Team Dick

On buying a new car

Posted by @ 2:06 PM on Apr 8, 2011

It’s amazing what one learns when they research into buying a car.

There’s sticker invoice price, MSRP, and the real price the dealer pays.

There are various websites, like Edmunds.com on the internet which offer a statistic known as True Market Value. The True Market Value is the average price people in your area have purchased the car for. In some cases this is lower than the printed sticker invoice price. How is this possible?

If you’re thinking about buying a car, do lots of research. Lots and lots of research, not just on the car you want, how much people have paid for it, how to negotiate for it, what tricks car dealers can legally use to inflate the price.

What exactly is dealer prep? In many cases it’s just removing the plastic off the seats, vacuuming the inside and attaching your license plates. Takes a couple hours at most. If the dealer prep fee is $500 you just paid $250 an hour for those minor tasks. In this modern day of electronic information transfer, is the price paid for filing fees really covering the effort to file your title or financing? Should you, the car buyer, pay the dealer for the money they spent to advertise the cars on their lot? Come prepared, bring along your credit history. Bring along online quotes for the car you’re interested in. Bring along estimated values of your trade in.

I’ve come across many recommendations that you should attempt to negotiate the price of the car to 5% over the real dealer cost. Before you can determine the real dealer cost you need to learn if there are any Factory to Dealer Incentives and how much Factory Holdback there is on your car.  Factory to Dealer Incentives is money paid to the dealer by the factory when the car is sold. Factory Holdback (generally 2-3%) is the amount extra charged the dealer by the factory which is then paid back to the dealer after the car is sold. So the Factory to Dealer Incentives and Factory Holdback are really money that the dealer makes on top of what they sell your car for.

So in equation format: Dealer’s Actual Cost = (Invoice Price – Factory to Dealer Incentives – Factory Holdback).

This moves your offer to being Dealer’s Actual Cost + 5%

Not every dealer will publish those values, some will pretend that you’re crazy for even asking about them. Walk away from those dealers.

Remember when you’re buying a car. Until you sign something you can always walk away.

Websites where the information above has come from:

Using the tactics above I recently purchased a new vehicle. In fact just coming armed with the information above lead my sales rep to avoiding discussing those items.

There was a heavy push on the after sale items – additional warranties, paint coating, but I held firm.

The last tip I can offer, arrive at the dealership knowing your credit score and how much local banks will pre-qualify you on an autoloan. My credit score is nearly 800 and the dealership tried to get me to accept a 7.5% interest rate on a loan. Since my bank pre-approved me a 2.99% (for the same number of months) the dealership was forced to either offer me a better interest rate, or risk me walking off the lot. In the end they offered me 2.94% and I drove off the lot with my new Ford Fiesta.

Good hunting!

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