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Monday, September 30, 2013

What is the “true” cost of that new car?

It is almost impossible for you to determine the true cost of a new car. This might sound crazy, but many dealers don’t know the true cost of their cars. The manufacturers and distributors invoice their dealers for an amount when they ship them a car that is almost always several hundreds of dollars more than the true cost. It’s fair to say that in virtually every case the “invoice” for a new car is much higher than the true cost. By true cost, I am referring to cost as defined by GAAP, generally accepted accounting principals.

You probably have heard about “holdback”. That is an amount of money added into the invoice of a car ranging from 1% to 3% of the MSRP which is returned to the dealer after he has paid the invoice. Some manufacturers include the cost of regional advertising in the invoice which offsets the dealer’s advertising costs. Another fairly common charge included in invoices is “floor plan assistance”. This goes to offset the dealer’s cost of financing the new cars in his inventory. Another is “PDI” or pre-delivery expense which reimbursed the dealer for preparing the car for delivery to you. I could name several more, depending on the manufacturer or distributor. Some of these monies that are returned to the dealer are not shown as profit on his financial statement and some are. Technically a dealer could say that the cost he showed you reflected all of the profit (by definition of his financial statement), but the fact would remain that more money would come to back to him after he sold you the car. To me, that’s called profit.

Besides holdbacks and reimbursements for expenses, you must contend with customer and dealer incentives when trying to figure out the cost of that new car. You will probably be aware of the customer incentives, but not the dealer incentives. Most dealers prefer and lobby the manufacturers for dealer rather than customer incentives just for that reason. Also, performance incentives are paid to dealers for selling a certain number of cars during a given time frame. These usually expire at the end of a month and are one reason why it really is smart to buy a new car on the last day of the month.

Last but not least, remember the “dealer fee”, “dealer prep fee”, “doc fee”, “dealer inspection fee”, etc. which is added to the price you were quoted by the salesman.. It is printed on the buyer’s order and is lumped into the real fees such as Florida sales tax and tag and registration fees. Most dealers in Florida (it is illegal in many states) charge this fee which ranges from $500 to $1,000. If you are making your buying decision on your perceived cost of the car, even if you were right, here is up to $1,000 more in profit to the dealer.

Hopefully you can now understand why it is virtually impossible to precisely know the cost of the new car you are contemplating buying. Most often the salesman and sales manager is not completely versed on the cost either. Checking the cost on a good Internet site like www.kbb.com or www.edmunds.com is about the best you can do. Consumer Reports is another good source. One reason that Internet sites don’t always have the right invoice price is that different distributors for cars invoice their dealers at different prices.

Do not make a decision to buy a car because the dealer has agreed to sell it to you for “X dollars above his cost/invoice”. This statement is virtually meaningless. As I have advised you in an earlier column, you can only be assured of getting the best price by shopping several dealers for the exact same car and getting an “out the door” price plus tax and tag only.




Monday, September 23, 2013

Pitfalls to Avoid When Having Your Car Serviced

Before I get into the pitfalls, it is important for you to understand how important it is to have your car serviced according to the manufacturer’s recommendations. The pitfalls and consequences of not doing so can be equal to or greater than those you might experience at the hands of an incompetent or unethical service department.

I strongly recommend that you have your car serviced and repaired by a franchised dealer of the make of your vehicle. I know that this statement, coming from a franchised car dealer, may be met with some skepticism. Listen to my reasons before passing judgment. Modern vehicles are highly complex computerized machines requiring very sophisticated diagnostic equipment and highly trained technicians. The evolution of new, expensive diagnostic equipment requires constant updating. The evolution of car technology requires continuing education of dealers’ factory trained technicians who attend many weeks of schools every year. Forty years ago, it was possible for a really good mechanic to fix anybody’s car. Those days are gone and your car needs a highly trained specialist with the very latest diagnostic equipment. It is impossible for an independent service company to be competent in servicing and repairing all makes of automobiles.

Carefully choose the dealership that will service your car. You do not have to take your car to the dealership that sold you the car for warranty repairs, as many believe. Every dealership of your make car will welcome your warranty and non warranty work.  Do your homework on which dealer has the best service department. Every dealer is graded in customer satisfaction by the manufacturer. Ask to see a copy of his CSI (customer satisfaction index) scores. Check with the BBB and the County Office of Consumer Affairs.

When you take your car in for maintenance or repairs, always ask for an estimate. State law requires that a service department not exceed a written estimate by more than 10%. When paying your bill, scrutinize the detail to be sure that you know exactly what each charge means. Most service departments add a fee on top of everything else with various labels like “miscellaneous supplies”, “sundry supplies”, “environmental handling”, etc. This fee is simply a 5% or 10% charge tacked onto the total bill. If you object to this fee, which you certainly should, dealers will often waive it.

You will find that prices for maintenance like oil changes, alignments, tire rotation and balancing, etc. are usually priced competitively. Where you have to be careful is in the pricing of major repair items like transmission, engines, and air-conditioners. When quoted a price on a big repair, don’t be afraid to negotiate. If you let it be known that you are willing to take your car elsewhere (even if you’re bluffing), you can often negotiate the price down significantly.

You should always make an appointment before bringing your car in. Appointments should be scheduled at relative slow times and days. Avoid bringing your car in early on a Monday morning and other very busy times. You want the service advisor to spend as much time with you as is necessary. This will allow you to drive the car with the service advisor if necessary to identify a specific problem like a squeak, rattle or vibration. Pick your car up at a time when the service advisor or technician has time to road test the car with you again to be sure that the problem was fixed.

Don’t be shy about asking for a loaner car when you have to take your car back a 2nd or 3rd time for a repair that was not done properly. It’s the dealership’s fault and you should not be inconvenienced. On a comeback, always talk with the service manager directly. Also ask that they assign their best technician to the job.


As I have said in earlier columns, there is nothing more important than choosing the right dealership to do business with. No service department is perfect and never makes a mistake. What you want to find is that service department that, in addition to being competent, will fess up to their occasional mistakes, sincerely apologize and make them right. 

Monday, September 16, 2013

BUY OR LEASE YOUR NEW CAR AT THE RIGHT TIME OF THE YEAR

The total cost of a new car consists of many factors including initial purchase price, maintenance and repairs, and insurance. One of the most often overlooked and biggest costs of owing a car is depreciation.  Some makes and models of cars depreciate more than others. By choosing the right make and model you can minimize depreciation. You can also minimize depreciation by properly maintaining your car, protecting it from the elements, and selecting the best color. One important factor in depreciation that is most often overlooked is the time of year that you buy or lease your car.

You should always buy your new car as soon as possible after that year model is introduced. Some would disagree, arguing that you can buy a car for less at the end of the model year. Even if this were so (and I don’t agree with this), the savings would not offset the increased cost of depreciation that you inherit by buying a new car that is a year old. If you follow the advice I have given in my previous columns on the smartest way to buy a new car, you can usually buy a new car for close to the same price at the beginning of the model year as at the end.

There was a time when virtually all makes of cars were introduced in the last quarter of the calendar year preceding the model year. If you bought a new model in September, you could be assured that you got it at the right time to minimize your depreciation. Nowadays, new models are introduced at almost any time and the introductions are nearly unpredictable. It’s not unheard of for a manufacturer to actually skip a model year entirely, selling last year’s model for another year. Or, sometimes a manufacturer will introduce a new model as much as two years before the calendar date of that model year. You should be sure you know exactly when that model year you are contemplating buying was introduced. You don’t want to buy a model year that was introduced 6 or 8 months ago

If you are leasing your car, you should also try to lease it as soon as possible after that year model is introduced. Also, when deciding on the length of the lease, your lease should end when the new model that you will lease or buy next is introduced. You don’t have to lease a car for a full one, two, three, or four years. You can lease a car for 39 months, for example, which may assist you in having your lease terminate at just the right time to buy or lease your next car.

Be sure you know how many more years the make and model you select will remain before it is replaced by a major model change. The life cycle of a particular model varies between manufacturers from as short as 3 years to as long as 6 or 7 years. Your car will retain its value considerably more if it is still within its current product cycle when you trade it in. You need to be especially wary when a specific model is discontinued entirely. Research this carefully and time your purchase or lease as early in the product cycle as possible.

 If you are buying a brand new model at the beginning of its product cycle, be sure that you are buying from a manufacturer that has a very good reputation for quality. You can get a pretty good idea of the quality of the new model by researching the reliability of the previous year model. It is true that a brand new model can experience some bugs during the early months of its first year. If you are nervous about this, it might pay to wait for 3 or 4 months after a brand new model is introduced to see if problems in the form of recall campaigns or otherwise do occur.