Advice On New-Car Buying

In Take Advantage, I mentioned the conventional wisdom to never purchase a new car since it loses anywhere from 10- to 20-percent of its value when you drive it off the lot. But sometimes, it makes sense to buy new. Many banks offer substantially lower interest rates for new cars than for used cars (USAA offers 2.25% for a used car and an outstanding 0.74% for new cars), which may make it worthwhile. In our case, we were looking for Hondas for sale in Alpharetta before we upgraded from a Toyota FJ Cruiser to a 4Runner and many Toyotas but especially the 4Runners maintain their value after purchase. We couldn’t find that much of a difference between new and 1-year-old 4Runners, so we decided to look into purchasing new.

Here’s my advice after our experience.

1. Know what you want.

With a new car, it’s much easier to figure out exactly what you want in a car than with a used car. Manufacturer websites are great in letting you pick exactly what you want in a new car. They allow you to do everything except for test drive the thing. It’s true that your local dealership won’t have the exact model that you’re looking for, but when you let inventory make the car-buying decision for you, you typically end up with something you don’t want. Sunroof? Alloy wheels? Third-row seating? Do your research on the manufacturer’s website and find out what you want before you step foot on a dealer lot. And don’t worry if the closest dealer doesn’t have the exact car you want. If there’s one within about 200 miles of the dealership, they should be able to trade one of theirs for what you really want. If that’s not an option, you can try eBay or order a car from the manufacturer.

2. Know what you should pay.

If you were to browse a car lot, you’d see stickers in the rear window of the cars with all the specs and a big fat MSRP (Manufacturer Suggested Retail Price). This is the number that the hope you buy the car for. It’s up to 10% higher than what the dealership pays for the vehicle so for a $35,000 MSRP, the dealer probably got it for a $31,500 invoice. So, how do you know what the invoice price is? There are a number of great services that allow you to determine the invoice pricing including cars.com, which shows you the MSRP, invoice, and all the fees associated. TrueCar has a great service also that allows you to input your desired car and provides what other people have paid for the same vehicle. Don’t rely on the dealership to tell you what they paid for a vehicle. Find out yourself. You should understand that you’re not going to buy a car for the invoice price, but add $500-$1000 for the dealer’s trouble, and they have a deal.

3. Visit the dealer at the end of the month

It seems hokey but just like most sales industries, car dealers have quotas and if they’re not meeting them, they will be more willing to make a deal at the end of the month. At the beginning of the month, they’re more likely to jerk your chain for a while. But, you have time to spare, especially when you’re trying to save $3500.

4. Know what your trade-in is worth

If you’re trading in a car to help with your down payment, this could really affect your final sales price. Dealers will certainly low-ball you and it may be worth a decent discount for not having to worry about listing it and dealing with potential buyers, but you can make it fair. Kelley Blue Book is the quintessential pricer for used cars. They show you what your car is worth to a dealer trade-in as well as a private sale.

Side story: after we traded in our FJ for a 4Runner, we got a note in the mail saying that we had a highly desirable used car (the FJ) and to bring it in so they could make an offer. The FJ was hot because it had been discontinued and that type of demand wasn’t necessarily reflected in the KBB price. We were fine because we ended up getting $500 over the KBB Dealer price.

5. Beware of surprise fees

The dealer had agreed to my offer for the out-the-door (OTD) price of the new car minus the trade-in and I was signing papers and being shuffled into the finance office. In between sales pitches on security system and extended warranty, the finance guy slipped in, “You heard about the extra tax, right?” This piqued my interest. What extra tax? Evidently, they had sneaked in a $1500 fee to have the trade-in registered in Louisiana (it was registered in Texas). This didn’t seem right, but they got the whole team in the office to assure me that that’s just how it was and I had to pay it. They tried to give me some fanciful arithmetic and said that if I registered it myself it would just save $100. I rejected that and walked out. I did some research to figure out what they were talking about and it was true, if you didn’t pay sales tax on your car and brought it in to register it in Louisiana, you would have to pay LA sales tax, BUT, if you did pay income tax on the original purchase, there was no fee. And what do you know? A half hour after I had walked out of the dealership, I get a text message saying that they “hadn’t put the original state in the system” and the final sale price was a few dollar cheaper than we had agreed on before.

Buying a new car can be a breeze if you’re willing to pay a premium. It can be a hassle if you don’t want to get screwed though. Planning well with the above techniques can lessen the burden and make your experience beneficial to everyone involved.