Unfortunately, as with most things, there is no simple answer to this question. However, it is important that you evaluate both options because one or the other usually will have a significant cost advantage.
The most important factor in deciding between a lease and a purchase is the vehicle you choose. If you are buying a used vehicle, you can pretty much rule out a lease as a viable alternative. The reason for this is that banks and other leasing institutions do not offer favorable money factors or residuals on used cars. This translates into you paying more for the lease. Ironically, residuals should be relatively higher for used cars. The residual is the percentage of the depreciated value of the car remaining at the end of the lease. A used car experiences the largest portion of its depreciation when it is driven off the showroom floor. But banks and leasing institutions are leery of used cars because they have to rely too heavily on the dealer for their true condition and most used cars have no new car warranty remaining.
If you are buying a new car, the most attractive leases will usually be with makes and models having the highest resale values. You can check this by comparing the cost of the new car with the wholesale value of a 2, 3, or 4 year old model. A good Web site for this is www.kbb.com, the Web site for Kelly Bluebook. This is how the banks and other leasing companies calculate their residuals. The makes with the higher residuals and resale values are your more popular makes, those that don’t employ excessive rebates and incentives, and those that don’t sell large numbers of cars to rental and leasing companies. Generally speaking, these are mostly your Japanese makes, some European, and even some domestic cars that are in high-demand and low supply like the Chevrolet Corvette or Pontiac Solstice.
If you decide to purchase a new car that has a high resale value which makes it makes it a good candidate for leasing, be sure that you get lease quotes from several banks and/or leasing companies. The money factor (equivalent of the interest rate in a purchase) and residuals will vary. You should shop your financing if you are buying and shop your lease rates/residuals if you are leasing.
Many people think there is a “tax advantage” to leasing. This is not true. You can deduct only that portion of the usage of a car that is for business whether you lease or buy. For a lease that represents part of the lease payment and for a purchase that represents part of the depreciation.
Here are some things to be careful of if you lease: (1) Your insurance cost will be considerably higher. (2) Do not opt for a lease term beyond the time you want to drive the car. You may be tempted by lower payments on lease terms from 60 to 72 months, but don’t do this! You are obligated to pay the leasing company for many more months than you want to keep the car and you will have to pay a very large sum of money to get out of the lease early. (3) Never allow a dealer to switch you from a purchase to a lease at the last minute simply because they offer you a lower payment. This is common tactic to raise the profit on the transaction. Remember, at the end of the lease you own nothing, but after the last payment of a purchase, you own the car so naturally, your lease payment will be lower than a purchase payment. (4) Be sure you understand how many miles per year you will be allowed in your lease without a charge per mile. Most leases are for 12,000 miles per year. If you drive more miles per year, you could be confronted with a very large surprise charge at your lease termination. (5) When you sign your lease, there will be a “fee” commonly labeled a “lease acquisition fee”. Part of this fee goes to the leasing company but part may go to the dealer and is negotiable. Ask him to waive his portion of the lease acquisition fee because it is part his profit on the lease.
The cost of a car is total cost of the car during the time you drove it. If you lease, that is the sum of the payments. If you buy it, it is the total cost of the depreciation plus interest. Of course you have extraneous costs like maintenance, insurance, repairs, and fuel, but (except for insurance), these are the same for a lease and purchase. Too many people look only at the purchase price of the car. A higher priced car with a higher resale or residual value can actually cost you less than the lower priced car.
Tuesday, June 27, 2006
Saturday, June 17, 2006
SHOP YOUR FINANCING AND TRADE-IN WHEN BUYING A CAR
If you have read my earlier columns you know how important it is to get several competitive prices from different car dealers on the car you are buying. Equally important is to get at least 3 prices/bids on your financing and the true value of your trade-in.
The absolute worst thing you can do is to tell the dealer “all I care about is keeping my payments under “$X per month” and not know what the interest rate, terms, or products are included in the payments. Part of the profit a dealer makes on his cars is called “F&I income” and averages from $500 to as much as $2,000 per car sold. You can do your homework and buy your car at a very good price, but by not shopping your financing you can pay the dealer thousands of dollars in finance profits.
Credit unions are often the best source of funds for buying a car. Because they get special tax breaks from the government not available to banks, they usually have the lowest finance rates. Even if you don’t belong to a credit union, there are several you can join for a nominal fee. You should also get a financing quote from the bank you do business with. Also, give the dealer that you are buying from an opportunity to beat the rates you were quoted. Sometimes he can.
When you are taking delivery of your car, you will be asked to consider buying products like extended warranties, maintenance plans, road hazard insurance, GAP insurance, roadside assistance, credit life insurance, etc. My suggestion is that you do not make a snap decision on these products at the last minute. You should get complete information on each product and determine if it has value for you. You may already have coverage for some insurance products in policies you already own. With extended warranties and maintenance be sure you understand what is covered and what is not covered and what the deductibles are.
You should get at least 3 bids on the value of your trade-in. You can get some pretty good guidance from Kelly Bluebook, www.kbb.com and www.edmunds.com. Make an appointment to drive your trade-in to show the used car manager at a dealer who is franchised to sell the make you own. A Chevrolet dealer will likely pay you more for a Chevrolet trade-in than a Ford dealer would. That’s because people generally will shop for a used Chevy from a Chevrolet dealer. Get one or two more bids from other dealers in the same make. If you are near a CarMax store, you should take your car there too. They regularly buy cars like this for their inventory. The price you will be quoted is referred to as the ACV which stands for “actual cash value”. This is the wholesale value of your trade in.
Don’t confuse the ACV with the trade-in allowance that the dealer you are buying from gives you. The trade-in allowance includes part of the markup on the vehicle you are purchasing. You have probably read ads saying “MIMIMUM $4,000 ALLOWANCE ON ALL TRADES”. It’s not hard to offer thousands more on a trade-in than its ACV (true wholesale value) when you mark up the new car several thousand dollars more. Be sure that you explain that want to compare the ACV of your trade-in. Tell them you want the markup on the price of the car you are buying discounted, not added on to the ACV of your trade. Remember, however, that if you sell your trade-in to another party, you lose the advantage of deducing the trade-in from the price your sales tax in calculated on. At 6%, you would pay an extra $600 in sales tax for a trade-in with a $10,000 ACV.
With competitive bids on the car you are buying, the interest rate on your financing, and your trade-in ACV you are sure to minimize the total cost of that new or used car.
The absolute worst thing you can do is to tell the dealer “all I care about is keeping my payments under “$X per month” and not know what the interest rate, terms, or products are included in the payments. Part of the profit a dealer makes on his cars is called “F&I income” and averages from $500 to as much as $2,000 per car sold. You can do your homework and buy your car at a very good price, but by not shopping your financing you can pay the dealer thousands of dollars in finance profits.
Credit unions are often the best source of funds for buying a car. Because they get special tax breaks from the government not available to banks, they usually have the lowest finance rates. Even if you don’t belong to a credit union, there are several you can join for a nominal fee. You should also get a financing quote from the bank you do business with. Also, give the dealer that you are buying from an opportunity to beat the rates you were quoted. Sometimes he can.
When you are taking delivery of your car, you will be asked to consider buying products like extended warranties, maintenance plans, road hazard insurance, GAP insurance, roadside assistance, credit life insurance, etc. My suggestion is that you do not make a snap decision on these products at the last minute. You should get complete information on each product and determine if it has value for you. You may already have coverage for some insurance products in policies you already own. With extended warranties and maintenance be sure you understand what is covered and what is not covered and what the deductibles are.
You should get at least 3 bids on the value of your trade-in. You can get some pretty good guidance from Kelly Bluebook, www.kbb.com and www.edmunds.com. Make an appointment to drive your trade-in to show the used car manager at a dealer who is franchised to sell the make you own. A Chevrolet dealer will likely pay you more for a Chevrolet trade-in than a Ford dealer would. That’s because people generally will shop for a used Chevy from a Chevrolet dealer. Get one or two more bids from other dealers in the same make. If you are near a CarMax store, you should take your car there too. They regularly buy cars like this for their inventory. The price you will be quoted is referred to as the ACV which stands for “actual cash value”. This is the wholesale value of your trade in.
Don’t confuse the ACV with the trade-in allowance that the dealer you are buying from gives you. The trade-in allowance includes part of the markup on the vehicle you are purchasing. You have probably read ads saying “MIMIMUM $4,000 ALLOWANCE ON ALL TRADES”. It’s not hard to offer thousands more on a trade-in than its ACV (true wholesale value) when you mark up the new car several thousand dollars more. Be sure that you explain that want to compare the ACV of your trade-in. Tell them you want the markup on the price of the car you are buying discounted, not added on to the ACV of your trade. Remember, however, that if you sell your trade-in to another party, you lose the advantage of deducing the trade-in from the price your sales tax in calculated on. At 6%, you would pay an extra $600 in sales tax for a trade-in with a $10,000 ACV.
With competitive bids on the car you are buying, the interest rate on your financing, and your trade-in ACV you are sure to minimize the total cost of that new or used car.
Friday, June 16, 2006
CHOOSING AND MAINTAINING YOUR TIRES
When most people buy a car, they often overlook one part of the car that can affect the safety and cost of operation as much as any other part of the car.
When you buy a new car today, you can specify almost every option and accessory except the make of tire that comes on the car. This is predetermined by the auto manufacturer. Most new car buyers just assume that you are getting a good set of tires because you are buying a new car. This is not always true. You will remember the negative hoopla a few years ago regarding Firestone tires and rollovers on Ford Explorers. This controversy lasted over a year and hundreds of thousands of new car buyers were still buying new vehicles with Firestone tires that were in dispute. The only alternative a buyer had was to refuse to buy the car unless the dealer switched the tires. Some people did exactly this and let somebody else end up with those tires on her new truck.
You should research the safety history of the tire brand you are contemplating buying just like you would research the safety history of the car you buy. As with anything you buy, the Internet has a lot of information. One site that I highly recommend is www.nhtsa.gov. This is the Web site for the National Highway and Traffic Safety Administration and it can answer all of your questions about tires. Consumers Report is also a great source of unbiased information because they accept no advertising.
Auto manufacturers equip new vehicles with tires that will help the vehicle give the quietest and smoothest ride. However, the same tires that will do this are also the softest and most prone to wear. Auto manufacturers also tend to equip their cars with well known brands, like Firestone, Goodyear, BF Goodrich and Michelin. You are paying more for the brand name than you are for the quality and performance. Sumitomo and Yokohama are two Japanese tires that are priced considerably below the well known brands and will give you over twice the tread wear. The tread wear index is molded into the tire. A tire with a tread wear index of 600 will give you twice the wear of one with a 300. The difference in ride and level of quietness is virtually indistinguishable. Using an average cost of $1,000 for 4 tires, you can see how much you can save over 3 or 4 years with tires having twice the tread wear.
There is another code molded into all tires which tells the age of the tire. After 4-5 years, a tire may develop dry rot, a deterioration that could cause a blowout. Be sure that your tires are less than two years old to be on the safe side.
The only part of your car that is not covered by the manufacturer’s warranty is the tires. They are covered by the tire manufacturer. If you have a problem with your tires while they are under warranty, ask your car dealer’s service department to handle the claim for you. They should be familiar with the tire warranty and your tires; also they likely have an established relationship with the tire dealer.
Keeping your tires inflated to the pressure recommended by the tire manufacturer (found in your owner’s manual and tire information placard (Tire placards are permanent labels attached to the vehicle door edge, doorpost, glove-box door, or inside of the trunk lid). You should check your tire pressure at least once very month when your tires are cold (an hour after you have stopped driving). You tires lose air naturally and you must regularly add air. Under inflated tires will cause excessive tire wear on the sides of your tires and are unsafe because of inferior braking and handling. Under inflated tires also lower your gas mileage up to 3 miles per gallon. You should also have your tires rotated and checked for balance every 5,000 miles. Your alignment should be checked once a year and right away if you hit a pothole, curb, or other obstacle.
Replace your tires when the tread depth reaches 2/32”. This is the standard recommended by the Federal Highway Safety and Traffic Administration. The tread is measured on that part of your tire that meets the road. You may see wear on the sides of your tires due to under inflation or misalignment. This can be a safety consideration when turning corners. When your tires are properly inflated, as long as you have at least 2/32” tread depth where “the rubber meets the road” your tires are perfectly safe.
The bottom line is to choose your make and type of tire carefully. When you buy a car, make it part of the deal that you get the best tires on your car. Maintain your tires carefully especially regarding proper inflation. I even recommend that you buy an inexpensive tire gauge to keep in your glove box.
When you buy a new car today, you can specify almost every option and accessory except the make of tire that comes on the car. This is predetermined by the auto manufacturer. Most new car buyers just assume that you are getting a good set of tires because you are buying a new car. This is not always true. You will remember the negative hoopla a few years ago regarding Firestone tires and rollovers on Ford Explorers. This controversy lasted over a year and hundreds of thousands of new car buyers were still buying new vehicles with Firestone tires that were in dispute. The only alternative a buyer had was to refuse to buy the car unless the dealer switched the tires. Some people did exactly this and let somebody else end up with those tires on her new truck.
You should research the safety history of the tire brand you are contemplating buying just like you would research the safety history of the car you buy. As with anything you buy, the Internet has a lot of information. One site that I highly recommend is www.nhtsa.gov. This is the Web site for the National Highway and Traffic Safety Administration and it can answer all of your questions about tires. Consumers Report is also a great source of unbiased information because they accept no advertising.
Auto manufacturers equip new vehicles with tires that will help the vehicle give the quietest and smoothest ride. However, the same tires that will do this are also the softest and most prone to wear. Auto manufacturers also tend to equip their cars with well known brands, like Firestone, Goodyear, BF Goodrich and Michelin. You are paying more for the brand name than you are for the quality and performance. Sumitomo and Yokohama are two Japanese tires that are priced considerably below the well known brands and will give you over twice the tread wear. The tread wear index is molded into the tire. A tire with a tread wear index of 600 will give you twice the wear of one with a 300. The difference in ride and level of quietness is virtually indistinguishable. Using an average cost of $1,000 for 4 tires, you can see how much you can save over 3 or 4 years with tires having twice the tread wear.
There is another code molded into all tires which tells the age of the tire. After 4-5 years, a tire may develop dry rot, a deterioration that could cause a blowout. Be sure that your tires are less than two years old to be on the safe side.
The only part of your car that is not covered by the manufacturer’s warranty is the tires. They are covered by the tire manufacturer. If you have a problem with your tires while they are under warranty, ask your car dealer’s service department to handle the claim for you. They should be familiar with the tire warranty and your tires; also they likely have an established relationship with the tire dealer.
Keeping your tires inflated to the pressure recommended by the tire manufacturer (found in your owner’s manual and tire information placard (Tire placards are permanent labels attached to the vehicle door edge, doorpost, glove-box door, or inside of the trunk lid). You should check your tire pressure at least once very month when your tires are cold (an hour after you have stopped driving). You tires lose air naturally and you must regularly add air. Under inflated tires will cause excessive tire wear on the sides of your tires and are unsafe because of inferior braking and handling. Under inflated tires also lower your gas mileage up to 3 miles per gallon. You should also have your tires rotated and checked for balance every 5,000 miles. Your alignment should be checked once a year and right away if you hit a pothole, curb, or other obstacle.
Replace your tires when the tread depth reaches 2/32”. This is the standard recommended by the Federal Highway Safety and Traffic Administration. The tread is measured on that part of your tire that meets the road. You may see wear on the sides of your tires due to under inflation or misalignment. This can be a safety consideration when turning corners. When your tires are properly inflated, as long as you have at least 2/32” tread depth where “the rubber meets the road” your tires are perfectly safe.
The bottom line is to choose your make and type of tire carefully. When you buy a car, make it part of the deal that you get the best tires on your car. Maintain your tires carefully especially regarding proper inflation. I even recommend that you buy an inexpensive tire gauge to keep in your glove box.
Thursday, June 15, 2006
Always get an “Out the Door” Price
Many states have laws prohibiting car dealers from adding “fees” onto the prices they quote you. Unfortunately, Florida is not one of these states. The state law in Florida requires only that the dealers disclose on the buyers’ order that this additional charge is not a local, state, or federal fee, but is actually just profit to the dealer.
Almost every car dealership in Florida has this extra profit printed on their buyer’s order, under an assortment of labels like “Dealer Fee”, “Doc Fee”, and Dealer Prep”. You will not see it on the car’s price sticker you will probably not hear any verbal disclosure by the sales person or manager, unless you ask. If you ask, you will be told that “all other dealers charge this” and this is “almost” true.
Florida law also requires that when a dealer has this additional profit printed on his buyer’s order, he must not delete it for some customers and charge it to others. The only way he can effectively eliminate this extra profit is by reducing the quoted selling price of the car by this amount, but keep the dealer fee amount that is printed on the buyer’s order. This is rarely done because dealers do not pay their salesmen or managers a commission on the dealer fee. If you demand the price be reduced to compensate for the dealer fee, it cuts the salesman’s commission. Dealer fees range from $500 to $900 and a typical salesman’s commission is 25%, costing the salesman $125 to $225.
Florida law requires that a dealer include the dealer fee in the price of an advertised car. This is often ignored by dealers advertising on the Internet and in direct mail because it is below the “radar screen” of the Attorney General’s office. In newspaper, TV, and radio ads one car is advertised at a low price with a seemingly innocuous designation like “#1234B” (the stock # of the car) all there is to tell the buyer that only one car is available at this price. Another common tactic is a fine print disclosure at the bottom of the ad reading “price good on date of publication only”. The odds of being able to buy one of these cars at the advertised price are not good. Not only is there only one car with the price good for just one day, but the salesman receives no commission or a much smaller commission if he sells you this car.
My advice is not to pay much attention to advertised car prices. Do your shopping on the Internet or by telephone. Insist on an “out the door” price including everything except sales tax and license tag. If buying a new car, get several “out the door” prices quoted on the exact same year, make, model, and accessorized car. Two very good free Web sites to get information on dealer costs and fair retail prices are http://www.kbb.com/ and http://www.edmunds.com/. Consumer Reports is also an excellent source of product information and pricing information, but there is a fee for their Web site.
Almost every car dealership in Florida has this extra profit printed on their buyer’s order, under an assortment of labels like “Dealer Fee”, “Doc Fee”, and Dealer Prep”. You will not see it on the car’s price sticker you will probably not hear any verbal disclosure by the sales person or manager, unless you ask. If you ask, you will be told that “all other dealers charge this” and this is “almost” true.
Florida law also requires that when a dealer has this additional profit printed on his buyer’s order, he must not delete it for some customers and charge it to others. The only way he can effectively eliminate this extra profit is by reducing the quoted selling price of the car by this amount, but keep the dealer fee amount that is printed on the buyer’s order. This is rarely done because dealers do not pay their salesmen or managers a commission on the dealer fee. If you demand the price be reduced to compensate for the dealer fee, it cuts the salesman’s commission. Dealer fees range from $500 to $900 and a typical salesman’s commission is 25%, costing the salesman $125 to $225.
Florida law requires that a dealer include the dealer fee in the price of an advertised car. This is often ignored by dealers advertising on the Internet and in direct mail because it is below the “radar screen” of the Attorney General’s office. In newspaper, TV, and radio ads one car is advertised at a low price with a seemingly innocuous designation like “#1234B” (the stock # of the car) all there is to tell the buyer that only one car is available at this price. Another common tactic is a fine print disclosure at the bottom of the ad reading “price good on date of publication only”. The odds of being able to buy one of these cars at the advertised price are not good. Not only is there only one car with the price good for just one day, but the salesman receives no commission or a much smaller commission if he sells you this car.
My advice is not to pay much attention to advertised car prices. Do your shopping on the Internet or by telephone. Insist on an “out the door” price including everything except sales tax and license tag. If buying a new car, get several “out the door” prices quoted on the exact same year, make, model, and accessorized car. Two very good free Web sites to get information on dealer costs and fair retail prices are http://www.kbb.com/ and http://www.edmunds.com/. Consumer Reports is also an excellent source of product information and pricing information, but there is a fee for their Web site.
BAIT & SWITCH ADVERTISING (read the fine print)
All car dealers pay the manufacturers the same prices for their new cars. Dealers will lead you to believe that volume dealers pay less, but this is not true. So, when a car dealer advertises a price for a new car in the newspaper, he has no price advantage over his competition.
Virtually all of the prices for new cars you see advertised in the newspaper are so low that it would be impossible for a dealer to remain in business if he sold more than a very few cars at that price. The reason for this is that, if a dealer advertised realistic prices with a reasonable profit built in, another dealer would advertise a lower price. The dealer who advertised a realistic price is actually helping his competitor sell a car.
Most of the new car prices advertised in the newspaper are below the dealers actual cost. He protects himself by selling very few at this price and counting this loss as a cost of advertising. Next to an advertised car you will see some letters and numbers like, #5632A. That is the “stock number” of the car being advertised. This is all that the dealer does to tell you he has just one at this price. The chances are that if you are not the first person in the dealership on the morning of the ad, this car will be gone.
Look for these two fine print disclosures at the bottom of the ad: (1) Price good on date of publication only. (2) Price good with copy of this ad only. These are just two more ways the dealer can avoid selling you the car at the advertised price.
If you read my last column, you understand about “dealer fees”. These fees are additional dealer profits ranging from $500 to almost $1,000 that are added to the agreed upon price of the car by most dealers in Florida. Florida law requires that this dealer fee be included in the advertised price. When the salesman tells you the advertised car has been sold but he has another one “exactly like it”, he can legally add back on that dealer fee.
As you can guess, the salesman’s commission on an advertised car is either zero or very small. Having a very small incentive to sell an advertised car, he will most likely encourage you to buy any other car.
My recommendation to you is to ignore advertised new car prices. If you must respond to an ad car, call the dealership first and ask if the car is still available. If the answer is no, you have saved yourself a lot of time and aggravation. If the answer is yes, ask if they will hold the car for you. If you have to, offer to give them your credit card for a deposit to hold the car. If they won’t hold the car, save yourself the wasted trip.
The only way to get the best price on a new car is by getting competitive bids from at least 3 car dealers for the exact same year, make, model, and accessorized car with the identical MSRP. You can do this on the Internet, by phone, or in person. Use Consumer Reports magazine, the Internet (www.edmunds.com and www.kbb.com are two excellent free sources of information), or even your local library.
Virtually all of the prices for new cars you see advertised in the newspaper are so low that it would be impossible for a dealer to remain in business if he sold more than a very few cars at that price. The reason for this is that, if a dealer advertised realistic prices with a reasonable profit built in, another dealer would advertise a lower price. The dealer who advertised a realistic price is actually helping his competitor sell a car.
Most of the new car prices advertised in the newspaper are below the dealers actual cost. He protects himself by selling very few at this price and counting this loss as a cost of advertising. Next to an advertised car you will see some letters and numbers like, #5632A. That is the “stock number” of the car being advertised. This is all that the dealer does to tell you he has just one at this price. The chances are that if you are not the first person in the dealership on the morning of the ad, this car will be gone.
Look for these two fine print disclosures at the bottom of the ad: (1) Price good on date of publication only. (2) Price good with copy of this ad only. These are just two more ways the dealer can avoid selling you the car at the advertised price.
If you read my last column, you understand about “dealer fees”. These fees are additional dealer profits ranging from $500 to almost $1,000 that are added to the agreed upon price of the car by most dealers in Florida. Florida law requires that this dealer fee be included in the advertised price. When the salesman tells you the advertised car has been sold but he has another one “exactly like it”, he can legally add back on that dealer fee.
As you can guess, the salesman’s commission on an advertised car is either zero or very small. Having a very small incentive to sell an advertised car, he will most likely encourage you to buy any other car.
My recommendation to you is to ignore advertised new car prices. If you must respond to an ad car, call the dealership first and ask if the car is still available. If the answer is no, you have saved yourself a lot of time and aggravation. If the answer is yes, ask if they will hold the car for you. If you have to, offer to give them your credit card for a deposit to hold the car. If they won’t hold the car, save yourself the wasted trip.
The only way to get the best price on a new car is by getting competitive bids from at least 3 car dealers for the exact same year, make, model, and accessorized car with the identical MSRP. You can do this on the Internet, by phone, or in person. Use Consumer Reports magazine, the Internet (www.edmunds.com and www.kbb.com are two excellent free sources of information), or even your local library.
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.
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.
The Right Used Car is a Better Buy than a New Car
This probably sounds strange coming from a new car dealer, but I strongly recommend you consider making your next vehicle purchased used rather than new.
The biggest reason for this is price and value. Everybody knows that a new car can depreciate several thousands of dollars in the first few months of ownership. This depreciation is mainly due to the psychological, emotional desire to be the first owner of a new vehicle. What other explanation is there for current or one year old model used car with most of the new car warranty remaining selling for 2 or 3 thousand dollars less than a new one?
Another reason a used car can be a better buy is that it has a performance track record. More often than not, the first year of a new model comes with some minor and even major “bugs”. The buyer of a new model in its first year of introduction can find himself performing the role of a test pilot. With a used car, you can sometimes speak to the former owner, review the cars service file, research its performance on the Internet, or check out Consumer Reports. The April issue has an article entitled “Best & worst used cars”.
Of course there is more risk in buying used. Do not buy a used car without knowing its maintenance and repair history. The dealer should allow you to take the car to your own mechanic to thoroughly check out the car. Ask for the right to drive the car for at least a day or two to evaluate its performance under different driving conditions. The dealer should provide you with a Carfax vehicle history report which will tell you if the vehicle has previously been in an accident, flood, and if the mileage is accurate. Most car dealers have a paint meter that they can run over the paint surface which tells if it has ever been repainted. A new car dealer will run the VIN to let you know if there are recall campaigns outstanding on this model.
Do not take it on faith that the price is right just because you are buying a used car. Research the price just as you would for a new car. This is especially true when buying a current model used car. Sometimes manufacturers’ rebates and incentives on new cars can bring the price down close to that of same year used. You can ask the dealer to show you the appraisal sheet which shows the wholesale value when he traded the car in. He also had to spend money on reconditioning and you should ask him about this too.
Use your Internet sources like Edmunds.com, Kbb.com, and Consumer Reports.
Perhaps the most important thing you can do to insure you don’t “get stuck with somebody else’s problems” is to buy from someone you can trust. If you can’t find such a car dealer or individual, insist that everything you discussed and all promises and assurances be put in writing.
The biggest reason for this is price and value. Everybody knows that a new car can depreciate several thousands of dollars in the first few months of ownership. This depreciation is mainly due to the psychological, emotional desire to be the first owner of a new vehicle. What other explanation is there for current or one year old model used car with most of the new car warranty remaining selling for 2 or 3 thousand dollars less than a new one?
Another reason a used car can be a better buy is that it has a performance track record. More often than not, the first year of a new model comes with some minor and even major “bugs”. The buyer of a new model in its first year of introduction can find himself performing the role of a test pilot. With a used car, you can sometimes speak to the former owner, review the cars service file, research its performance on the Internet, or check out Consumer Reports. The April issue has an article entitled “Best & worst used cars”.
Of course there is more risk in buying used. Do not buy a used car without knowing its maintenance and repair history. The dealer should allow you to take the car to your own mechanic to thoroughly check out the car. Ask for the right to drive the car for at least a day or two to evaluate its performance under different driving conditions. The dealer should provide you with a Carfax vehicle history report which will tell you if the vehicle has previously been in an accident, flood, and if the mileage is accurate. Most car dealers have a paint meter that they can run over the paint surface which tells if it has ever been repainted. A new car dealer will run the VIN to let you know if there are recall campaigns outstanding on this model.
Do not take it on faith that the price is right just because you are buying a used car. Research the price just as you would for a new car. This is especially true when buying a current model used car. Sometimes manufacturers’ rebates and incentives on new cars can bring the price down close to that of same year used. You can ask the dealer to show you the appraisal sheet which shows the wholesale value when he traded the car in. He also had to spend money on reconditioning and you should ask him about this too.
Use your Internet sources like Edmunds.com, Kbb.com, and Consumer Reports.
Perhaps the most important thing you can do to insure you don’t “get stuck with somebody else’s problems” is to buy from someone you can trust. If you can’t find such a car dealer or individual, insist that everything you discussed and all promises and assurances be put in writing.
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.
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.
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