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by Center for the Study of Services
 Whether you think of your
car as an object of love or view it merely as a way to get somewhere,
having a brand new one is bound to give you a lift. But that
pleasure can be tainted by thoughts about the cost--both the
thousands of dollars you must pay for the vehicle and the emotional
cost of coping with the hassles of making the purchase.
Fortunately, there's a way
to avoid the hassles and get a great price. The key is competition.
Get new car dealers to bid competitively for your business.
The Center for the Study of
Services, an independent nonprofit consumer group, operates a
service used by many thousands of customers each year to get
great prices on new cars. See the "Money-Saving Help"
list on the back of this pamphlet for more information. You can
use the same general approach and get a very good price on your
own. What follows is advice that comes out of the experience
of this service.
You may have had friends tell
you about sitting eyeball to eyeball for hours with new car dealers.
It's nonsense. They wasted
their time.
The only leverage any customer
has with a new car dealer is the possibility that he or she will
walk out--and either buy a car from another dealer or not buy
one at all.
To get a good price, you need
simply set up a competitive bidding process. You have to be careful,
thorough, and persistent, but you don't have to know all the
intricacies of the car business.
You can start the bidding
process after you've decided on the make, model, and style of
car you want (Ford Taurus, 4-door sedan GL, for example). You
don't have to know the exact options you want. It's best to conduct
the bidding process by phone. If you try to do it in person,
you'll waste many hours and you'll have difficulty persuading
salespersons that you're really serious about leaving and getting
other dealers' prices.
Get each dealer to bid an
amount above or below the "factory invoice price."
The factory invoice price is the same for all dealers. So if
one dealer bids $500 above invoice and a second bids $500 below
invoice, you'll know the second is $1,000 lower priced than the
first. The "Money-Saving Help" list on the back of
this pamphlet tells you how you can get information on factory
invoice prices.
But you don't really have
to have the invoice price information in advance; just explain
to each dealer that you will expect to be shown the actual factory
invoice for any car you consider buying.
Get bids from at least five
dealers. Talk only to a sales manager or fleet manager. Here's
the basic approach:
"I'm in the market for
a (make/model/style) and I've made a list of dealers to call-including
one that's out of the local area. I've done some homework, and
I know the approximate invoice cost of the car. What I'm doing
now is calling each dealer on my list to find out what each wants
as a markup or markdown from factory invoice cost. I would expect
to be able to take my pick of any car on your lot of the make,
model, and style I'm looking for at the markup or markdown you
quote. So that everyone is on a level playing field, I'm calling
each dealer only once, and I'm not saying what any other dealer
is bidding.
"I assume you will let
me see a copy of the invoice for any car I pick out to buy, Before
we talk about your markup or markdown from in-voice, tell me
are there any charges that you will expect me to pay for advertising,
document preparation, or other services even though they are
not listed on the factory invoice? Also, are there any dealer
add-ons, like rustproofing, pinstripes, or wheel locks, that
I'll be required to pay for?"
You may want some options
that aren't factory options. For example, some manufacturers
don't offer a radio or air conditioning as a factory- installed
option on some basic styles, If you are interested in such dealer
installed options on these cars, you'll need to find out each
dealer's charge to provide them. Then ask:
"Is there a factory-to-customer
rebate in effect on this car? Please don't take any customer
rebate into account in your bid; I assume I'll get the rebate
separately as a further discount.
"Okay, I think that's
all I needed to go over. Now, would you like to give me a commitment
as to exactly bow much markup or markdown you'll accept above
or below all these costs we've just discussed?...
"What if I don't see
the car I want on your lot but I still want to buy my car from
you? Will you exchange cars with another dealer in order to get
me the car I want? Will you still honor the bid you just gave
me if you have to get the car from another dealer? If not, bow
will you figure the additional charge for this dealer exchange?
What if I want to factory-order a car? How will that affect your
price commitment?"
You can go through this process
with each dealership. Don't be intimidated. If you don't understand
something or if answers seem fuzzy, ask again. You will almost
certainly save hundreds of dollars--many buyers will save thousands
of dollars-by following this process.
What if the dealers won't give me a price?
There are many excellent dealers
that will respect your businesslike approach and respond in kind.
But some dealers may not be so helpful. You may get responses
like-
"I'll beat any price
you get. Call other dealers and then call me back" "What
do you think is a fair markup? You tell me. "
"We don't quote prices
over the phone. Just come in and I'll give you the best deal
in town. "
Let these dealers know: if
they don't bid, they have no chance for your business. Be businesslike
and persistent. If a dealer won't give you a serious bid, go
on to the next dealer.
What does "factory invoice price" really mean?
Aren't there hidden kickbacks?
The "factory invoice
price" is theoretically what the dealer paid the manufacturer
for the car. The dealer will actually have a printed invoice
that shows this price figure. It is less than the "manufacturer's
suggested retail price" (MSRP), which is the "list
price" shown on the window sticker of the car and is the
price for which the manufacturer theoretically thinks the car
should be sold to you.
Actually, almost all cars
are sold below the manufacturer's suggested retail price, and
some cars are sold to customers below the factory invoice price.
How is it possible for a dealer
to sell a car below the factory invoice price? It is possible
because the factory invoice usually doesn't reflect the true
cost to the dealer: dealers often get "holdbacks,"
end-of-year carryover allowances, factory-to-dealer incentive
payments, and other allowances that reduce the cost below what
the factory invoice shows. Although the factory invoice price
is not the dealer's true cost, it is a useful figure because
for identical cars it is the same for all dealers. That's why
you can use it as a reference point for dealers' bids.
How do rebates and incentives work?
If a car manufacturer offers
a factory-to-customer rebate, you will be able to get this rebate
directly from the manufacturer, or you can have the dealer apply
the rebate to your purchase price, further reducing the price
of the car.
In contrast, a factory-to-dealer
incentive payment, sometimes referred to as a "dealer rebate,"
is money the factory gives the dealer for each car sold. The
dealer can use the money for advertising, employee bonuses, extra
profit, or many other purposes--or the dealer can pass this money
along to you as a price reduction. One of the purposes of the
bidding process is to use competition to prod dealers to give
this incentive money-which sometimes is $500, $1,000, $2,000,
or even more-to you as a price reduction. The "Money-Saving
Help" list on the back of this pamphlet tells you how to
get information on rebates and incentives.
What is a good price?
There's no one answer to this
question. The right price depend.. on supply and demand at the
moment for the specific car you want. Some consumer-advice articles
and books give guidelines like the following: "Shoot for
$150 to $300 over invoice for a mid-size car in good supply.
" Ignore such advice. The only way to know what you should
pay is to get dealers to bid.
Do I have to know more about prices and costs to get a
good deal?
The more you know about factory-to-dealer
incentive payments, "holdbacks," and other allowances
the deafer will receive, the better off you'll be. It is also
helpful to know what the current market for cars is-the best
prices cars like yours have recently been selling for. That gives
you a "target" price to shoot for.
But without devoting your
entire life to car buying, you can't hope to know about all the
available allowances and current selling prices. You have to
count on competition-and the fact that no dealer knows how much
the next dealer will give away-to drive down the price to a satisfactory
level,
What if a dealer won't live up to its bid?
This could be a problem for
individual buyers, but it doesn't have to be if you do the bidding
properly. Be very businesslike in getting your bids, Deal only
with a sales manager or fleet manager. Review the details of
the bid by phone with the deafer. If you have access to a fax
machine, have the low bidder fax a confirmation. If a dealer
tries to renege or make changes, take your business to the next
lowest bidder.
Do I need to know the exact options 1 want?
You are better off not to
limit dealers' bids to a specific set of options or a specific
color. Get the dealership to make its markup or markdown commitment
applicable to any car of your make, model, and style. This approach
allows dealers to bid even if they don't have a car with a specific
option that you might have requested but that might not be of
great importance to you.
Once you have your bids, you
can calf the low bidder to check what specific options and colors
are available on cars that are on its lot or that it can get
for you.
Shouldn't I consider which dealer offers the best repair
service?
Your new car warranty will
require you to use a dealer for covered repairs. For this warranty
service, you'll naturally want to use a dealer that is conveniently
located and that does high-quality repair work. But you don't
have to have warranty repairs done at the dealership that sells
you the car. Your manufacturer will reimburse any of its franchised
dealers for your repair work. So you can buy your car at the
dealership that gives you the best price, then have repairs made
at a different dealership if the other dealership is more convenient
and does better work.
A dealer with a good repair
shop is likely to give you good service even if you didn't buy
there. Dealers make money on repairs and won't want to lose your
repair business.
How should I deal with financing, trade-in, and other extras?
You don't want to lose the
benefit of a good price on a new car by paying too much for financing,
for an extended service contract, and for rustproofing, paint
sealant, and other add-ons. You also don't want to get too little
for your used car trade-in, if you have one. Before you go to
a dealer to buy a car, you must know the true market value of
all these extras. To avoid confusion, don't discuss any of these
matters with a dealer until you have settled on the price of
your new car.
Financing
Check the annual percentage
rate (APR) currently being offered by banks and savings and loans
in the area. If you area member of a credit union, check its
rate.
Car manufacturers often offer
special financing plans as an alternative to customer cash rebates.
Whether the financing plan is a better deal than the cash rebate
depends on the size of the rebate, the manufacturer offered plan's
APR, the APRs available from other lenders, the amount you'll
be borrowing, and how long a period you'll be borrowing for.
On a 48-month loan, each percentage point you cut your APR is
the equivalent of a car price discount of about $20.50 per $1,000
of loan.
To illustrate, assume you
could get a $13,000, 48-month loan from a bank at a 10 percent
APR, and that the special manufacturer-offered plan's rate is
5.9 percent. The savings from using the factory plan would be
estimated as follows: (10 minus 5.9) times 13 times $20.50 =
$1,093.
Extended service contracts
Extended service contracts
often yield substantial profits for the dealers that sell them
and the extended service contract companies that back them.
Many new cars are very reliable,
so there are few service claims. Also, many cars now carry long
manufacturer warranties, so many service problems are covered
by the warranty, leaving little to be covered by the extended
service contract.
If you decide, despite these
facts, that you want to purchase one of these service contracts,
check carefully exactly what is covered. Almost all contracts
exclude from coverage maintenance and wear items, ranging from
brake pads to exhaust system components to air filters. And many
contracts exclude--or fail to include-electrical devices like
power windows and radios, interior trim, gauges, and even air-conditioning
systems. Some contracts cover the cost of towing and a rental
car but others do not. And most contracts require you to pay
a "deductible" amount for each repair--in some cases,
as much as $100--before the service contract company pays anything.
Be sure to check whether you
can get repairs done at the selling dealer only, at any dealer
of your make of car, at any new car dealer, or at your choice
of new car dealer or independent repair shop. Since many consumers
are more satisfied with repairs at independent shops than with
dealer repairs, it's good to have the option of using an independent
shop.
Also, check how the shop will
be paid. Under some contracts, the shop simply bills the contract
company under others, you must pay the shop, then seek reimbursement
from the contract company. Even if a service contract company
says shops can bill it directly, check with repair shops you
might use to be sure they will in fact bill the contract company
many shops have decided not to put up with the hassle of collecting
from service contract companies,
Finally, be sure the service
contract company is financially sound. Many of these companies
have gone out of business in recent years, rendering their contracts
worthless. You are probably safest with a service contract backed
by an auto manufacturer, by a large insurance company, or by
a long-established independent warranty company.
A key point if you want an
extended service contract, you don't have to buy it where you
buy your car or where you plan to have it serviced. For example,
you can buy your car from one Ford dealer, buy a Ford backed
service contract from another Ford dealer, and have your car
serviced under the contract by still another Ford dealer, There
have been cases where one dealer was selling a contract for under
$500 while another was selling the exact same contract for more
than $1,000.
Before you go to a dealer
to purchase a car, check other dealers for the prices and coverage
of their service contracts, Then you'll be able to use these
alternative vendors either to negotiate a good service contract
price from your dealer or to supply you a contract if your dealer
won't meet the competition.
Other add-ons
If a dealer has already applied
rustproofing, paint sealant, or fabric protection, you will have
to pay for these treatments, but they often are overpriced. When
dealers have outside vendors come to the dealership to apply
these treatments on cars, the total cost to the dealer is usually
less than $50 per car. If a dealer tries to charge you more than
that, you can regard the cost simply as an extra markup. It's
better to buy from a dealer that applies these treatments to
cars only after a customer requests them.
With regard to rustproofing,
there are special problems. Many manufacturers recommend against
dealer-installed rustproofing. Most say such rustproofing is
unnecessary, and some are concerned that it will block weepholes
and actually contribute to rust,
Burglar alarm systems, wheel
locks, and other add-ons may be worthwhile, but find out what
other dealers and independent shops will charge for these items,
if you want them, before you go to the dealer where you plan
to buy. You can use the other firms' prices as a negotiating
standard or you can simply buy the add-ons from the other firms.
Your trade-in
You can lose the benefit of
a good deal on your new car if you don't get a good price on
the old car you are getting rid of. The "Money-Saving Help"
list on the back of this pamphlet lists sources where you can
check the approximate value of your used car.
But, the best way to get a
solid estimate of your used car's value is to take it to several
new car or used car dealers to see what they will pay you for
it. Simply tell each dealer that you plan to sell your car and
that you are getting offers from at least 5 dealers. You can
expect the dealer where you buy your new car to pay you roughly
the same amount for your used car as these other dealers would
pay. If not, you might as well sell your car to one of the other
dealers.
Think of trading-in as really
a sale of your used car at wholesale. If you've gotten a rockbottom
price on your new car, the dealer won't be able to pay you more
than the true wholesale value for your used car. A dealer who
offers a fat trade-in allowance must be making it up on the new
car price.
Remember, you can sell your
used car on your own to another consumer. By checking classified
ads, you can get an idea how much your car might sell for, That
will probably be more than a car dealer will give you for it,
but selling the car on your own is more trouble than selling
it to a dealer or trading it in. You have to advertise the car
and you may have to deal with a number of potential buyers.
Is there a right time of the year to buy a new car?
There's no sure way to predict.
Guessing the car market is no easier than guessing the stock
market.
Prices simply respond to supply
and demand. When there is excess supply, dealers drop their prices
and manufacturers throw in incentive programs to get the market
moving.
Should I shop outside my local area?
For most cars, it is sufficient
just to reach out as far as necessary to include at least 5 dealers
in the bidding process, but it won't hurt to include one that's
a little farther away.
After a new year's models comes out, does it make sense
to buy one of the previous year's models?
If you plan to keep the car
only for a couple of years, you'll probably be better off with
the new year's model. You'll pay more now for the new model,
but two or three years down the line it will have a substantially
higher resale value than the previous year's model. In contrast,
if you plan to keep the car 8 or 10 years, the previous year's
model may be a better bet. You'll pay a lower price now for the
older model and a decade from now the difference in resale value
between the two years' models will be small.
The best decision, of course,
depends on how much less you can pay for the previous year's
model than for the new year's model and on whether the new year's
model has new features that are important
Money-Saving Help and Choosing the car
Most public libraries and
major bookstores have extensive information to help you select
the type of car that will fit your needs. Three good sources
of comparative information on cars, each of which is published
annually, are The Car Book by Jack Gillis, Consumer Reports magazine's
April issue, and the December issue of Kiplinger's Personal Finance
Magazine.
Getting a firm price commitment
The Center for the Study of
Services offers the CarBargains service (800-475-7283), which
will get at least five dealers in your local area to bid to sell
a new car of the make, model, and style you want, using the methods
described in this pamphlet. You get a price commitment sheet
for each dealer. There is however, a fee for this service.
Many credit unions, local
American Automobile Association (AAA) chapters, membership warehouse
stores, and employee associations have lists of dealers who have
agreed to self cars at a fixed markup from invoice. You can contact
local organizations to see what programs are available. The dealers
that participate in these programs may or may not pay to be listed,
depending on the specific program's arrangements.
Getting general car price information
Most libraries and bookstores,
and many banks and credit unions, have books published by Pace
Publications, St. Martin's Press, and others showing list prices
and invoice prices for new cars, and showing resale value estimates
for used cars. Automotive News, available in some public libraries,
gives information on rebate incentive programs. You can also
order up-to-date information for quick delivery to you for a
fee from several sources, including
Consumer Reports (800-933-5555)
offers new car invoice and list prices that you can use in doing
your own shopping. Also used car valuations.
Car Price Network (800-227-3295)
offers new car invoice and list prices that you can use in doing
your own shopping. .Also offers used car valuations and sells
a report on current rebate and incentive programs on all makes.
Can be reached on-line at http:\\carprice.com
The Center for the Study of
Services (800-213-7283) also offers the Best Price Car Kit, which
reports new car invoice and list prices, current rebate and incentive
programs, and the actual target price recently paid by an expert
shopper for the make/ mode/style you want. Kit also includes
valuation of your used car and information on low-cost extended
service contracts, financing, auto insurance, and leasing strategies.
All the above information
and more is available online at "CarPrices.com"
This publication was developed
by the Center for the Study of Services. Mention or display of
a trademark, proprietary product, or firm in text or figures
does not constitute an endorsement. Publication was edited for
world wide web display by the staff of The Senior Center.
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