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- Mar 20, 2016
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Justin's recent auto accident and our private conversations motivated me to write a few tips when it comes to buying / leasing new motor vehicles: automobiles such as cars / trucks / SUVs. Let's say that my opinions and recommendations are based on an almost 25 years of on/off experience with the auto industry sales, as well as being both a consumer and buyer.
Before we get into the details and the nitty gritty, I will establish some ground rules ala cardinal sins AKA what NOT to do even though what I recommend not doing may seem counter intuitive at first:
Rule #1: Never, ever and I mean NEVER tell the salesperson what monthly payment you can afford right off the bat because this is for the whole enchilada. Once you let this cat out of the bag, you've lost the art of car deal making and you are no longer in the proverbial driver's seat. If you unintentionally make this mistake by your friendly salesperson seeming to be extra friendly and trustworthy, you might as well get up and go to another dealer that you will not make the same mental error!
Back in the old days, the dealers used to bring a form named 4 Squares ala a drawn out crosshair (large +) and in every proverbial square they asked you for some info like your desired downpayment, your desired monthly payment, your trade-in and the price. I am not a gregarious loud mouth type of person as I am actually pretty low key. I feel that if you are too much of a fast talking hustler wannabe, you will most likely lose the upper hand as most deftly trained salesmen are actually well equipped to deal with those types. Being way too nonchalant and too cool also conveys to the salesperson that this potential buyer is not really a real or ready buyer so a good salesperson will smell the BS and just bail on this type. Thank goodness that there are so many bad salespeople
Rule #2: if you must have a new car always consider leasing first before buying, specially if you should benefit from income tax alleviation when leasing is to your advantage. Now, you may argue that you are a very high mileage driver and the penalty on the extra lives above and over you lease allowance will kill your wallet at the end of the lease (CEL: close end lease). I understand this big issue and only recommend that you follow my advice if & only if you will have the ability to buy the vehicle at the end of the lease (must make sure that you lease a vehicle that will have a robust used market value... we will get into this a bit later on) whether you pay for that Residual Value (RV: the jargon which we will also get into) by using your cash reserves or whether you end up financing that end of lease buy out through your bank / credit union.
Rule #3: Always be very cognizant of what make / model you buy! Well doh! Yeah, really! Look some autos are the new kid on the block, they are sexy, you want it and must have it. OK then, you've already lost and you are a lay down. Just go buy you want and burn that lump of money and be done with this. Otherwise you should always look at re-sale value in the over all matrix of what you consider as to why you want that auto. Sadly many domestics and German makes plain out SUCK in this department, so you may end up pulling the trigger on what will make sense, i.e, Japanese / South Korean; although I would definitely say the former first and foremost. Researching various consumer reports are a good place to start but beware that many of these are pay-for-play so you must be able to decipher what is real and what is made up, BS, paid for to make a hype. Hard to beat established precedence and cemented tradition when it comes to a brand's popularity and viability.
Rule #4: unless you are independently wealthy (defined as you have enough a$$$$$$$$ets that they work for you while you put your feet up and lay back relaxed on the couch, as opposed to you will have to work for a living, even if you have built a comfortable living with good disposable income) you should not pay all cash for buying an auto! OPM: Other People's Money is the name of the game but not at the expense of borrowing at 25.99%. If your credit is so shot that you will have to pay usury kinda rates, just do yourself a favor and go buy a used car for cash! It sucks that interest rates have already gone up by a bit but we were also way too used to artificially low rates of borrowing. By and large you can still get sub 3% rates from a credit union for a new car but that is for shorter term financing plans like 42 months. Extended financing terms such as 60 months, 66 months, 72 and 84 months will compound your financing rates. Sometimes the manufacturer heavily subsidizes the finance purchase rates through its own lending arm, for instance let's say GM and GM Capital, so it is conceivable that you may get 0% APR for say 72 months if your credit score is 730+ (debt income ratio weighs heavily too) but this normally means that they are desperate to get rid of the product and that your depreciation during the ownership will far ought weigh the eventual used car value of that auto. <<< This is a BAD deal for you!
Rule #5: even if you have never negotiated buying a new auto in your life, the general rule of thumb is that you want your out-the-door price NOT to exceed that MSRP window sticker price (OTD = tax, license and all the other BS fees included on top of the negotiated price). Stay away from vehicles which are heavily packed with dealer added options as they are for SUCKERS! Lift kits, gnarly and gaudy wheels / tires, yada, yada... Even if that's your taste, most often you can shop around and do better on your own. The same dealership's parts / service department charges their sales department full whack on those accessorizing and labor! There's no love lost between these separate departments even if they are all under the same roof, well maybe 20% off but most of the price is baked in and that's why the sales department can not be too flexible on those added options. You want? You shall then pay!
Of course the key is to negotiate, Negotiate and NEGOTIATE! But based on proper research and not some ad-hoc BS number which you pulled out of your where-the-sun-don't-shine. If you waste the dealer's time, you will be shown the door, politely or impolitely; take your pick! But while on the subject let's talk about outliers:
There are times that a certain vehicle has such a darn hot market that the selling dealer can and will charge way, Way and WAY more over the sticker price. This is not really legal as far as the dealer / manufacturer bylaws go but the manufacturers often turn a blind eye specially when the dealer claims a cancelled order. Take Porsche GT2 RS here as an example (if you can find and afford this car, why the fudge are you here?) which has an MSRP of just under $300K and fetches $150K over sticker depending on who really wants it that badly! At the end of the scales? Probably some hapless Dodge or Buick selling at $9K below MSRP. Caveat emptor in MSRP pricing strictly applies.
To be continued...
Before we get into the details and the nitty gritty, I will establish some ground rules ala cardinal sins AKA what NOT to do even though what I recommend not doing may seem counter intuitive at first:
Rule #1: Never, ever and I mean NEVER tell the salesperson what monthly payment you can afford right off the bat because this is for the whole enchilada. Once you let this cat out of the bag, you've lost the art of car deal making and you are no longer in the proverbial driver's seat. If you unintentionally make this mistake by your friendly salesperson seeming to be extra friendly and trustworthy, you might as well get up and go to another dealer that you will not make the same mental error!
Back in the old days, the dealers used to bring a form named 4 Squares ala a drawn out crosshair (large +) and in every proverbial square they asked you for some info like your desired downpayment, your desired monthly payment, your trade-in and the price. I am not a gregarious loud mouth type of person as I am actually pretty low key. I feel that if you are too much of a fast talking hustler wannabe, you will most likely lose the upper hand as most deftly trained salesmen are actually well equipped to deal with those types. Being way too nonchalant and too cool also conveys to the salesperson that this potential buyer is not really a real or ready buyer so a good salesperson will smell the BS and just bail on this type. Thank goodness that there are so many bad salespeople
Rule #2: if you must have a new car always consider leasing first before buying, specially if you should benefit from income tax alleviation when leasing is to your advantage. Now, you may argue that you are a very high mileage driver and the penalty on the extra lives above and over you lease allowance will kill your wallet at the end of the lease (CEL: close end lease). I understand this big issue and only recommend that you follow my advice if & only if you will have the ability to buy the vehicle at the end of the lease (must make sure that you lease a vehicle that will have a robust used market value... we will get into this a bit later on) whether you pay for that Residual Value (RV: the jargon which we will also get into) by using your cash reserves or whether you end up financing that end of lease buy out through your bank / credit union.
Rule #3: Always be very cognizant of what make / model you buy! Well doh! Yeah, really! Look some autos are the new kid on the block, they are sexy, you want it and must have it. OK then, you've already lost and you are a lay down. Just go buy you want and burn that lump of money and be done with this. Otherwise you should always look at re-sale value in the over all matrix of what you consider as to why you want that auto. Sadly many domestics and German makes plain out SUCK in this department, so you may end up pulling the trigger on what will make sense, i.e, Japanese / South Korean; although I would definitely say the former first and foremost. Researching various consumer reports are a good place to start but beware that many of these are pay-for-play so you must be able to decipher what is real and what is made up, BS, paid for to make a hype. Hard to beat established precedence and cemented tradition when it comes to a brand's popularity and viability.
Rule #4: unless you are independently wealthy (defined as you have enough a$$$$$$$$ets that they work for you while you put your feet up and lay back relaxed on the couch, as opposed to you will have to work for a living, even if you have built a comfortable living with good disposable income) you should not pay all cash for buying an auto! OPM: Other People's Money is the name of the game but not at the expense of borrowing at 25.99%. If your credit is so shot that you will have to pay usury kinda rates, just do yourself a favor and go buy a used car for cash! It sucks that interest rates have already gone up by a bit but we were also way too used to artificially low rates of borrowing. By and large you can still get sub 3% rates from a credit union for a new car but that is for shorter term financing plans like 42 months. Extended financing terms such as 60 months, 66 months, 72 and 84 months will compound your financing rates. Sometimes the manufacturer heavily subsidizes the finance purchase rates through its own lending arm, for instance let's say GM and GM Capital, so it is conceivable that you may get 0% APR for say 72 months if your credit score is 730+ (debt income ratio weighs heavily too) but this normally means that they are desperate to get rid of the product and that your depreciation during the ownership will far ought weigh the eventual used car value of that auto. <<< This is a BAD deal for you!
Rule #5: even if you have never negotiated buying a new auto in your life, the general rule of thumb is that you want your out-the-door price NOT to exceed that MSRP window sticker price (OTD = tax, license and all the other BS fees included on top of the negotiated price). Stay away from vehicles which are heavily packed with dealer added options as they are for SUCKERS! Lift kits, gnarly and gaudy wheels / tires, yada, yada... Even if that's your taste, most often you can shop around and do better on your own. The same dealership's parts / service department charges their sales department full whack on those accessorizing and labor! There's no love lost between these separate departments even if they are all under the same roof, well maybe 20% off but most of the price is baked in and that's why the sales department can not be too flexible on those added options. You want? You shall then pay!
Of course the key is to negotiate, Negotiate and NEGOTIATE! But based on proper research and not some ad-hoc BS number which you pulled out of your where-the-sun-don't-shine. If you waste the dealer's time, you will be shown the door, politely or impolitely; take your pick! But while on the subject let's talk about outliers:
There are times that a certain vehicle has such a darn hot market that the selling dealer can and will charge way, Way and WAY more over the sticker price. This is not really legal as far as the dealer / manufacturer bylaws go but the manufacturers often turn a blind eye specially when the dealer claims a cancelled order. Take Porsche GT2 RS here as an example (if you can find and afford this car, why the fudge are you here?) which has an MSRP of just under $300K and fetches $150K over sticker depending on who really wants it that badly! At the end of the scales? Probably some hapless Dodge or Buick selling at $9K below MSRP. Caveat emptor in MSRP pricing strictly applies.
To be continued...
