Friday, May 27, 2011

How to Buy A Car According to Me

I just bought a new car. This was a new experience for me. My previous car endeavors were:

1) At 17, I had saved up about $1000 to put toward a car. Just after I got my license, I very quickly bought the first cheap, decent car I could find: a 1989 Ford Escort Pony. This was a two door hatch that was one level below the Economy model. It had no power windows, no power steering, no AC, and was a four speed manual. I couldn't drive manual at the time, so I couldn't test drive it. My mom lent me another $1000, and I bought it for $2000. She did the actual buying as a surprise. I drove that car until the wheels fell off. No, really, the suspension went at one point, and I was just kind of clunking around back there.
2) After the Escort died, I got a hand-me-down 1996 Dodge Caravan. Yup, I was the hip 20something cruising around in a sweet white minivan. It was handy for moving and for road trips, but didn't give me any actual buying experience.

So the time came a few weeks ago to buy a car on my own. Throughout this process, I was constantly amazed that They let me do adult things like buy a new car all on my own. I kept waiting for them to realize that there was no way I should be allowed to do stuff like this and send me home, but they didn't.

I had no idea of how the whole process worked. Having skillfully negotiated a 40% discount on the mattress I bought, I figured I was able to negotiate, but didn't really want to. I also had no clue about the mechanics of comparing actual prices, or even how you deal with getting plates and insurance on a car you don't own yet.

So I did what any enterprising geek would do: I consulted The Interweb. I learned a lot, and wound up feeling pretty confident that I got a good deal. I'm feeling magnanimous, so I want to pass my learning on to you. I'm a good guy like that. Here's what I now know, in a handy numbered list.

1) The Interweb Knows All, and is Your Best Friend
Seriously, plan on spending several days reading everything you can find about car buying. The two main sites I used were Edmunds and carbuyingtips. Edmunds is kind of a one-stop-shop for car buying. They have reviews on just about everything, and a million articles on every aspect of buying, financing, insuring, driving, and selling a car. They'll pretty much walk you though the process from beginning to end. Car Buying Tips is way less professional, but it's got a sort of beatnik charm, and even more good info on buying a car.

2) You Buy A Car on Your Terms, Not Theirs
When I first started this, I was extremely intimidated about dealing with salesmen and dealerships. As I read more, I realized that I was only intimidated about going into a situation where I didn't know enough to resist being taken. This is why you do #1. Once you've done #1, you'll have the confidence to know what questions to ask, what options are available, and what you can expect to pay.

Once you know those things, going to the dealership becomes a whole different experience. They're no longer going to get you to buy a car, you're going to allow them to sell you a car. Moreover, you're only going to allow them to sell you the car that you want, with the features you want, at a price that you find acceptable. If they can't or won't do these things, there is another dealership who will be happy to. The sales guys work for you, not the other way around, and they're way more interested in selling you a car than you are in buying one from them. If they do anything that makes you uncomfortable or feel like you need a shower, you can and should tell them to stop, or just walk away. You don't even have to feel bad about it.

3) Figure Out What You Need, What You Want, and What You Don't Care About
Do this step before you start looking at cars. Don't form the list based on what's on a specific car. Figure out what you want, and that will tell you what cars to look at. For example, my needs were good fuel economy, under $20,000, new, and able to handle an MP3 player with little fuss. My wants were something decent to drive, capable of carrying a moderate amount of crap occasionally, and something that looked good. I didn't care about being able to do a j-turn at 80, it being big, or being able to transport a full apartment's worth of stuff. Based on that list, I went back to Step 1 and started comparing vehicles on the interweb.

4) Narrow It Down to a List of ~5
There are a ton of cars out there. By using your list from #4, you should be able to immediately dismiss most of them. You can then look at the available cars in your price range, their reviews, and their available feature sets. Remember that the "starting price" that manufacturers advertise is usually for the super base model with a manual transmission. If you can't/won't drive stick, pretty much add $1000 to that right off to get an automatic. Then remember that if you, for example, want the hatchback version, that's usually more expensive too. The sweet sound system is probably extra, and sometimes there's even an extra charge for different paint colors.

Also be aware of which cars have "upgraded" versions that really have nothing of value. For example, I was looking at the Honda Fit. It came in base and sport models. The sport model added some body kit stuff like a spoiler (highly useful in stop and go traffic), alloy wheels, and fog lamps. This cost an extra $1000. Being able to write that kind of stuff off is very handy. When you're looking at options, make sure that the options you want don't push the price above your range.

The final result of this step should be a list of five or fewer cars, a rough idea of what options you'd want on each, and what options you don't want. Note that going price isn't really something you need to worry about quite yet. Since you're only looking at cars in your price range, you should be able to afford any of the ones you're interested in with the options you want.

5) Time to Drive Some Cars!
Here it is, the moment where you have to interact with a sales person. This should not intimidate you at this point. Why? Because you already know at least as much about the cars you're looking at as they do. If they're bullshitting you about something, you'll know. Using The Interweb, pull up a list of dealers for each of the cars on your list, use the contact info on the dealer website, and schedule a test drive. Try and schedule them all for the same day so that you can compare each of the cars while it's fresh in your head. Dealers should be happy to accommodate your schedule. If they're not, call a different dealer. Tell them exactly what type of car you're looking at, and if you have a manual/automatic preference, ask if your preferred type is available. Sometimes manuals are hard to find.

On the day of, remember one thing: You ARE NOT BUYING A CAR TODAY. You know this, and you should tell them as well. Even better, tell them you are looking at multiple cars today, but making a decision within X timeframe. You want them to know you're a For Real Buyer, let them know they're in active competition, and give them a chance to tell you why theirs is better than the others. Of course, you already know these differences, but this gives them a chance to offer to throw in extra stuff to make up the differences. However, remember: YOU ARE NOT BUYING A CAR TODAY. If one of them offers you a killer price, ask for it in writing, and tell them you'll think about it because YOU ARE NOT BUYING A CAR TODAY.

On the test drive, they're going to have a preferred route. This route may be a good mix of street and highway driving, allow you to get the car up to speed, and see how it handles. This route may be four right turns to go around the block. If the route sucks, ask to stay out and try it in Condition X. If they won't let you, finish your drive and car inspection, and then don't go back. On the test drive, play the radio, see how everything feels, stop short a time or two, accelerate fast, and take a corner too sharp. You want to get a good sense for how the car handles. After the drive, play with the electronics. If the car has fancy phone hookups, ask the salesdude to let you pair your phone to make sure it works. Sit in the back and make sure you're okay with subjecting passengers to it. Fold down seats, open trunks, etc. Basically, find anything that will bug you later. Ask about the availability of the combination of options you want. It's possible that the moon roof you want is really hard to find in the color you want. Find out what it would take to get the options you want. File all this info away.

6) Compare Notes
Okay, you're now home from the test drives. You've got a mental (or paper, if you're super organized) list of notes about each car. If you're lucky one or more had dealbreaker elements that will just remove them from your list. Hopefully one or two will kind of rise to the top. After my test drives, I realized that while the Fit did have enormous cargo capacity, I just didn't like the way it looked, and the electronics paled in comparison to the other cars I drove, so that got nixed.

Once you've got it down to one or two, review all your research. If necessary, schedule a second test drive. Make sure that you know what you're looking for. It may also be worth calling your insurance agent at this point to get rate quotes on the finalists. One might be much more expensive to insure than the other. Also compare some online rate quotes as a reality check.

7) Talkin' 'bout Benjamins
Now that you've got it down to one or two options (one is better, but two is okay too), it's time to figure out how much you should be expecting to actually spend. The two best resources I found were Edmunds again, and Drive Your Dream.

First, I'm going to give a quick lesson in car pricing, gleaned from Edmunds and other sources. Cars have multiple prices. First is sticker, or MSRP. This is what Ford, Toyota, etc want you to pay, and put the price in the window. You should not pay this in most cases. Next is invoice price. This is what the dealer pays to get the car on the lot. In broad terms, this is more like what you should pay (but not really). It's not advertised, but easy to find online, and the salesmen will frequently volunteer it. Third is holdback. This is (roughly) a percentage of invoice that the manufacturer gives to the dealer to cover interest on the car for the first 90 days it's on the lot. This is why dealers are willing to sell at or below invoice: the faster they can sell a car after getting it in inventory, the bigger chunk of that holdback they can pocket. It also means that after 90 days, it's costing them money for that car to sit there, so they may get more eager to clear it out and get another car (with a new holdback payment) in instead.

On to actual pricing research. Edmunds provides what they call True Market Value. You pull up the make and model of a car, add your desired options, and it checks against recent completed sales in your area to give you a range of what that car is actually selling for right now. It will also tell you the Invoice price, and will show you any active incentives that apply to the car. The end result is a nice round number that represents a good, achievable deal. This is a good target number to keep in mind when talking price, but it isn't a hard and fast rule. You can do better than this number.

Drive Your Dream is run by Zag basically lets you avoid negotiation. You pick your car and options, and then zag will give you a list of dealers with pre-negotiated prices for each. The deal is that you can pick a price and dealer, print out a form from the website, walk in, and get that car for that price. The prices are generally pretty competitive, but the nice part is that they're guaranteed. You can definitely get that price from that dealer, which is a good card to have in your back pocket when talking to dealers.

8) Giving Them Your Money
Before you start talking money with dealers, figuring out how you're going to pay is a good idea. You can pay cash (if you're rich), you can get independent financing, or you can finance at the dealer. Leasing is another option, but I'm ignoring it because I'm only worrying about buying.

First is to figure out how much of a down payment you can afford. I think the general rule is to plan on 20% down at least. More is better. That combined with the target price from your research, plus tax/title/and fees will give you how much you're going to need to borrow.

Next, you need to know your credit score. If you don't have it already, go to Annual Credit Report, and run your free annual report from all three bureaus. This will give you your reports. You'll also have the option to pay cashy money to get your actual numerical score. This is probably a good idea to do. It doesn't cost much, and it's a pretty vital bit of info. Check over your reports and make sure nothing looks wonky. If it does, get it fixed, because your financing rate will be based on these reports.

Credit score in hand, check with your bank, credit union, online lenders, etc to get an idea of what kind of financing rates you can expect, and on what term loan. Do the math of dividing the amount you're borrowing by the number of months in the loan times the % rate to figure out what your monthly payment will be. Knowing both what you can afford and what payment you're expecting is important info. If one of the lenders has an attractive rate, go for a pre-approval as long as you have the option to not take the loan. You want to leave your options open.

Dealer financing can be better, worse, or on par with outside financing. It's possible they can give you an awesomely low rate, in which case go for it. It's possible they'll match the outside rates, but offer you additional cash incentives. It's possible their financing will be worse, at which point you can just use your preapproved loan to pay. Having options and knowledge can only help in price talk.

The trade in. I didn't trade in, so I don't have first-hand knowledge. However, prevailing wisdom is to deal with the trade in completely separately from the new vehicle price. The dealers you talk to will ask about your old car like vultures circling a fresh corpse. Stay non-committal. When you get to talking price, talk about the price for the new car, and once that's settled, talk about trade in price. Find out the blue book value for your trade in so you have an idea of what to expect when you start talking price, and factor that into your mental money wrangling.

9) An Offer You Can Certainly Refuse
Here comes the part I was initially dreading, but eventually found to be fine: negotiating a price. The most important thing to remember is that you are going to be negotiating price, NOT NOT NOT monthly payment. Negotiating monthly payment opens up all kinds of funny ways for them to adjust things in their favor. Talk price FIRST, and then deal with method of payment (ie financing) second.

Here's where we turn back to our friend The Interweb. Find a handful of dealers nearby, and look for the contact info for the Internet/Fleet Sales guy. If you can't find it, call and ask for it. This is the guy you want to talk to. He knows that people coming to him are both informed (from all your Interweb Reasearchin') and likely shopping for the best price. Email the various Internet guys, tell them that you're very close to purchasing Vehicle X with Options A, B, C, in Colors X, Y, Z, and you're looking for their best bottom line price. Make sure to include the dealer/salesman that gave you the test drive, because it's the nice thing to do (unless he was a slimy git, in which case ignore him).

This will hopefully result in several offers coming back to you. Assuming the best ones are at or below your mental Target Price, and include the features you want, email the guys with the #2 and 3 offers and tell them that Dealer Q gave you Price J, and can they beat that? Basically, play them off against each other. This is an awesome game to play because there is absolutely no downside for you. Continue this until you get to a price that nobody else is willing to beat. This is your price. Email the winner back and make sure that this is the actual out-the-door price with all fees included, and ask that the fees be itemized. Check the list for anything that looks funny and ask him about it. Sometimes there are junk fees on there that can be removed. Hopefully there aren't.

10) So Close and Yet...
You're almost done. Once you've got a sale price set, you may need to talk trade in. This is also when you can find out what the dealer can do for you on financing. Again, if you've done your research, there should be no surprises here: you know the approximate going % rate, you know your credit score, you know how long you're planning to borrow for, and you know the sale amount. If you get a better deal than you were expecting from dealer financing, take it, but don't be afraid to turn it down and take outside financing. How you're paying should not affect the sale price, and if it does, you leave and go to the #2 offer on your list.

At some point, you're going to have to sit down with the finance guy, who will try and sell you on extended warranties, undercoating, etc. There are a few ways to handle this. First, you can ask the sales guy ahead of time for a list of the things the finance guy is going to offer. If he hesitates, threaten to walk, and he'll probably give it up. Then do some research on each item and figure out if it's something you actually want. Second, you can go in, hear the pitch, and find out how long you have to add any interesting items on after the fact, since there is likely a window. Third, go with your gut.

Now, some stuff like undercoating is an obvious sucker bet. Extended warranties are much more subjective. If you expect to only drive the car for a few years, or if you have a reliable mechanic, the warranty may be a bad idea. If you lack those things, and would rather just have everything "taken care of", then it's a good idea. Like any insurance policy, buying one is you betting that the car will break down in the warranty period and cost more to fix than the cost of the warranty, and they're betting that it won't. Whether you make that bet is entirely up to you, but I don't think that the warranties are necessarily the snake oil some folk make them out to be.

The big thing is to not allow yourself to be pressured into making a decision on the spot. It's very unlikely that anything the finance guy offers you is a "now or never" proposition. If he really does say "now or never," pick "never", and see what happens. Either it suddenly won't be "now or never", or you probably didn't need it anyway.

If you go with dealer financing, make sure you take a careful look at all the numbers. Make sure the sale price is what you agreed to, make sure that your down payment is properly applied, that there are no surprise fees, the % rate is correct and for the right number of months, etc. Also verify that there's no early payment penalty. If you win the lottery or something, being able to pay off the loan early just saves you interest. If all the numbers look as you expected, congrats, you just bought a car.

11) The Details
Now it's down to paperwork. In MA, you need to give the dealer your insurance agent's name and number so that they can coordinate getting the car added to your policy. You'll want to contact the agent yourself to let them know that you're about to buy Car X so they'll be expecting the call from the dealer. The dealer will also likely take care of the DMV stuff for you. There's a fee to do this, or you can do it yourself, but I say the small amount of money is totally worth it to avoid DMV lines.

On the day you take delivery, plan on spending 30-60 minutes at least. You'll have about a billion pieces of paper to sign first off (including possibly one of the biggest checks you've written). The sales dude will also want to give you a final tour of the car, though it's very possible you already did this on the test drive. Take a walk around the car and make sure there's no dings or anything else, and if there are, get them to take care of it. This is now your very expensive thing, and why shouldn't it be perfect when you get it, Bob dammit. Then drive away. Try very hard not to crash it immediately as you pull it off the lot. Or at any point afterward, for that matter.

In Conclusion
The biggest surprise I had during this experience was how painless it was. I directly attribute that to going into every interaction with Sales Dudes armed to the teeth with info, and not being shy about letting them know that. Not all sales guys are slimy (and I actually found one who was very not slimy), but they are out to make money, and they can do that best when dealing with an uninformed customer. Once you make it clear that you are NOT one of those (by not being one of those), they're forced to deal with you differently.

The other major benefit of being well informed is that you know what a good deal looks like, due to your Magical Mental Price Number, and that you can always walk away from a bad deal and find a better deal. That said, if a really GOOD deal pops up, since you know it's a good deal, you'll be able to jump on it and make out like a bandit. The trick is to go in with a plan and a goal, but be flexible enough to take what's offered if it benefits you.

The end of my story was that I actually didn't need to do a bunch of internet price wars. After my round of test drives, I found the car I was looking for with the options I wanted on a dealer's website five miles from me and advertised with an already-attractive price around my Mental Number. Went in, drove it, liked it, and told the guy I was willing to talk price, but that my plan was to shop the deal around. Without any screwing around, he offered me a price that was $1100 below invoice, and $900 below what I was expecting to pay based on my researched price. I got the number in writing, and then next day gave the previous dealer I'd visited a chance to beat it. When he couldn't, I bought me a car.

Could I have gotten a better deal? Possibly, though I doubt a much better deal, since the price I got handily beat all the other numbers I'd seen. Basically, I got a price I was very happy with on the car I wanted. Ultimately, being able to brag to your buddies about how you totally took the dealer for a ride is a bad game. All you really need is to be able to say that you did your research, and got a deal that you're happy with. Here's the end result of all this for me:

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