Car prices vary by area due to a multitude of reasons. Local demand, the strength of a dealer’s motivation to move a particular car, the time of year, current promotions and rebates, reasons are multitude and, gladly, irrelevant. We will talk about timing a car purchase in a latter article. There is no need to psychoanalyze the salesman or go through the dealer’s financials. We don’t care why they do what they do. All we care about at this point is how to buy a car for a fair price, and not get ripped off.
Moving forward, start shopping on the internet and short list specific model cars in their various trim levels. Get a list going of at least 3 that you will be shopping for. Three is not a magic number. I suggest more if you care to, or you could shop for just one model if you have your heart set on a specific car. I strongly suggest that you consider a few cars if final price is a strong factor in the purchase decision. Trim the list of cars that are over your price limit, that do not offer options that you desire, have bad reviews or just plain fugly.
Here are useful review sites that I personally use in evaluating a car, when one is available.
I also recommend doing a Google search for a “best car” list. Narrow down the search to the specific type of vehicle that you are interested in. A Google search will give you the most recent “best” list and will provide you with a good range of choices. Samples of search terms are "best compact sedans", "best mini-van", "best station wagons", "best car under 25,000", "best luxury car", "most practical luxury sedan". You could also try searching for cars by activity. The search terms are endless. Search for what suits you the best. Chances are, somebody's made a list.
Video reviews of specific car models are also available at http://www.youtube.com varying from amateur user generated reviews to professional content providers like Inside Line , Motor Trend and Cars.com If you're trying to decide between two cars that are in the same class, side by side comparisons are also quite helpful. Try and do a search for those too. Here is an example:
2010 Mustang and Camaro Comparison
Car manufacturer website are generally accurate when it comes to prices. Pay close attention to trim levels and options when obtaining prices. The following list is provided to ease your shopping efforts.
While at the manufacturers` websites, make sure you take a look and note down the special finance rates, discounts, rebates, lease offers, no down, and other freebies available on each model in consideration. You will not automatically be offered these at the dealer.
Never, never let a dealer include a rebate in the computation of your negotiated price. Negotiate your price and make sure that the dealer knows you expect your rebate check in the mail, from the manufacturer. A dealer has nothing to do with a cash rebate. It's no skin off their back. What they can do is to claim the rebate for themselves. This deserves to be said again, make sure you get the rebate in the mail. It is not supposed to be computed into your negotiated price. Knowledge is not only power, its money in the bank.
Actual selling prices swing wildly due to trim levels and options. I recently shopped for a VW Sportwagen 2.5 SE that has an MSRP of around $ 21,500. The cars on the lot were listed for $ 27,500! The same thing happened with Subaru. I was considering a Forester as an alternative, but the $ 21,000 MSRP was only available for $ 27,000 fully loaded at my local dealer. I had to change gears, pun intended.
A $ 3000 dollar difference on top off a $ 25,000 car can change your mind about which car you really want, or can afford. But if you have your heart set on that red VW GTI 2 door with the 18 inch wheels and the dual exhaust, don’t waste your time, just shop the VW dealers. Focus your efforts!
Now that you have your short list, I am assuming that you have the prices on the various trim levels listed on a spreadsheet or at least a piece of paper. At this point let us move forward with establishing a fair market price and our base for negotiation.
Our method is one of triangulation. As previously discussed, find the advertised price on the net for the car on the manufacturer’s web site? That is your first benchmark. I have shopped for cars to lease and have been offered “deals” wherein, if you compute the monthly payment, the car is actually being sold to me HIGHER than the MSRP, options included. That is just plain wrong. YOU SHOULD DO NO WORSE THAN THE MSRP! Thou shalt not break this rule.
The second benchmark is the invoice price. I find that KelleyBlueBook.com is a good and trust worthy source for this information. While your there, check out the trade-in or private party selling price for the car you may trading in or selling out right. You might get a good deal on a new car, but the dealer could be ripping you off on your used one. It's good to know how much cash will be generated from your current car, whether it be for a down payment or a night on the town.
The last benchmark is the national average selling price. At this point, the most useful resource I have found on this subject is Edmunds.com. Their TMV (True Market Value), also known as “What Others Are Paying” estimate have been spot on for me. This info is not readily apparent on the site. Find the info by selecting the vehicle of interest, selecting the trim level, identify the options you want and CLICK on the "TMV Pricing Report" option. You should find yourself at a table chart with the invoice price, the MSRP and ,VOILA!, the TMV.
There are a few other sites on the internet that offer a national average selling price (based on actual transactions) for new cars. Edmunds is just one of them. You can use any one which you trust. National average selling prices are not static. They move with the market. We cannot be certain how often fair market value prices are updated by Edmunds, so just make sure that you update your TMV price just before you negotiate.
At the end of this exercise, we have three prices for each one of our cars, the Invoice, the MSRP, and the TMV (or actual national average selling price). What now?
Put the greatest weight on the TMV price. You shouldnt be paying more than what others are paying for. Make an initial offer under the TMV. Negotiate towards the TMV. You can hold your line anywhere above or below the TMV, but knowing the national average selling price gives you confidence that the price is achievable, that the price is fair to you and you’re dealer and you have the potential of driving the car out of the lot.
What do you do with the Invoice Price? Like I said, the prices we collected are benchmarks. Knowing the invoice sets you’re LOWER END in triangulating a purchase price. Its relation to the TMV tells you how well the car is selling. If the TMV is closer to the INVOICE and really far from the MSRP, chances are a really low bid might be considered. The invoice price is not dealer cost. Dealer cost has no bearing on the selling price. If the car is selling like hot cakes, forget getting a discount. Cost does not dictate selling price. Average price is where it’s at.
HOT TIP: Here's a little trick. When at the dealer, ask the sales guy about the specific car you want. Ask the about color availability. While he thumbs through his list, or computer, tell him you want to see the list so you can make a good choice. Whichever cars they have a whole lot of one the list, they are well motivated to move and likely highly negotiable. If you see only one Prius on the lot, there will be little room for negotiation.
There are times when you can buy a car below invoice price, such as when a rebate is available and car demand is low. The dealer gets incentives from the manufacturer, further lowering his price. You may never actually get to know what a dealer’s cost is. Computing for actual dealer cost is not part of our exercise but there are great resources for doing so on the internet, one of which is http://www.carbuyingtips.com/car4.htm If you have the time and the patience, go for it.
DO NOT PAY MORE THAN THE MSRP (options included). The MSRP is an important benchmark when you are financing or leasing a car. There will be times when you will be paying MSRP such as with newly released cars, or ones in high demand (Prius?). Take the time to compute your monthly payment backward and find out how much you are really paying for the car. You may discover that you are actually paying more than the MSRP or a stooopeeedly high interest rate. That is NO BUENO. Dealers will play with money factors, interest rates and financing terms (48 months to 60) to get you to pay more, using the monthly payment as a diversion. Do the math!
You don’t have to be a math wiz to figure out how much you’re actually paying for a car. Just plug in the variables for that lease or financing quote into an online lease or finance calculator (links below) and confirm that it pans out.
To compute your cost of financing you will need your agreed or estimated price for the car, the interest rate, length of financing (term in months) and sales tax.You can get a general feeling of what interests rates are by calling a couple of dealers and asking for their rates, calling your bank (it's best to get a quote from a bank if you have bad credit) or getting a feel for the average finance rates from a few different car manufacturers websites. If Toyota is offering 1.9%, chances are, a few other are too. If you have reasonably good credit, you should get the published finance rates, nothing more, better if less.
Auto Finance Calculator
To compute you cost for a lease, you will need your MSRP, final or estimated or negotiated price, the state sales tax rate, down payment amount, length of lease and the CAR VALUE at END of LOAN (residual value). Residual Value is available from your salesman. It is dependent on the term of the lease. Normally, it is around 50% of the car’s value for a 36 month lease. When plugging in the interest rate in the calculator below, use the published interest rate of the car manufacturer. Edmunds.com has done well with this. Their calculator converts the interest rate into a lease factor. These two rates are not always the same, but should be very close. If they are not, they are screwing either the lessees or the buyers. Don't be on the wrong team on this one.
Auto Lease calculator
And there you go. You now have a basis on where to start your negotiations. The biggest strengths in negotiating is to know what your paying and a capability to walk away from a bad deal. Knowing the national average price allows you to put forward a workable bid. The last two cars I bought, I had to walk away from the dealer. I still got both cars. The first one, the salesman ran into the parking lot as I was driving away, I got handed the keys. The last one, I had to go back home, adjusted my bid for an option that I had not calculated, and renegotiated on the phone. Walked in the dealership the same day, signed our pre-agreed price and brought it home.
I will be writing about how to use reverse calculation and car price spreadsheets in negotiating for a car loan and lease in later articles. Comments are welcome.
Good luck on your new car!
Part 2 Negotiating a Lease is here http://howtobuyacarleaseandbuy.blogspot.com/2010/09/v-behaviorurldefaultvmlo.html