundred dollars too much could sink the ship; certainly it would produce stress and prevent a family from saving or investing their money for the other necessities of life. The monetary loss is only part of the problem here. People become angry, humiliated and resentful once they find out they have been deceived and overcharged. And yet, once they sign the contract, it is difficult if not impossible to unwind the deal. I should add that there are many good dealers who wouldn't cheat or overcharge even a naive customer. But, sadly, there are enough unscrupulous dealers out there to make caution and suspicion necessary. I know that many of the salespeople I worked with would take an extra thousand dollars profit without a thought, then laughingly brag about it to the other salespeople. The management of the dealership rewarded this kind of profit taking and called it superior salesmanship.
Concept 2: Self Defense is Simple
OK, that's the bad news. The good news is that it's not that hard to protect yourself from severe economic loss. By doing even an hour's worth of research, by keeping in mind several simple concepts, the average person can be reasonably sure they won't be swindled. By doing an additional hour's research, they can get a pretty good deal. It's not that hard. In fact, some people find that they like the process once they learn how to handle it. Knowledge is power. That's almost a cliche. But it holds this simple truth: if you know the numbers of the deal it will be hard for the salespeople to overcharge you. It's like going to a store and seeing a nice lamp for $30. Then you go to a second store and see the exact same lamp for $50. Now a salesperson approaches you and tries to talk you into buying their lamp at the higher price. Will you do it? Probably not, because you know the exact same lamp is sitting on the other shelf for $20 less. What can the salesman say to you to convince you that their higher price is justified? Now let's extend this concept to car buying. If you wander onto a car lot without knowing how much the cars should cost, you have no frame of reference. As your reasoning power is reduced by a combination of breathing new car smell and test driving the car, you will begin to believe the car salesperson when he tells you the car is going to cost a lot but it will be worth it. Remember, the salesperson wants you to be excited about the car because then the rational side of your brain will become disabled. Just ask yourself this: if you buy today, how will you feel when you wake up the next morning? Is this a decision you can live with? What car buying numbers do you need to know? Find out how much the dealer paid for the car you want to buy. Find out what cars like that are actually selling for. Find out what your trade-in is worth (if you want to trade it in to a dealer). And finally, if you decide to finance the car, find out what your monthly payment should be by shopping for a car loan before going to the dealership.
Concept 3: Profit Equals Commission
I never really thought of this until I sold cars but... Car salespeople earn their living by inflating the price of the car you are buying. The more they inflate the price, the bigger their commission. This might seem very obvious, but we tend to lose sight of it when the smiling salesperson greets us on the car lot. They make us think they have our best interests in mind. The good salespeople do have our interests in mind. The unscrupulous salespeople are thinking how your purchase increases their commission. One of the dealerships I worked at had a sliding scale for commissions. The higher the profit, the higher the commission. Naturally, the salespeople tried to hit that point where the commission was bumped to the higher percentage. That might mean moving you into a higher level vehicle. It might mean increasing the profit by financing sleight of hand. In both cases, this smiling salesperson, with the personable air, didn't have your best interests in mind. I believe in paying a dealer a profit for his car. I also believe in rewarding the salesperson for their expert help. But I don't think this justifies making an unfair profit at my expense.
Now we come to the nuts and bolts of getting a good car at a fair price. This isn't a tutorial, since we have this information already posted on the Edmunds.com Web site. Instead, these are guiding principles to help you navigate the choppy waters of car buying. These are rules I saw being broken all the time by the shoppers that turned up on the car lots where I worked.
1. Use the Internet.
The Internet is an amazing tool for car shopping. It levels the playing field by giving accurate information to the consumer. It takes the anxiety out of negotiating. It forces dealers to slice profit because they must beg for your business. It allows consumers to comparison shop loans and leases, as well as extended warranties and insurance. It gives the consumer power. Use Edmunds.com to conduct research and our PowerShopper tool to solicit bids. Once you enter the information about the car you are looking for into the PowerShopper interface, the dealers will come to you.
It's likely that you will have to visit a car lot at some point in the car buying process (for the test drive, for example). The following recommendations are general tips that will help you if you insist on face-to-face negotiations with car salespeople when buying a new vehicle.
2. Don't be in a hurry.
This is a tough one because many people live busy lives with tight schedules. Their car breaks down and they have to do something about it this weekend, or on their day off, or at night. They might be overwhelmed by the problem and just throw themselves at the mercy of the car salesperson. Big mistake.
First, if your current car is on its last legs, consider sinking a little money into repairs so you don't have to make a panicked move at the car dealership. Yes, it's tempting to think of getting a new car and leaving the old heap behind. But caving in to this kind of impulse will cost you money.
If you can't fix up your old car, rent a car for a week. And make sure you rent the kind of car you are thinking of buying. There is no better way to test drive a car than to live with it for several days, using it for your daily commute or your typical errands. I guarantee you will learn something significant about the car that will help you make your final decision.
3. Walk away from any deal/salesperson you don't like.
If you aren't committed to this rule you will lose money. Car salespeople know that if you leave the car lot to "think it over" you might decide not to buy their car. So they pressure you to "buy today." This isn't good for you. It means you might buy the wrong car. It means you might agree to financing that doesn't fit your budget. It means you will probably pay too much.
If you have serious misgivings about the deal you are making, walk away. Similarly, walk away from any salesperson who seems too aggressive, overbearing, bullying, evasive or unreliable. There are plenty of good salespeople out there. Find one. And deal with that person until you have the car you want, at the best price with the right financing for you.
4. Know the numbers.
Yes, we already covered this under the heading of general concepts. Now let's look at it in a little more detail.
When you visit a dealership, and go into the sales room, the salesman will reach for a 4-square worksheet. They do this to keep track of the numbers in the deal that will affect their profit. Don't you think that if the pros do this, you should do the same thing to protect your money? If you don't, how else will you know what to pay for the car? What to take for the trade-in? What your monthly payment should be?
Using Edmunds.com, find out what the invoice, sticker and Edmunds.com True Market Value® (TMV) prices are for the car you want to buy. TMV® is a new concept developed by Edmunds.com. It's a guide that provides you updated weekly pricing on what you should pay for a vehicle without having to spend hours negotiating with a dealer.
Write these prices down. Then find the approximate price of your trade-in. Then figure out how much money you will have to borrow and how much your monthly payment should be. Consider the difference between paying cash, leasing and financing. Make sure you also find out about holdbacks, rebates and incentives.
Is your head swimming with numbers now? That's pretty normal (unless you're some kind of math whiz). That's why you should write all this down. Then, with the numbers in front of you, get out your calculator and crunch them. When they have been put through the wringer, you will get one gleaming, shiny number which represents what you should pay for the vehicle you want to buy. With that number in mind, set a range. Start low and increase your offer in small increments until they say the magic words, "We've got a deal."
5. Shop around.
Say for a second you didn't know any of the numbers. Say you were in a jam and had one morning to get a new car. You could probably get a good deal by shopping around. You can do this in person or on the phone or even with e-mail.
What you do is this. Contact dealer number one. Tell the salesperson, "I'm ready to buy today but I want your best price on the car." When the salesperson gives you his best price, write it down. Or, if you are doing this in person, have him write it on the back of their business card.
Now contact dealer number two and do the same thing. Only, tell them you have already been to dealer number one and you got such and such price. Then, repeat the mantra: "I'm ready to buy today. But I want your best price." Naturally, they will try to undercut the first guy's offer.
Now contact dealer number three and do the same thing. By now you should have three offers. If you want, you can even go back to the first guy and see if he will whittle a few more bucks off his offer. If not, can the dealer throw in something else to make their offer more attractive?
The beauty of this is that the market will define itself in a short period of time. And when you're done, you will be confident that you got the best price possible. Incidentally, dealers hate it when you shop their offer. They hate it because it can get you a very good price.
6. The deal's not done until you drive off in your new car.
You don't have to be a jerk about it, but you should be on guard throughout the entire car buying process. The biggest place that people err is when they have struck a deal with the salesperson. They breathe a sigh of relief and think the dealing is done. But the buyer needs to stay alert for the F&I process. Extra charges can appear in the contract. There may be a problem with the condition of the car. All these things can be addressed if you have the right attitude. If anything crops up during the F&I process that doesn't jibe with your numbers you can still walk away from the deal.
7. Always remember that it's your money.
Car salespeople are good at making us feel obligated to buy from them. They serve us sodas in the sales room. They run to get the keys for the test drive. They brave their bosses wrath with our lowball offer. So, when it comes time to make a decision we're tempted to think we owe it to the salesperson to buy from them. Yes, we certainly do owe them our business if the deal is fair. Don't do it just for the salesperson. Do it when the numbers make sense. After all, you may be signing a contract you will have to honor each month with your hard-earned money. How will you feel about it as the years roll by and the car begins to show its age. Thinking about that can be like a bucket of ice-cold water in the face.
The world of car buying is changing rapidly. Buyers are more informed. Dealers are more sensitive to their customers' satisfaction. But, like in many industries, the old ways die hard. So it is still important to be informed and to make a good decision when shopping for a car for yourself and your family.
Of all the advice I've offered, I'd just like to stress that it's important to remember that buying a car should benefit both you and the dealer. While I have focused on deflecting the sales techniques in the dealership, I don't recommend becoming overly defensive. If you deal fairly with the car salesperson, and you get the same in return, the transaction can be enjoyable even exciting. It really should be. So, I wish all of you a great shopping experience and many years of driving pleasure in your new car.
To find a dealership that knows how to treat shoppers right, please visit Edmunds.com's Dealer Ratings and Reviews.