Only Suckers Pay MSRP for New Vehicles?

Nope! Today, It's the Smart People Paying MSRP!

The most informative and “entertaining” part of my radio show, Earl on Cars, is the Mystery Shopping Report. Every week for about 20 years, I dispatch an undercover, pretend buyer of a new or used car, to a different car dealership. We report the unexpurgated results, live on the air every Saturday morning between 8 and 10 am, EST. [95.9 and 105.9 FM; www.FaceBook.com/EarlOnCars, www.YouTube.com/EarlOnCars]. Dealerships are graded and displayed on our list of good dealers and bad dealers. You can check this out at www.GoodDealerBadDealerList.com. 

As you know, for almost 2 years, ever since the COVID pandemic induced microchip shortage, new and used car prices have spiked to unprecedented heights.  New and used vehicles that were formerly discounted thousands of dollars below MSRP were marked up thousands of dollars above. New car buyers are, unbelievably, paying as much as $40,000 above sticker for new vehicles like a Toyota RAV4 Prime. Google “Downtown Oakland Toyota” for a recent, specific case. 

I have some good news and bad news for you. The good news is that new car prices have begun to come down; the bad news is that they’ve come down only to MSRP and only at a few dealerships. For the last 2 months my mystery shopper has discovered 4 dealerships offering to sell new cars at very close to MSRP. Interestingly, most of them have Been Ford dealerships; I’m not sure why that is. 

My advice to you is DO NOT BUY A NEW OR USED CAR UNLESS YOU MUST, for the next 30 to 90 days. If you must, insist on paying no more than MSRP. You’ll probably have to shop several car dealerships that sell the brand you want to buy. You can do this very efficiently and quickly online, or by phone if you’re not good with computers. Send the dealership this email, “I will buy the specific car we’ve discussed for its MSRP plus sales tax and license/registration (nontaxable fees only), out-the-door. I will pay you this total amount with my check and drive my new car home with no further payment. If this is agreeable to you, confirm by email and I will come in today to pick up my new car.” 

Most car dealers typically add hidden fees (not nontaxable government fees but added profit to the dealer) and dealer installed accessories that are not in the advertised or quoted price. Even If some or all of these are included in the total out-the-door price, no higher than MSRP, it’s OK. You’ve accomplished your goal. 

Dealer Fees Aren’t Bad; Hidden Fees Are

The phrase “dealer fee” has become a generic term for all the hidden fees that car dealers have added to the advertised prices of their cars for the last 50 years. When I started in the car business with my father in 1968, Stewart Pontiac in West Palm Beach, FL charged a $6.50 fee named “doc fee”. I guess my father chose “doc fee” for this hidden profit because it sounds like an amount that would be charged for processing documents. I never gave this a second thought, because the fee was quite small, and all car dealers had similar charges.

 
Today dealer fees have surged in amount and number of fees charged on a single sale. A few states regulate the fees effectively like California which caps theirs at $80. Most states have NO LIMIT on the amount. Florida’s is one of those and their average dealer fee, according to Edmunds.com, is $799. But in South Florida, dealer fees exceed $1,000 on the average and some dealers have as much as $3,000!
The first thing you need to know about dealer fees is that almost no car dealer names their hidden fee “dealer fee”. All dealers have come up with legitimate sounding names designed to make the car buyer believe the fee is a government fee like sales tax or license/registration. A few examples are tag agency fee, electronic filing fee, e-filing fee, administrative fee, doc fee, notary fee, dealer prep fee, etc. In fact, some dealers advertise that they don’t charge a dealer fee, because they can say they named their “hidden fee” something else.

 
Secondly, you may not even be aware of their hidden fees until you are signing the final documents in the dealer’s business office. In your mind, you’ve already bought the car. The salesman’s job is complete, and you’ve signed some paperwork. The salesman escorts you to the “business office” to finalize the paperwork. This is where the hidden fees often first appear, mired in the rehems of paper and fine print spit out by the highspeed computer/printer. Most car buyers never know that additional dealer profit was added to the price they “thought” they paid for the car.

 
Hopefully, the above explanation of how difficult it is for you spot all the hidden fees and the total amount is well understood. The purpose of this article is to relieve you of even having to attempt this almost impossible task. Even if you did find all the hidden fees, you’ll never win an argument with the salesman or sales manager on their legitimacy. In fact, many salesmen and manager have been misinformed by their superiors and may believe that these fees are commonplace, legal, and even ethical. When you argue with a salesman about taking off the hidden fees, he knows that his boss won’t allow it, and he can only make you happy by reducing the price of the car by the amount of the hidden fees. Reducing the price, reduces his 25% commission. Taking off an $800 dealer fee off the price of the car costs him $200 in commission.
The solution to the “hidden fee game”, is to refuse to play. Let them give you bottom line price that includes as much in hidden fees as they want to. That’s when you tell the salesman and manager, that you going to take that bottom line price to at least three other car dealers, his competitors, and see if they can offer you a lower one. Their only choice is to decide how high an out-the-door price they can give you and have you come back to buy from them. You must remember that the definition of an out-the-door price is the amount of money you can write out your check for, hand it to the salesman, and drive your new car home.

 
Don’t fall for the old tricks…” this price is good for today only”, “the car you chose will probably be sold when you come back”, or “I won’t give you my best price in writing”. When you hear these sorts of remarks, simply say “If I leave here without your lowest out-the-door price in writing, you might sell me a car’. If you don’t give me this price, you have zero chance of selling me the car because you’ll never see or hear from me again”. At his point, you turn around, walk out the door, get in your car and drive away. Nine times out of ten, they’ll give you the price you asked for. You might even have to get in your car, start it, and begin driving away. Be sure to check your rear-view mirror for a salesman frantically chasing behind you. 😊

Begin your New Car Buying Process Today... Target Date for Delivery/Payment in 60-90 Days

It’s time to decide which 2022 new vehicle, make model and accessories, is best for you. You’re fortunate that you don’t have to buy a car today, because you understand that supply and demand conditions brought on by the microchip shortage and other COVID-precipitated factors has driven new car prices to record levels.

 
Choosing the right new car is relatively easy because there’s one source of accurate, unbiased information that you can bank on…Consumer Reports, the “Bible” of consumer information on automobiles. Go to www.ConsumerReports.org, and check out any new vehicle that strikes your fancy. Choose the one that you like best esthetically…styling, performance, etc., but then check them out for the less obvious, but important criteria. Safety, fuel economy, maintenance and insurance costs, reliability, and rate of depreciation.

 
Test drive the vehicle that you choose to order. To avoid a lot of time and sales pressure, make it clear to the salesman that you will not be buying that car today. Finding the exact vehicle in a 2022 model can be a challenge, depending on how soon you begin your buying process. You’re buying a 2022 because a 2021 model is a one-year-old car today…essentially an “undriven used car”. The discount that dealers may give you on a 2021 never offset the extra cost of depreciation when you trade that car in on another. As I write this column, new vehicle inventories are at historic lows, especially 2022’s. If there are no major changes in the 2022 you order vs. the 2021, you can settle for driving the older model. Test driving a new car isn’t just “driving it around the block”. Take it out on the highways and the same roads that you routinely drive on. Drive it at all the various speeds you drive, back it up, and park it. Ideally, you should take a car home overnight and park it in your garage.

 
Locate the Costco certified auto dealers in your region. Go to this web address, www.CostcoAuto.com. If you’re not a member of Costco, you should buy an annual membership for only $65. The Costco auto buying program requires their certified dealers to sell Costco members a new car at a lower price than they have sold that car to any other buyer for. Costco will initially offer you only one certified dealership…the one closest to your zip code. You can obtain more certified Costco dealers by calling Costco directly. As you probably know, car dealers charge different prices to each of their customers for the same car, including Costco dealers. What sets Costco dealers apart is that the price you pay is the lowest price they will sell anybody that car for.

 
Be sure the Costco certified dealers will agree to sell you the car at their Costco price on the date you are prepared to take delivery of your new car. Eliminate any Costco dealer that refuses to do this. Contract with those that do agree and the one from whom you choose to buy your new car at the Costco price in effect at your expected time of delivery.

 
Choose a delivery date no sooner than December 2021 and, optimally, closer to March 2022. New car prices will begin coming down slowly this month (October 2021). They’ll continue to decline through the first quarter of 2022. Once you’ve finalized this purchase agreement, you can monitor the Costco price on the car you’ve chosen as often as you like. You may find that the price has come down enough to buy the car sooner than your planned delivery date. You might have to choose from a color or equipment of a car in stock that’s a little different than the one you have on order.

 
Buy low and sell high is the title to this article. You’re buying your new car low, and you CAN sell your used car very high today. I devoted little of that to this article because you probably need your current car. This morning, before I started writing this article, CNBC announced that the average used car is selling today for 56% higher than two years ago. That’s a record increase in used car prices. If you can get along without your current car, sell it today. But don’t trade it in on your new car, sell it directly to a dealer after shopping for the highest price. Also, check with these online companies, www.Carvana.com,www.Varoon.com, www.CarMax.com and www.WeBuyAnyCar.com.