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Thursday, August 10, 2006

Should I buy a Hybrid Car?

With gas over $3 a gallon and the belief that it will rise over $4 by year end, everybody is talking about hybrid cars. Just in the past week, I have been asked to speak before the Rotary Club of Palm Beach and the Kiwanis Club of Lake Park/North Palm Beach about hybrid cars. I think that I was asked because Toyota sells 80% of the hybrid vehicles in the USA and my dealership sells more hybrids than any Toyota dealer in the USA (except California where they have special emission laws).

You should approach making the decision on whether or not to buy a hybrid car the same way you would any other specific model. Just like there are good gasoline powered cars and bad ones, the same applies to hybrid cars. Some hybrid vehicles don’t even get very good gas mileage. The level of technology used in hybrid cars varies from manufacturer to manufacturer. Toyota was the first to begin investing in hybrid technology and built their first hybrid, the Prius, in 1997. Nissan was among the last to realize that hybrids are the wave of the future, and will introduce their first hybrid, the Altima, later this year (licensing the technology from Toyota).

The hybrid question I get asked the most is “will I save enough money on gas to justify the additional cost of a hybrid?” My answer is “yes, if you buy the right hybrid from the right dealer”. One very important consideration is the Federal investment tax credit available on hybrids. The amount varies from model to model. The highest tax credit is $3,150 on the Toyota Prius. This credit lowers the price you pay for the Prius by exactly $3,150. Other hybrid models have lower tax credits. The federal government calculates the tax credit based on the fuel efficiency and the Prius is rated the highest at 60 mpg in the city. The other important consideration is what you pay for the hybrid. Most dealers are making up their hybrid vehicles over MSRP. That’s because of their high demand and low supply. The third factor on whether the premium cost of a hybrid over a gasoline car is justified is based on the resale value of the hybrid. The better, higher demand hybrid vehicles retain their value in the used car market better than their gasoline powered counterparts. This means that, when you go to trade that hybrid in on your next car, the trading difference is smaller.
Hybrid cars get better gas mileage in stop and go city driving then they do on the highway. This is because the electric motor is utilized more often in this type of driving and the hybrid battery is charged each time you step on the brakes. This is called regenerative braking and converts the heat of friction from braking to electrical energy. You also charge your battery when you simply take your foot off the accelerator because the deceleration of the electric motor (which actually drives the

Wednesday, August 09, 2006

UNDERSTANDING YOUR NEW CAR WARRANTY

When you buy your new car your salesman will tell you that it has a “bumper to bumper” warranty. The most common coverage is for 3 years or 36,000 miles whichever should first occur. “Bumper to bumper” warranty sounds like it means that everything is covered. Unfortunately this is not the case. For example, your tires are not covered at all by the car manufacturer but under a separate warranty by the tire manufacturer.

It can be tedious, but the only way to completely understand your warranty is to actually read it. All warranties now are required to use the word “limited” unless there are absolutely zero exclusions and this, to the best of my knowledge, is never the case.

Some of the most common items that are mistakenly believed to be included in warranties are tires, rental car coverage, maintenance, and faded or damaged paint from various kinds of air contaminants.

I don’t know why all car manufacturers choose to exclude tires from their “bumper to bumper” warranties. After all, they choose the tire manufacturer just like they choose the manufacturer of other components on your car which they don’t manufacture themselves like the sound systems. The owner of a car has an established relationship with the service department of the dealership because she is bringing her car back every 5,000 miles or so for factory recommended maintenance. In most cases, she doesn’t even know who the tire dealer is. It would be far more customer friendly for the manufacturer to allow her dealer to handle warranty claims on tires. My suggestion is to ask your dealer’s service advisor or service manager to “broker” the warranty claim on your tires on your behalf. The dealership is more likely to have an established relation ship with a tire store and they can be your advocate.

New car warranties virtually never provide for a free rental car unless the vehicle must be tied up overnight for repairs. All too often, car salesman will promise you a “free loaner” anytime your car is in for service. Verify this with the service department before you rely upon it. There are extended service contracts which you can buy in addition to your new car warranty which will provide rental car coverage.

A new car warranty covers only “repairs” not maintenance items. A very common request is that a front end alignment be performed under warranty. Your alignment should have been checked before your car was delivered. If your car goes out of alignment after delivery, it is usually considered owner’s maintenance. Brakes are another item often misunderstood as being covered under warranty. Brake wear is almost always a maintenance item. Only a mechanical defect in your brakes is covered under warranty.

BUYING A CAR WHEN YOU HAVE A CREDIT PROBLEM

There are fewer things more sensitive or embarrassing than having to share your personal credit problems with a stranger. Having credit problems can also put many buyers in a weakened and defensive position when buying a car. Many people with bad, or too little, credit feel like the car dealer is somehow “doing them a favor” by selling them a car and getting them financed. Make no mistake about it. A car dealer is probably making more money selling a person with bad credit a car than one with good credit. If you have a credit problem, go about buying a car with the same care and due diligence as if you had the very best credit. Shop and compare your financing, your interest rate, and your trade-in allowance. Get at least three quotes on each of these.

Lenders who specialize in lending to those with bad credit are known as “special finance” lenders. Many of these lenders charge the dealer a large upfront fee, as much as $2,500. Legally, the dealer is not supposed to add this fee to the price of the car you buy but, in the real world, the price of the car is usually higher as the result of this fee. In addition to an upfront fee, the interest rates are very high from special finance lenders. Because they anticipate a much higher amount of repossession losses, they must make more on each transaction. Don’t automatically accept a dealer’s opinion that you must finance through such a lender. There are many conventional banks these days that loan to people with bad credit. Their interest rates are lower and they don’t charge large upfront fees.

There is much fraud in special finance lending. Credit applications are falsified to show more time on the job, higher incomes, etc. W-2 forms and check stubs are counterfeited. Buyer’s orders show accessories and equipment that do not really exist on the car. Hold checks or promissory notes are misrepresented as cash down payment. Co-signers signatures are forged. Confederates pose as employers, answering pay phones to verify employment. These falsifications are performed by finance managers, salesmen, brokers for special finance lenders (who are paid on commission) and the customers themselves. If you sign a credit application, be sure that you know all of the information on that application is accurate. Be sure that you understand and agree to all parts of the transaction including down payments, accessories on the car, etc. Never be a party to falsifying information to a lender to obtain a loan. This is a criminal offense.

Advertisements aimed at people with bad credit usually exaggerate with claims like, “We finance everyone”, “Wanted, good people with bad credit”, “No credit, no problem”, and, my favorite, “No credit application refused” (it doesn’t say your loan won’t be refused, just your application). My advice is to ignore these kinds of ads and these kinds of dealers. Their strategy is to take advantage of people with bad credit who they believe will buy any car, pay any amount of interest, and any profit to the dealers as long as the dealer can get them a loan.