How To Lower The Cost Of Your Next Vehicle

[Lexusfreak]

Here is an article I found on Canadiandriver.com. How to lower the cost of your next vehicle. Thought I would share. B) Enjoy!

October 4, 2005

Advice:

How to lower the cost of your next new vehicle purchase

by Jim Thomas

The average consumer pays 5% to 15% or more than necessary when purchasing a new vehicle. To car dealers, customers are marks to be taken advantage of, but with a little knowledge, you'll pay much less at dealers who negotiate than at 'one price' dealers. Here are five tips for car-buyers:

1. Know how car dealers make money

There are five main sources of potential profit for car dealers: mark-up, trade-in, financing "packs," and fees. Mark-up is the difference between wholesale and retail. Like any other business, car dealers buy low (from the factory, at wholesale) and sell high (to consumers, at retail). They do the same thing when they take a car in trade. They buy low (from you, at wholesale) and, after cleaning up the car, they sell high (to other consumers, at retail). If the dealership arranges your financing, it gets a hefty referral fee from the bank making the loan. The longer the term and the higher the rate, the bigger the fee.

"Packs" are the small but highly profitable items that dealers push late in the negotiation, when customers are infused with new-car smell and are particularly vulnerable. Packs include extended warranties, vehicle protection packages (paint sealant, rustproofing, fabric protection, and door guards), tinted windows, anti-theft systems, and other extras.

Finally, a host of mock-official "conveyancing," "document preparation," "dealer preparation," and "advertising" fees are added as the deal is totalled up.

2. Decide on the car

This isn't as easy as it sounds. There are hundreds of models to choose from, each with a number of different trim lines. Each trim line, in turn, has a different set of standard and optional equipment. Visit showrooms twice: once to shop, and once to buy. Ask for the top salesperson, and work only with that person each time you visit.

Take lots of test drives, ask lots of questions, eyeball some window stickers (but don't take them seriously), and collect lots of brochures. Don't answer any questions about when or why you need a car, how much you're willing to pay (monthly or in total), other models you're looking at, other dealers you're visiting, whether you'll be trading in, or if you'll be needing financing. Don't leave any deposits for any reason. When you've got enough information, make a leisurely choice.

3. Find out what the dealer paid for the car

Your next task is to find out how much the car cost the dealer. The "window sticker" is the suggested retail price sheet that the manufacturer glues to the new car's window - sheer fantasy, and irrelevant for negotiating purposes. The "factory invoice" or "dealer invoice" is the bill sent by the manufacturer to the dealer for each new car.

The dealer invoice is widely - and falsely - assumed to be the dealer's actual wholesale cost for the vehicle. Dealers get a little-known discount off the factory invoice in almost all cases, known as "holdback." Deducting the holdback from the dealer invoice gives you the true "dealer cost" for the car.

In the U.S., for a small fee, the Consumer Reports New Car Price Service (www.consumerreports.com) will tell you the dealer cost for any make and model of new car, and the dealer cost for every option and option package the factory can stick on the car. They'll also tell you about any factory-to-consumer and factory-to-dealer cash rebates, any low-cost factory financing, and what options are especially desirable. Another good car-pricing site is www.edmunds.com.

(In Canada, dealer cost pricing is available for a fee from www.carcostcanada.com - ed.)

Your goal is to pay from (U.S.)$300 to $500 above dealer cost, inclusive of everything but sales tax and vehicle registration fees. The only exceptions to this "$300 to $500 over" goal are top-end luxury vehicles (on which you can expect to pay as much as $1,000 over) and high-demand "hot" models.

If you're considering selling or trading in your current car, find out what it's worth by tracking the local classifieds and the Web. Visit banks or credit unions and get pre-approved for your loan, but be sure to keep this a secret from the salesperson.

4. Pay no more than a few hundred dollars over dealer price

Return to the showrooms to buy as close to the last day of the month as possible. Working with the same salesperson you did on your "shopping" visit, select a car from the dealer's on-the-lot inventory. Figure the dealer price, and offer to buy the car at that price. Your offer will be rejected, perhaps with vehemence. It's O.K.; car salespeople always reject the customer's first offer. Move toward your "$300 over" target in steadily decreasing increments. Only if absolutely necessary should you move past your target toward your "$500 over" bottom line.

Keep alive - in the dealer's mind, at least - the prospects of your trading in, financing through the dealership, and loading the car with packs. If the dealer wants to appraise your potential trade, fine, but make it clear that you want separate offers for the new car and the trade.

5. Avoid the gauntlet of ingenious dealer gimmicks (trade-in, financing, packs, and fees) designed to get you to pay more

If the salesperson has not yet had your potential trade-in appraised, he will do so now. Remind him that you want the purchase price of the new car calculated independently of the allowance for your trade. When your appraisal comes back, the news about your car's condition will not be good. Don't debate the low "Book" offer on your trade. Tell the salesperson you're interested, but remind him that you don't want to finalize the trade until you've settled on a price for the new car.

The salesperson may now bring up the idea of financing through the dealership. Ask for his rates and terms. While dealers sometimes have below-market loans and leases, they often make them available only on slow-moving cars or to customers who are overspending. Your quote will probably be far less attractive than the ones you've already gotten from other lenders. Handle his financing offer the same way you handled your trade: Express interest, but defer further discussion until after the price for the new car has been settled.

It's also time for the salesperson to try to "pack" the deal. Pass on the extended warranty, rustproofing, undercoating, paint and fabric protection. If you genuinely want pinstripes, door guards, side mouldings, mud flaps, tinted windows, an alarm system, or an upgraded radio, buy it later from a specialist. You'll get more and pay less. No matter how much the salesperson may discount their prices, say "no" to packs. If the dealer has already installed an item, treat it as a freebie. Close the deal with a request for a few free extras like floor mats, touch-up paint, a full tank of gas, oil changes, and a full-sized spare tire. Sign the offer form.

You'll now be escorted to the dreaded "F&I" (finance and insurance) guy. While he may resemble an accounting clerk, the F&I manager is really a skilled salesperson, hawking loans, extended warranties, fabric protection, anti-theft systems, and extra fees to customers who are "in the box" with him.

The F&I guy will inquire how you'll be paying for the car. Ask him to review the trade-in allowance the dealership is offering. Most likely, it won't be nearly enough. Withdraw the trade from the deal. Tell him "I think I'll just keep my old car."

Next, he'll ask about financing. Have him re-quote his best available financing options. Don't discuss monthly payments; concentrate strictly on rate and term. If his quote isn't competitive (and it probably won't be) tell him you'll be using your own (pre-arranged) financing.

The F&I guy will also give the extended warranty and other packs another try, perhaps cutting the price even further. As before, pass. He'll then prepare the sales contract. Read it very carefully before signing. Eliminate or sharply reduce any "conveyancing," "document preparation," or "dealer preparation" fees. All of this work is supposed to be included in the basic price of the car. Any "advertising" fee should be supported by an invoice to the dealer. Even if it can be documented, negotiate it aggressively. Advertising is a cost of doing business, and it should come out of the dealer's mark-up. If he won't cut a particular fee, try to get floor mats, oil changes, or something else in exchange for it.

When the sales contract is finished and checked, go ahead and sign. The dealership will usually let you take the car home. Take your contract to your bank within a day or two, sign the loan papers, pick up the check, and give it to the dealer. You did it!

[SW03ES]

This is all well and good but I have one question for you?

Why is it so evil for a car salesperson to try and make a living? Why is everyone so focused on beating that last $100, thats going to be financed anyways, out of this person? As someone who is in fully commissioned sales let me tell you, its not easy. A lot of times you're better off finding a dealer you like and that you're comfortable with and paying a little more than !Removed! over 10 people to save $4 a month. You'll have the added benefit of making a good relationship happen between you and the dealer, and you'll be better taken care of for service and the like down the road.

Just food for thought

[lexus411]

Well said SW03ES. Mostly Ford/Nissan stuff, Things like these usually create a wall in the communication between salesperson and consumer. If your not comfortable with the person your buying from or dont like the price , try another dealer. If you try 3 and cant buy a car, re-think the strategy. Edmunds and all the websites have usefull info but they dont sell cars. If you went into a Lexus dealer and told them you want to see the invoice it wouldnt be well received. Nor would it be at the supermarket,gas station or most anywhere you do business. Dealers are in business to make profit. Same reason your co. exists. I try and find a mutual place with each customer where he is happy and I can make a living. You always have the option to say no, sell your car privately or get your own financing. The last 2 make it easier on your salesperson anyway. I repay them 10x over anytime they need to buy and car and know that Im going to be there and they dont need to have worries like these.

My advice is to go into the dealership , tell the saleperson what your "needs" and wants are. Let him know you are going to try another dealer or 2 and come back to the one who can serve you best. There is always going to be someone cheaper. Once you know the market on the car and your trade in choose the one your most comfortable doing business with.

[Lexusfreak]

This is all well and good but I have one question for you?

Why is it so evil for a car salesperson to try and make a living? Why is everyone so focused on beating that last $100, thats going to be financed anyways, out of this person? As someone who is in fully commissioned sales let me tell you, its not easy. A lot of times you're better off finding a dealer you like and that you're comfortable with and paying a little more than !Removed! over 10 people to save $4 a month. You'll have the added benefit of making a good relationship happen between you and the dealer, and you'll be better taken care of for service and the like down the road.

Just food for thought

←

I agree with your points sw, my father owns his own real estate company & is on commission as well. As long as I am treated right, with respect & the dealer has the right product, I personally do not mind paying a little extra. One has to think of 'long-term' as well. I would buy another Lexus from the dealer I bought mine & the sales person that I dealt with. B)

[SW03ES]

Your dad owns a discount brokerage though doesn't he?

[Lexusfreak]

Your dad owns a discount brokerage though doesn't he?

←

Yeah so? One can't offer first class service & still save his clients thousands? :whistles: ;)

[bartkat]

In all these years I've never met the person who was able to screw a car dealer/salesman, take food off their table, or shoes off their kids' feet. :D

[lenore]

How true, They don't give you a car when it leaves he lot, getting the best price is being a good consumer. Too many cars go out jacked up in price, so don't feel sorry for them.

[lexus411]

generally people that buy from a Lexus dealership leave with a good feeling .

[bartkat]

Knowing you got the best possible deal at the time = even better feeling.

[lexus411]

. When going out to dinner do you usually associate good service and treatment with cheap? I guess Im at a point in life with time is my most value thing. I rather pay more and have something handled efficently and feel comfortable with the whole thing. I use the internet for research but I still value what the salesman has to say.

[SW03ES]

Yeah so?  One can't offer first class service & still save his clients thousands?  :whistles:    ;)

 

←

Sure he can, but he doesn't truly know what its like to struggle for business using only the laurels of your business skill and professionalism as your selling points. People hire him and call him because he's cheap. I have to work to make people realize I'm worth what they spend. Its two totally different ways of doing business.

I'm not saying discount brokers are bad, they're not, I know excellent discount brokers and excellent full service brokers. Discount brokers don't have to sell themselves as hard though. But, then they have to do a LOT more business to make what full service brokers make so it evens out in the end. I personally believe however that the discount service model is seriously flawed but thats a topic for another discussion.

Its definately a different experience though, being discount and being full service. Its like selling cars at Carmax or selling cars at a normal dealer.

As for getting a good price, nothing wrong with getting a good price. Responsible consumers though need to do their due dilligence and figure out just exactly what they'd be willing to pay for the car and go from there instead of trying to skrimp every last dime out of the salesman.

If you don't think car salesmen do deals where they make NO MONEY, then you don't know any car salesmen. 100% commission folks, if you like the guy don't lean on him for the last couple bucks. Most car salesman are like most realtors, they never make more than a comparable minimum wage job.

[Lexusfreak]

Yeah so?  One can't offer first class service & still save his clients thousands? :whistles:    ;)

 

←

Sure he can, but he doesn't truly know what its like to struggle for business usinonly the laurels of your business skill and professionalism as your selling points. People hire him and call him because he's cheap. I have to work to make people realize I'm worth what they spend. Its two totally different ways of doing business.

I'm not saying discount brokers are bad, they're not, I know excellent discount brokers and excellent full service brokers. Discount brokers don't have to sell themselves as hard though. But, then they have to do a LOT more business to make what full service brokers make so it evens out in the end. I personally believe however that the discount service model is seriously flawed but thats a topic for another discussion.

Its definately a different experience though, being discount and being full service. Its like selling cars at Carmax or selling cars at a normal dealer.

As for getting a good price, nothing wrong with getting a good price. Responsible consumers though need to do their due dilligence and figure out just exactly what they'd be willing to pay for the car and go from there instead of trying to skrimp every last dime out of the salesman.

If you don't think car salesmen do deals where they make NO MONEY, then you don't know any car salesmen. 100% commission folks, if you like the guy don't lean on him for the last couple bucks. Most car salesman are like most realtors, they never make more than a comparable minimum wage job.

←

Check your PM sw.......no worries about your comments (or opinion), but you haven't been in the game long enough, nor with enough experence to fully comment on what you describe as 'a discount broker'. You would be eaten alive at the negotiating table. :whistles:

The days (as far as real estate is concerned.....agents & brokers.......smart folks deal with a broker, not an agent) of full commission (what is that in you neck of the woods, is say 5 - 6% fair? ) are LONG gone & educated consumers already know this.

Consider the commission of a $500,000 home as an example.......at 6% commission, that's over $25,000! (divide that by 2 if were talking a home worth a quater mill) your kidding me!?) To do a listing, some misc paperwork (days of 'open houses' are over too for the seasoned btw) & maybe a late night or two?

Are you willing to tell me you would gladly pay 5-6% commission for that vs. a 'discount broker' for the same services? :o

So my dad offers the exact same services & then some (free advertising as his expense, arrange financing, home inspection, lawyer services, along with many other attractive features) at a very discounted rate. So salesman experence aside, who would you (or anyone else reading this) want selling your home? :whistles:

My Dad won't waste time (his or others for that matter) with those who can't do math very well. If wasting money intrests you, good luck with that. ;)

Any idea(s) why my someone like my Dad (or anyone else doing the same thing) is able to undercut the big gun's like C-21, Re/Max, Coldwell Banker & the like? :whistles: B)

Car sales are a tad different than real estate all things considered (we can get into the specifics if you like)......but as everyone knows, they are the 2 of the largest items we will spend our money on in our lifetime.

[SW03ES]

Thats your opinion, but I've been in sales for 6 years and have built two successful businesses based on sales before Real Estate. At 20 I was earning $100,000 a year in sales. I'm also surrounded by very successful realtors now who have been doing this for 30 years, and I'm well on my way to being rookie of the year for my company with $10,000,000 in volume in my first year. quite skilled in negotiation and I'm quite a skilled salesperson.

To do a listing, some misc paperwork (days of 'open houses' are over too for the seasoned btw) & maybe a late night or two?

This is where you're missing the difference between discount brokerage and full service brokerage. We charge 5 or 6% yes, but we do MUCH more than what you listed here. You've said nothing about marketing. A full service listing agent does a full marketing campaign including virtual tours, marketing to agents, direct mail, internet marketing, and advanced placement print advertising. These things cost money, but depending on your market they truly make a huge difference in whether or not the house gets sold. I also devote a LOT of time to making sure the transaction happens, I've had to hire lawyers to make buyers buy etc. I've sold 4 houses so far that I picked up from discount brokers who let them expire and turned around and sold them in a week or two for exactly what the owners wanted. I see it all the time, 70% of the listings that expire are from discount brokers or help you sell type outfits.

Why is that? I'll tell you why. Here's the model of the discount broker. They do exactly what you mention above, spend a few hours filing paperwork. That works in a huge sellers market, but that huge sellers market is done. You've got to work for it now. When it takes weeks to sell a house and involves a complex negotiation involving multiple contingiencies and the like, how likely are these people to do this job and spend 50 hours on selling a listing for $20 an hour? Not very likely.

As for open houses, I have seen TOO MANY houses sold from open houses to think its a waste of time. Plus, its a great source of buyers for other property. I have no problem holding them and do one every weekend, whether I have a listing myself or not.

You also do what most discounters do which is try and pretend the entire 5 or 6% is for the listing agent. You know half of it goes to the selling agent and I as a listing agent would only get 2.5% or 3%. So on your $500,000 house my company would get $12,500. Out of that I would get a portion, and out of that portion I have to pay all of the listing's marketing expenses. On a transaction like that my net is probably $5000.

Are you willing to tell me you would gladly pay 5-6% commission for that vs. a 'discount broker' for the same services?

No, but the services are not the same as I just stated above. I'm a professional and the service I offer speaks for itself. I spend several thousand dollars per listing on marketing and staging. I've sold houses for 5% over the sales price without a sign ever going up. I offer a great service and I deserve to be paid for it. So far I've had no problem getting business. If I were a seller, I would hire me or someone from my company for 5 or 6% over a discount broker in a heartbeat because I know, in my market our way works better. I know this because I've cleaned up the mess the discount broker leaves behind too many times to think otherwise.

The days (as far as real estate is concerned.....agents & brokers.......smart folks deal with a broker, not an agent) of full commission (what is that in you neck of the woods, is say 5 - 6% fair?  ) are LONG gone & educated consumers already know this.

Thats news to me, again I've had no trouble getting business. My company takes no less than 5% and we have nearly 50% market share in our marketplace and it grows every month.

As for dealing with a broker and not an agent? Why? Why deal with some rinky dink little broker when you can deal with a huge company full of resources and pull with lenders and attorneys full of agents who get bonuses for selling your listing?

I did my best to make sure you realized I wasn't trying to down your father, his skills, or his business in any way. I even PMed you to tell you that I was simply trying to say that he doesn't have to sell as hard as I do in order to get business because he's got the fact that he costs less behind him.

What did you do? You came here, called me a lightweight, said that anyone who would do business with me is stupid, told me I would get creamed at the negotiation table, told me my business model was stupid, and said what I do was so easy and simple a monkey could do it when you don't even know anything about me, my market, my business, or what I've accomplished. Thanks for that.

I know you love your dad and all, but you have no right to talk to me the way you've talked to me here. He and I have different business philosophies, you think he's right and thats fine but you have no right to insult me or attack me because of it.