Monday, September 27, 2010

Tips for saving a ton of money when buying a new car

So my last blog entry was about how to decide between keeping your sedan, buying an SUV, or buying a minivan for your growing family.  Having just bought our new minivan about a month ago, I thought I'd share some thoughts on how to save a ton of money when buying a new car.

1.  Generally, the best time to buy a new car is just a few months before new new model year comes out (assuming you're okay with not buying the new model).  In most cases, this will probably be in July.  For example, the Honda 2011 Odysseys are being released this year on September 30, 2010.  Based on my research, the best selection and prices available for the 2010 were in late June to mid July.  I estimate you'll save as much as $4K-$6K by buying the current year's model during this time.  The inventory levels at the dealerships are still pretty flush so you'll have a wide range of colors and trim packages to choose from.  But the dealerships are also winding down their inventory to make room for the new model vehicles so you'll start seeing pretty aggressive promotions and financing options.  If you wait until August or September, you'll still find pretty good deals.  However, the selection is drastically limited.  Which means you have less leverage when negotiating.
2.  Do all of your price comparisons over the phone and email.  Spend time up front test driving and determining exactly the make, model, color and trim you want.  Once you have that nailed,
go home and do your homework.  There are several sites that will send emails to multiple local dealerships for price quotes making your job very easy.  Edmunds.com is very easy to use and can save you a bunch of time.  Send emails and inform the dealerships that you're very motivated to buy within the next week.  Tell them you are comparing prices and financing packages.  Once you get a response, follow up with a phone call.  Chances are, the first email they send you is going to be high, or may be for a cheaper trim level than what you want.  These dealerships just want you to come to their office.  Don't fall for their tricks!  (e.g. I got a great quote for our minivan, only to find out they were expecting I'd pay in full cash!)
3.  If you can't get the dealer to email you the price quote, make sure you write it down and get the name of the sales person as well as the date.  Also, make sure the quote you receive includes tags, tags, and shipping.  Dealers may hold these back to artificially keep their quote low.
4.  Make sure your price quotes include financing.  Dealers have several levers they have to play with.  Financing is one of the major ones they can use to "stick it to you."  Get a good sense for what your credit score is BEFORE getting price quotes.  The dealer should be able to tell you if you're likely to qualify for a promotional APR.  In some cases, you might be able to get a rate as low as 1.9% which is basically on pace with inflation (in other words, a FREE loan!).  Also, there is a very good chance that you'll be able to choose between a discounted price versus a discounted financing package.  This will be one of the rare cases when you can actually trust the dealership to run the numbers for you.  They can tell you exactly how much your payments will be under each scenario and which option makes the most sense depending on how long you finance your car.
5.  Once you get what you believe is the most competitive quote, call the largest dealerships in your area to give them once last chance to beat it.  Typically, the largest dealers are motivated to sell high volumes and will be eager to beat out a smaller dealership if the heavy lifting (price negotiations) has already been done.  Tell them you're on your way to XYZ dealership but if they can beat the package, you'll go there instead.  For example, in the Bay Area, Anderson Honda in Palo Alto, CA was able to beat the most competitive price quote I had received through hours of negotiations.  The largest dealerships are your best bet.
6.  If you're thinking about trading in your car, do not tell the dealership until after you've received the price quote.  Your trade-in value of your car is another lever they can use to recoup their costs and if they find out beforehand, they can make up the discount they offered off the price by undervaluing the car you plan to trade in.
7.  If you're planning to trade in your car, shop it around as well.  Once you get the best price quote, call nearby dealerships to see if they're willing to match the price; if they are, drive over and see what they'd offer for your trade in. Obviously, the most hassle free way to do this is to trade your car into the dealership from which you'll be buying.  But you may uncover another cost saving opportunity by going elsewhere.  For example, the dealership I ultimately purchased from offered me $2,500 more than the original dealership I visited, while also matching the best price offered.  I saved this money by just driving 30 minutes.
8.  Do not sell your car on "consignment" to the dealership.  The dealership will likely offer you more money if you sell on consignment, but selling on consignment means that the dealership will only pay you if they are able to sell the car.  So even if they offer you a price for your vehicle, there is no guarantee that they'll pay you that price.  It depends on how much they're able to sell it for.  Clearly, this puts you at a disadvantage.  You've already bought the car.  And now you are dependent on the dealership to sell your old car.
9.  Even if the car you want is not on the dealer's lot, ask them to find it for you.  Again, this is where it pays to visit a larger dealership.  As the model year cars are winding down, dealerships will trade vehicles with other dealerships.  In my case, both dealerships I was talking to promised me the exact same vehicle.  And neither of them had it in their lot.  They were both planning to get it from the another dealership in the network.  Except I paid $2,500 less just by negotiating with and buying from the larger dealer.  The largest dealerships generally have the best relationships with others in the network and can more easily convince them to trade in a car.  Also, look out for hidden fees when a dealer obtains a car from another dealership.  For example, the dealership who ultimately sourced the minivan I purchased charged my dealership for additional features-- a performance package (wheel locks, mud guards, etc); they charged my dealership $400.  Although the sourcing dealership could have simply removed these accessories, they refused.  It's their way of making something off the trade in.  In my case, I was able to negotiate this down to half, just by asking for it.
10.  Be honest and respectful.  It's a lot of work selling a car.  Especially if the dealer has to find a car that is not on his/her lot.  This process literally takes hours to locate and obtain the vehicle.  If the sales person is not motivated, he/she can simply choose not to go the extra mile to sell you the car.

Hopefully these tips will help you save a few thousand dollars the next time you plan to buy a car.  And you can use that money to pay for that really expensive family vacation you'll be going on.  If you have other tips, feel free to comment.

Happy parenting!

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