New car / automobile buying & leasing tips for CPK'ers

Casinostocks

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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...
 

Casinostocks

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Continued...

Let's now talk about leasing: there are some jargons and numbers which do not immediately register but that's intentional. Here are what you need to know:

RV = Residual value: this is a percentage of the value of the car as compared to the MSRP (not the negotiated price) at the end of the lease. For a very sought after rig such as a Toyota Tacoma this value my be as high as say 62% of the MSRP after a 36 months lease with 12K per annum mileage allowance whereas if your heart is set on a Mazda 3, this number could be as low as low 50's say 50% of the MSRP with 15K per year mileage allowance. The less miles you drive or agree to drive, the higher that RV will be. The higher the RV means less allowed depreciation and therefore less monthly lease payments.

MF = Money Factor (not the other MF!): this is one weird arse number with a naught and a bunch of zeros before an actual number, say MF is 0.00175! I mean you ask WTF is that? Fear not, this is actually what translates to your APR and to figure that out just multiply the MF by 2400 and voila, you have an APR of my arbitrary MF figure I cited. The APR will be 4.2% which to me is not a very good rate but you may very well end up paying this on that Toyota 4Runner through Toyota Financial as opposed to our imaginary Mazda 3 which you can lease say with an MF of 0.00040 translating to 0.96% APR which basically means that it's almost free interest rate for a car deal.

CC = Cap Cost or Capitalization Cost: This is basically your negotiated price minus any *down payment (cash down, trade-in) and minus any dealer incentives / rebates / dealer's own cash allowance PLUS other **Fees. I will define, opine and itemize both * and **

So what is your monthly lease payment and how easily can you calculate it? Well, this is rather easy once you understand the fundamentals and have a pen, paper and a calculator or are just good with math! Simply put your monthly lease payment is: Depreciation + Finance Charge. There is a lot of combo-jumbo and seemingly fuzzy math but in a nutshell you are paying for the monthly depreciation plus the monthly finance charge before the sales tax which will then tack onto that number again on a monthly basis. This is why if you end up buying the car at the end of the lease, you will have to pay the remainder of the sales tax as a whole (no longer monthly) on that previously contracted RV. If your 4Runner's MSRP is $50K (say a TRD Off Road) and the RV is set at 60%, you will have to pay $30K at the end of the lease if you are keeping your 4Runner.

Important note: the RV and the MF are set by the Financial Institution and the dealer will NOT negotiate on these numbers. If you want to make sure that you are not getting ripped off on those numbers and if your credit is triple gold, then there are ways to check those numbers to verify if your dealer is being truthful with you and most if not all franchises are as straight as an arrow on these for qualifying customers.

OK so how do you calculate that Depreciation? Simple, let's take our imaginary 4Runner again as an example based on MSRP of $50K, CC of $48K, RV (60%) $30K:

Monthly depreciation = CC - RV / months of lease term say 36 months: $48000 - $30000 / 36 = $500 per month pf depreciation.

What about your monthly finance? That's a cinch too: it is [CC + RV] x MF so in case of our lovely 4Runner, it will be [$48000 + $30000] X 0.00175 = $136.50

So your MONTHLY PAYMENT will be $500 + $136.50 = $636.50 BEFORE your State's sales tax. Now let me delve into * & **:

*: I generally and for very good reason do not put ANY money down when I lease and there's a very good reason for this although I know that my monthly payments will be higher but remember Rule #1 that I am seeking a great auto at a good deal NOT shopping for monthly payments! In case of a lease when you put a lot of $ down to keep your payment low, if your auto gets wrecked and written off, you will LOSE most of that downpayment, BYE BYE! So keep the downpayment and be disciplined and in case of a total write off pout the onus on the insurance Co. If you get into a car deal that some form of gap insurance is required, you are not buying the right auto... Walk away specially if that gap insurance amount is exorbitantly high. What is gap insurance? It is the gap between what you will owe the financial institution if your auto is totaled and what the insurance Co is prepared to settle for. Our imaginary Mazda may not do well in such a case and the newer the worse off you will be ;) GAP INSURANCE NO BUENO! whenever I lease, I only pay drive off which is my 1st months lease payment (you always pay lease payments upfront) plus my DMV fees for that year (DMV fees are collected yearly and NOT monthly like you sales tax on a lease).

** Fees: quite a few in here, some legit and some pure junk!

- Acquisition fee AKA bank fee, legit and not getting around this one which can be several hundred $. Do not mistake this with the Destination Fee which you will see on that MSRP, there's no way around that one either. Bah!

- Sales tax and State's incentives: this will vary from state to state. In some you will pay sales tax on the entire CC, in some on the portion of the lease (just the depreciation but per month) and in some states you will get a tax break on your trade-in, downpayment and rebates!

- State government or DMV fees: no way around this, it's legit.

- Dealer's doc fees: Meh, their DMV lady does all the paperwork so for instance in CA it's as high as $80 and it is what it is!

- Garbage fees: the cr*p which they will try to sell you when they sit you down to sign away your life, ergo extended warranties, paint sealant, prepaid services, door ding protection, BS, BS, BS... I'm a nightmare customer for F&I because I used to do F&I :D So Matty declines all garbage fees...

Fudge, I'd written a lot so I will now go simmer down a bit but I will expound upon why it's a great idea to search for a lease deal that the manufacturer is literally paying you to drive their autos, how to spot them and finagle in a way that you will actually end up some equity at the lease's end which you may be able to cash out of. But I'm too tried now...
 

Casinostocks

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... Continued:

Some people had asked me as to why I was more for leasing as opposed to straight out buying. There are several reasons as to why I prefer this method which I will list below. I will use the following symbols: + and x which will denote the good and the bad respectively. In here we are assuming that all leases that we are going to discuss are close end leases or abbreviated as CEL:

+
you can walk away at the end of the lease if you don't like the vehicle, period!

x
not a good way to go if you are an extremely high mileage driver

Note: most leases are for 10k & 12K per year and most leases are 36-39 months. In some cases specially with luxury autos, the manufacturer will also offer 8K miles and 15K miles. RV associated with lease deals is proportional to your agreed upon and contracted miles. The less miles which you tack on the higher the RV which means less depreciation and less monthly payments. The opposite also applies because for the higher miles you are paying more every month toward that depreciation. Beware that excess miles can cost you 20-25 cents per mile on an average auto / truck / SUV. Some manufacturers/dealers will make certain allowances for excess miles if you buy/lease another at the time of drop off but know that because they are doing you a "favor" your negotiating power at that time will be lessened.

+ lower monthly payments for a new car deal, plain and simple.

+ if you choose wisely and do your homework, you will have some built equity

x to cash out of your built-in equity at the end of the lease, you may have to do a for-sale-by-owner

x bit complicated and somewhat of a nuisance to do the above FSBO since you do not have a title in hand and will have to advertise and car sit: PITA

+ a dealer may offer to buy and payoff your end of lease return and give you some equity because he will not be able to buy that same returned leased vehicle from the leasing / finance Co for the same amount as the leasing Cos often take their lease returns to major auto auctions and in certain cases, those autos will fetch above and over that RV. Toyota Tacoma trucks and 4Runners are very good example of such cases!

+ tax write off benefits above and over the allowed miles per Federal guidelines but please consult your tax professional first

+ less brinksmanship and "games" played by your insurance if you do it the right way (min downpayment) and happen to end up in a bad accident that the car needs to be written off. In any case, who would want to keep a frame-damaged TURD even if the insurance co repairs the auto. Just give the POS back at the end of the lease! For an auto/truck/SUV to be written off, you don't necessarily need to be involved in a major accident! Any other acts of Nature will also do: flood damage, tornados, Jo doing simultaneous drag racing and Bladesports in your new auto :D

x if you are rough on your auto / truck / SUV, the finance Co will get you really good when you return that leased vehicle at the end of the lease. You will get docked for things like excessively worn tires, broken windshield, dings and dents which are bigger than a certain size (usually if a credit card surface can not cover the damage). The bill can be pretty nasty!

I'll probably add some lease examples after I look up a few deals this months, but please don't hold me to it!
 
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Thanks for putting this together Matt. Lots to digest.

I may have missed a statement, or simply failed to connect the dots as I skimmed (pre-coffee imod) but why is the lease to buy option advantageous, other than sheltering you in case of an unfortunate event that damages the car? My caveman mind can't get past the idea that if you are paying the depreciation on the lease, don't you end up paying the same amount in the end? Or is this process a route to avoiding interest on a loan for the full value of the car- so that ALL you are paying for is the depreciation those first three years, and not paying interest on that extra $18k (first three years of depreciation value) as in your Tacoma example?
 
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unwisefool

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Well this is very timely, thanks, I'll read it today. My wife told me it was time to get rid of one or both of my cars ☹️
 

Odog27

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The F&I portion of the deal is my favorite part. I like to play an annoying game I call “Is it free?”.
After all the negotiations, this asswipe is going to try to get you to give them free money (no offense Mat). I like to respond to all their questions with, “Is it free?”, followed by, “Then no.”
You can actually watch the frustration build on their face because their income is based in part on how much they get you to pay for nothing. It’s both amusing and satisfying.

Off topic: if you live in the salt belt or an area that gets a fair amount of snow and uses salt on the roads, do not buy a Toyota truck. Especially, not a Tacoma. The first three generations of Tacoma have all suffered premature frame rust (they disintegrate) and Toyota has never addressed the issue appropriately. This was also an issue with the tundra and sequoia.
They may have addressed this in the latest generation but only because they got their ass handed to them recently in a class action lawsuit. They may be eating more shit due to their use of materials from Kobe steel.

Also off topic. If you are buying a Toyota of any model make sure to let them know you are also looking at Subaru’s. They will be more willing to make a deal as they have been losing a lot of their market to Subaru over the last decade.
 
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FeralGentleman

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Well damn. I came here to look at knives and left with a new F150 and an EDC3 on the dash.

The last car we bought new in 2016 we used the "Fighting Chance" info to price and negotiate for a specific make/model in an area where they sell like Delta 3V on a Friday. It was interesting to see the offers come in from the various dealers, then turn around and have them bid against each other for a lower price.

When we did narrow down on a car, by the time we finally sat in front of the F&I person I was grumpy enough to tell them right off the bat to hurry the hell up, if it isn't free...no.

Looking forward to reading part 2.
 

unwisefool

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I also am curious as to why a lease would be better than buying a new car. I have never leased a car before
 

JustinFournier

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Thanks Mat,

I’m redoing the way I’ve bought cars for years, as you know. I’m tired of getting hosed by events out of my control.

This is the 3rd car I’ve had written off in 6 years. I keep thinking they are one of flukes, but I really don’t think so anymore.

First one was parked on the side of the road and was taken out by a distracted driver. I lost another one to a rear ender. I had a manufacturer buy back a car because of that emission scandal. Now I’ve lost my most expensive one to date to another rear ended. $4850 for the extended warranty alone I’m out of pocket for, not to mention parts and labour for aftermarket stuff. So annoying.

Waiting to hear back but I’m losing at minimum $23k, upwards of $40k. Discussion surrounding no replacement being available compounding issues.

And I also have 2 insurance companies so I imagine they will be fighting one another shortly, or gang up against me perhaps.

Ugh.
 
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Here is my 2c.

The next car I will buy/lease will be an EV (electric vehicle). It does not make any sense to buy an ICE (internal combustion engine) vehicle. There will be an increasing variety of EVs to choose from starting this year but I will support US of A and go for Tesla ( probably Model Y which will be revealed on 3/14). As a bonus, I can do my purchasing directly from Tesla, online and they do provide lease and finance options.
 

heat_treat

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This is timely for me as well as the wife has decided she wants something different (note not necessarily "new"). She currently drives a 2006 Toyota Camry with 210K miles which we have had since 2008 and bought with 14K miles. A Toyota 4Runner is on the short list.

Maybe an outlier but I don't like the idea of buying/leasing a new car and tend to keep things at least 10 years, and usually closer to 15-20. I think letting someone else pay for the initial depreciation and getting a car/truck that is 2-3 years old makes sense. About the time leases are up or rental vehicles come available. Am I missing something? Oh and neither my wife or I have had any sort of accident in 20 years. (knocking on every piece of wood I can reach) :)
 

Odog27

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Thanks Mat,

I’m redoing the way I’ve bought cars for years, as you know. I’m tired of getting hosed by events out of my control.

This is the 3rd car I’ve had written off in 6 years. I keep thinking they are one of flukes, but I really don’t think so anymore.

First one was parked on the side of the road and was taken out by a distracted driver. I lost another one to a rear ender. I had a manufacturer buy back a car because of that emission scandal. Now I’ve lost my most expensive one to date to another rear ended. $4850 for the extended warranty alone I’m out of pocket for, not to mention parts and labour for aftermarket stuff. So annoying.

Waiting to hear back but I’m losing at minimum $23k, upwards of $40k. Discussion surrounding no replacement being available compounding issues.

And I also have 2 insurance companies so I imagine they will be fighting one another shortly, or gang up against me perhaps.

Ugh.
Hate to hear this Justin. Don’t lose faith (not talking about the religious kind) in your life/self/worth. By almost anyone’s standard you’ve had a rough go of it based on info in your post. From a purely mathematically probabilistic standpoint - it’s got to get better.
At least as far as vehicles go.
The financial end sounds effed up currently. I can only hope it shakes out better than expected for you.
I’m truly sorry for you to be in this situation. I hope you are/will be physically ok. That’s the most important bit.
 

Odog27

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This is timely for me as well as the wife has decided she wants something different (note not necessarily "new"). She currently drives a 2006 Toyota Camry with 210K miles which we have had since 2008 and bought with 14K miles. A Toyota 4Runner is on the short list.

Maybe an outlier but I don't like the idea of buying/leasing a new car and tend to keep things at least 10 years, and usually closer to 15-20. I think letting someone else pay for the initial depreciation and getting a car/truck that is 2-3 years old makes sense. About the time leases are up or rental vehicles come available. Am I missing something? Oh and neither my wife or I have had any sort of accident in 20 years. (knocking on every piece of wood I can reach) :)
This is a good car buying method. It has many benefits. Especially these days where a vehicles history, including accidents and open recalls, are only a click away.
 

mpjustin

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Thanks Mat,

I’m redoing the way I’ve bought cars for years, as you know. I’m tired of getting hosed by events out of my control.

This is the 3rd car I’ve had written off in 6 years. I keep thinking they are one of flukes, but I really don’t think so anymore.

First one was parked on the side of the road and was taken out by a distracted driver. I lost another one to a rear ender. I had a manufacturer buy back a car because of that emission scandal. Now I’ve lost my most expensive one to date to another rear ended. $4850 for the extended warranty alone I’m out of pocket for, not to mention parts and labour for aftermarket stuff. So annoying.

Waiting to hear back but I’m losing at minimum $23k, upwards of $40k. Discussion surrounding no replacement being available compounding issues.

And I also have 2 insurance companies so I imagine they will be fighting one another shortly, or gang up against me perhaps.

Ugh.
Sorry to hear this Justin, that sucks.
You may have already looked into this but some extended warranties has a “if you don’t use them by the the end of the term you can get them refunded”. Not sure if this applies but may be worth looking into.

I have a buddy that works As a Business Manger in a Subaru / BMW dealer group and can make some inquiries if you like. Feel free to text me some details and I can do some digging. Maybe there is a loop hole.

And nice work Casinostocks Casinostocks I agree with your points / rules, especially about considering leasing if you have done your research on the brand around residuals and resale value. I think of it like an extended test drive with more options at the end of the term. My wife’s last Honda Odyssey we bought out then traded back into the same dealer and had approximately $5,500 equity after. Keep in mind that everyone’s situation is different. In the example above we only had 36,000 km’s after 4 years so it was very low mileage. (We live on an Island)
 
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This is timely for me as well as the wife has decided she wants something different (note not necessarily "new"). She currently drives a 2006 Toyota Camry with 210K miles which we have had since 2008 and bought with 14K miles. A Toyota 4Runner is on the short list.

Maybe an outlier but I don't like the idea of buying/leasing a new car and tend to keep things at least 10 years, and usually closer to 15-20. I think letting someone else pay for the initial depreciation and getting a car/truck that is 2-3 years old makes sense. About the time leases are up or rental vehicles come available. Am I missing something? Oh and neither my wife or I have had any sort of accident in 20 years. (knocking on every piece of wood I can reach) :)
When we bought the wife’s car(2016 outback) we bought brand new.
I usually agree with the 2-3 year rule to avoid that big depreciation hit, but new made more sense in this case.
Subaru was offering 0.5% interest if you paid it off in three years.
Anything 2014 and earlier was the model before the redo, so it was already dated ( plus I think the ugliest generation outback ever).
The outback kept their value fairly well, so that 2013/2014 wasn’t that much cheaper than the brand new 2016.
So brand new money at 0.5% interest vs 3 years old money at say 10% interest, the numbers started getting closer. ( edit 10% is prob a bit high but you get the idea)
We’ll prob keep the car for 8-10 years.
There seemed to be some value in knowing we were in control of all maintenance/upkeep/driving for the entire life of our car.
 
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