Monday, May 15, 2017
10 Costs Comprising the TOTAL PRICE of a Car
Car dealers and car manufacturers advertise car prices that are only a small fraction of the true cost of the car. When you’re comparing advertised prices from different dealers and different makes and models of cars, you have virtually no valid information on making the right purchase decision. Dealers almost always advertise a price that is substantially lower than you can buy their car. If they don’t do this, their competitor will, and they will lose the sale.
Manufacturers almost never advertise the other costs associated with their cars, unless the car happens to have a low cost in that category. For example, Subaru has a low cost of depreciation, but you’ll never see a Chrysler ad about depreciation cost. The fine print in every manufacturer’s ad stipulates that the dealers can add dealer installed accessories and dealer fees.
Below I’ve listed all the costs totaling the TRUE TOTAL COST of the cars you buy.
(1) Selling price of car
(2) Trade-in allowance
(3) Interest cost of financing
(4) Finance “products”.
(9) Dealer Installed Accessories
(10) Dealer Fees
Selling Price of Car. Determine the lowest selling price of the car you want to buy as follows: Check with these two 3rd party car buying services, www.TrueCar.com and https://www.costcoauto.com. Then take the lowest price of the two and shop it with at least three dealers on the exact same make, model, accessories and MSRP as the car you priced with TrueCar and Costco.
Trade-in Allowance. Keep the sale of your trade-in separate from your purchase transaction. The dealer you buy your car from will try to pay you less for your trade-in than it’s worth; or he will delude you into believing he’s giving you a good price by overcharging you on the car you’re buying. Get purchase offers on your trade-in from the used car departments at three dealers who sell the make of car you are driving. Make an appointment with the used car manager and simply explain that you want to sell your car, but make it clear you aren’t buying another. Also, tell him you are getting competing bids from two other dealers. When you make the final decision on the dealer you will purchase your car from, offer him the right to match or beat your best price offer. Remember that Florida and other states offer you sales tax exemption on the amount of your trade-in allowance.
Interest Cost of Financing. Car dealers make more money financing cars and selling warranties and other “finance products” than they do on the actual sale of the car. Check with your bank and credit union. Credit unions offer lower rates than most banks. You can join some credit unions for a relatively modest annual fee. Also, consider the dealer’s interest rate if it is a subsidized low rate offered by the manufacturer of the car.
Finance Products. There’s pressure by the federal agency, the CFPB, Consumer Finance Protection Bureau, on car dealers about charging exorbitant interest rates to minorities. Many dealers have resorted to shifting their finance profits to products and services added into the retail installment sales contract. Oftentimes these products and services aren’t properly disclosed to the buyer. Carefully read your installment sales contract before you sign it to be sure that there are no warranties, prepaid maintenance agreements, road hazard insurance, roadside assistance, LoJack, or anything else added to the finance cost of your car that you haven’t agreed to buy.
Depreciation. All different makes and models of cars depreciate at different rates. The differences are substantial and can amount to thousands of dollars. The selling price of a Subaru and a Chrysler can be the same, but the Chrysler will depreciate thousands more than the Subaru. You can research depreciation online at www.ConsumerReports.com, www.Kbb.com, www.Edmunds.com, and www.ALG.com.
Maintenance. The cost of maintenance for cars has dropped precipitously in the past ten years. Cars are built better and require far less maintenance, like oil changes, than ever before. The cost is so low that most manufacturers are offering free maintenance in first 2 or 3 years of ownership. However, if you keep your car longer, the cost of maintenance naturally increases. Consumer Reports is, by far, your best source of information on maintenance and repairs of all makes of used and new cars.
Repairs. Repairs are usually mentioned together with maintenance, but I separate them because, even though repairs are required less frequently like maintenance, the actual cost of repairs are very high. This is because today’s cars consist of very high tech and complex computer systems which are often manufactured in modules. Repairs often involve the replacement of an entire computer module (not just a few parts), costing thousands of dollars. One again, I refer you to Consumer Reports for detailed information on repair costs. Their annual April Auto Issue is “worth its weight in gold” as source of buying information.
Dealer Installed Accessories. JUST SAY NO! With rare exceptions, all accessories installed by dealers on their cars before they are sold are vastly overpriced and have very little value or utility. Dealer installed accessories exist so that the dealer can add profit to the sale of the car above the advertised price. Examples of these overpriced accessories are Nitrogen in tires, LoJack, pinstripes, roadside assistance, and paint sealant.
Dealer Fees. Last, but certainly not least, are car dealers’ dirtiest little secret. Dealer fee is a generic name for all the bogus fees that dealers add to the advertised price of their cars. The thing they have in common is the word “fee” because it resonates as an “official” local, state, or federal fee. A few of the “creative” names for dealer fees are Electronic Filing Fee, Tag Agency Fee, Notary Fee, Handling Fee, Administrative Fee, Dealer Prep Fee, and Dealer Service Fee. The way to spot a real fee from a bogus fee is by determining if the dealer charged you sales tax on that amount. THERE IS NO STATE SALES TAX CHARGED ON GOVERNMENT FEES.