Of course, you should be careful of all advertising…newspaper, TV, and radio, but direct mail can be especially deceptive. The reason this is so is because direct mail usually “falls beneath the radar” of the regulators. There are so many ads in violation of rules and laws that the regulators are overwhelmed. They focus on the most visible ads, often the ones that they see themselves in the newspaper or on TV. Direct mail represents a very small percent of total advertising. One reason for this is that it is considered by many advertising agencies to be too expensive and relatively ineffective. I believe that the only way to make direct mail effective for many advertisers is to use deception.
I have a couple of direct mail pieces on my desk and will cite some examples of this deception. “We will buy back your present vehicle for up to $5,000 over current Kelly Blue Book Value on trade towards the purchase of a Brand New Toyota or Pre-Owned model.***” The asterisk is for the very fine print disclosure on the back of the letter which reads: On select models. Discounts and rebates will vary from model to model. Of course, with the two words “up to” in front of the $5,000, no disclosure is really necessary. Buying back your present vehicle for $1 over current Kelly Blue Book Value is technically “up to”$5,000.
Attached to the letter is a something that looks like a check made payable to the recipient for $8,207. Here we go again with the “up to”. “You can apply this registered voucher for a discount ‘up to’ $8,207 off MSRP on a new Toyota.” Of course there is another asterisk which states “on select models”.
But there’s more! “Just for attending this event, you will receive 5 “golden” $1 coins as a gift, and you may have won $100, $250, $50, or possibly even $4,500 cash!” We, of course, have another asterisk which says that your odds of winning anything are 1 in 25,000. I often wonder who responds to these ads, not understanding the difference between a “golden coin” and a gold coin. Or, who really thinks they have a reasonable chance to win anything.
It’s not over yet! “Every application for credit will be immediately submitted and processed for approval and on-the-spot delivery REGARDLESS OF PAST CREDIT HISTORY”. Of course, the operating key word here is “submitted”. There is no guarantee of “approval”. They will simply “submit” your application to the bank and if you have bad credit, the bank will reject your application.
“During this weekend event, any new Toyota or used vehicle could be purchased with ZERO cash down!” The key word here is “could” instead of “can”. Of course, there is the old asterisk, which, if you can find and then read the fine print, it says with approved credit. You have to have a very high Beacon score to buy a new or used car with zero down payment. Less than 1% of car buyers would have this high a Beacon score. There is also a phrase which says “CASH DOWN IS NOT SUGGESTED”. This dealer might not suggest it but I can almost guarantee the bank will not only suggest it but demand it.
“Due to overwhelming response and customer request, I would like to again offer you a personal invitation to receive 80% of base original MSRP for the car you are currently driving.” This promise doesn’t even have an asterisk. Of course the base MSRP excludes accessories. Sometimes an offer is so ridiculous that you wonder who would ever believe it. Ask yourself how any car dealers could promise to pay 80% of the new base MSRP on a used car that they have never seen. They don’t know how many miles are on the car, whether it has been wrecked, or even if the car will still run.
Direct mail claims like those above, unfortunately do work. People actually come in and buy cars. Unfortunately these ads prey on those who are uneducated, have difficulty reading English, or are simply gullible.
Wednesday, September 27, 2006
Friday, September 08, 2006
The “Check Engine Light” Just Came On!
Imagine for a minute that you and your family are on the expressway on a Sunday afternoon, driving to your favorite vacation spot. All of a sudden, your red check-engine light comes on! What are you supposed to do? You are hundreds of miles away from home and it is very unlikely that you will find dealers’ service departments for your make of car open on Sunday. Should you keep on driving? Your only alternative under these conditions is to try and find a motel for the night and find a dealer the next morning.
Unfortunately, the answer is that you should not continue to drive the vehicle any further than you absolutely have to. The problem that caused the check engine light could be any one of hundreds. Potentially, it could be a very serious problem that could be made more serious (and more expensive) by driving the car. It could also be something so inconsequential as you failed to twist the gas cap tightly enough the last time you filled the tank. I have never completely understood why car manufacturers don’t enhance the warning system to differentiate between small problems that can wait and those that could be catastrophic. What a shame it would be to ruin a family’s vacation because they failed to screw down their gas cap tightly or some other minor problem that could have waited weeks to address! My guess is that the reason manufacturers do not enhance their check engine light computer system is simply because of the increased cost. I’ll bet that the cost of a motel overnight would be a lot more than the manufacturer would have had to spend to make the stay unnecessary.
The vast majority of the time the check engine light comes on, it is not serious enough to rush to your dealer. The problem is that you can’t say for sure if this is one of those times. In fact, the service advisors in many dealerships are so used to check engine lights coming on for minor problems like loose gas caps that they often mistakenly advise customers not to worry about it and to bring the car in “when you get a chance”. This works 90%+ of the time, but that 10% when it is serious can be very expensive. In fact, if the car is under warranty and you continue to drive the car when the check engine light comes on, you could void your warranty. If your check engine light comes on, pull over to a safe place and check to be sure your gas cap is screwed on tightly. That is the problem more than half of the time. If that doesn’t make the light go out, bring the car to your dealer ASAP.
The dealer has a diagnostic machine, called a “scan tool” which deciphers the trouble codes stored in your car’s computer. This code doesn’t necessarily tell the technician exactly what the problem is. Usually it just indicates an “area of concern”. He must do further diagnostic tests to determine the exact problem. Often there are more than one problem and symptom. Sometimes a problem will cause the check engine light to go on and then the problem “goes away”. If the problem does not reoccur during a certain number of times that you start the engine, the trouble code is removed from memory. Most of the reasons your check engine light will come on are environmentally related. If our cars did not have to meet such tight emission standards, you would practically never have a check engine light go on. This is one of the prices we are paying for clean air.
All too often, the check engine light will come back on right after you have had your car worked on for that very reason. Many people immediately assume that the dealer did not fix the car right the first time and charged them for work that wasn’t necessary. This can be the case if the dealer’s technician was careless or wasn’t properly trained. But, not infrequently, the technician can do everything right and the light still comes back on after the repair is made. This is because there are often multiple problems that contribute to the symptom causing the check engine light to go on. Or, there could be a completely new problem unrelated to the first. Remember that there are hundreds of reasons that this one red light can come on. It takes a very well trained, conscientious technician to come up with the right fix.
The best thing you can do is to choose the dealer to whom you trust your car with great care. You do not have to have your car serviced at the dealer from whom you bought your car, but you should use a dealer franchised to service that make of car. Check with the Better Business Bureau, County Office of Consumer Affairs, and the State Attorney General’s office on the track record of the service department you choose. Ask friends and neighbors who drive your make of car where they have their car serviced how satisfied they are.
Unfortunately, the answer is that you should not continue to drive the vehicle any further than you absolutely have to. The problem that caused the check engine light could be any one of hundreds. Potentially, it could be a very serious problem that could be made more serious (and more expensive) by driving the car. It could also be something so inconsequential as you failed to twist the gas cap tightly enough the last time you filled the tank. I have never completely understood why car manufacturers don’t enhance the warning system to differentiate between small problems that can wait and those that could be catastrophic. What a shame it would be to ruin a family’s vacation because they failed to screw down their gas cap tightly or some other minor problem that could have waited weeks to address! My guess is that the reason manufacturers do not enhance their check engine light computer system is simply because of the increased cost. I’ll bet that the cost of a motel overnight would be a lot more than the manufacturer would have had to spend to make the stay unnecessary.
The vast majority of the time the check engine light comes on, it is not serious enough to rush to your dealer. The problem is that you can’t say for sure if this is one of those times. In fact, the service advisors in many dealerships are so used to check engine lights coming on for minor problems like loose gas caps that they often mistakenly advise customers not to worry about it and to bring the car in “when you get a chance”. This works 90%+ of the time, but that 10% when it is serious can be very expensive. In fact, if the car is under warranty and you continue to drive the car when the check engine light comes on, you could void your warranty. If your check engine light comes on, pull over to a safe place and check to be sure your gas cap is screwed on tightly. That is the problem more than half of the time. If that doesn’t make the light go out, bring the car to your dealer ASAP.
The dealer has a diagnostic machine, called a “scan tool” which deciphers the trouble codes stored in your car’s computer. This code doesn’t necessarily tell the technician exactly what the problem is. Usually it just indicates an “area of concern”. He must do further diagnostic tests to determine the exact problem. Often there are more than one problem and symptom. Sometimes a problem will cause the check engine light to go on and then the problem “goes away”. If the problem does not reoccur during a certain number of times that you start the engine, the trouble code is removed from memory. Most of the reasons your check engine light will come on are environmentally related. If our cars did not have to meet such tight emission standards, you would practically never have a check engine light go on. This is one of the prices we are paying for clean air.
All too often, the check engine light will come back on right after you have had your car worked on for that very reason. Many people immediately assume that the dealer did not fix the car right the first time and charged them for work that wasn’t necessary. This can be the case if the dealer’s technician was careless or wasn’t properly trained. But, not infrequently, the technician can do everything right and the light still comes back on after the repair is made. This is because there are often multiple problems that contribute to the symptom causing the check engine light to go on. Or, there could be a completely new problem unrelated to the first. Remember that there are hundreds of reasons that this one red light can come on. It takes a very well trained, conscientious technician to come up with the right fix.
The best thing you can do is to choose the dealer to whom you trust your car with great care. You do not have to have your car serviced at the dealer from whom you bought your car, but you should use a dealer franchised to service that make of car. Check with the Better Business Bureau, County Office of Consumer Affairs, and the State Attorney General’s office on the track record of the service department you choose. Ask friends and neighbors who drive your make of car where they have their car serviced how satisfied they are.
Friday, September 01, 2006
Translating Misleading Car Ads
In previous columns I have recommended that you avoid reading most cars ads in the newspaper and in direct mail. Most TV and radio car ads are similarly misleading. My suggestion is that you carefully choose the precise year, make, and model you want with the precise accessories and get at least 3 legitimate bids from car dealers on the Internet or, next best, at the dealerships. However, if you do find yourself perusing the large number of car ads in the local paper, here are some translations of common misleading ads. I took these straight from a local paper.
20% to 40% OFF MSRP. Never buy a car based on how big a discount you are quoted. Always calculate the price you are willing to pay based on an accurate understanding of the cost of that vehicle. Different makes and models have different markups and factory incentives can cause the true markup to vary widely. What sounds like a big discount may also pay the dealer too big a profit.
LIQUIDATION SALE. Most of the time you pay just as much for a car during a “sale” as you do without a sale. The only exceptions are factory incentives which do have an expiration date. A “sale” is what advertisers refer to as a “call to action”. They are looking for something that will motivate you to come in today, rather than procrastinate. It doesn’t seem to matter if the motivation is untrue.
UP TO $15,000 OFF. Many dealers have an additional markup on top of the manufacturer’s suggested retail price, MSRP. They commonly label this a “Market Adjustment Addendum”. This can be thousands of dollars. Discounting a car thousands of dollars means nothing if the dealer just added a “Market Adjustment Addendum” for an amount equaling or exceeding the discount.
STK#62029A. When you see a number like this next to the price of a new car, it means that that is the only car you can buy for that price. The number is the stock number for that specific car which is supposed to tell you that this is the only car at this price. Many of these ad cars are of undesirable colors and accessories. They are advertised below cost and the loss is charged to advertising if they have to sell one. You chances of buying one of these are slim and none.
CREDIT PROLEMS ARE NO PROBLEM. This type of ad is particularly insensitive and distasteful. It is meant to attract people who have such bad credit that they think they cannot obtain financing. Unfortunately, there are people whose credit is so bad that no lender will offer them financing. These people are disappointed and embarrassed when they learn the truth that “credit problems can be, in fact, big problems”.
MINIMUM $10,000 TRADE-IN ALLOWANCE. This is just like the huge discounts. A trade in allowance means nothing if the car has been marked up high enough to offset the extra trade-in allowance.
WITH ACCEPTABLE CREDIT. This allows dealers to add a fine print disqualifier which is an extremely high Beacon score that disqualifies 99% of the car buying population. It is used in conjunction with very low lease payments or purchase payments. It is a “bait and switch” which affords the dealer the opportunity to raise your payments (and his profits) because your credit is “not acceptable”…to him.
PRICE GOOD ON DATE OF PUBLICATION ONLY. You will find this only in the fine print at the bottom of the page. This is added protection to the dealer, in addition to the stock # mentioned above, that he won’t have to sell you the car at the advertised price.
AS LOW AS or FROM. You will see this in smaller print next to a very big price and a big, pretty picture of the car. This is a further “C.Y.A.” for the dealer so that he doesn’t have to sell that car at that price.
WE’LL BEAT ANY OTHER DEALER’S PRICE OR THE CAR IS FREE. Some claims are so outlandish that I hesitate to bother warning you about them. Applying the old saying “if it sounds too good to be true, it probably isn’t” should protect most people from this kind of ad.
I could go on and on, but I hope I have already made my point. Car dealers’ ads are the absolutely worst way to decide which car you should buy and what price you should pay. When you respond to most car dealers’ ads, they are in control. You must take control and let the dealer respond to your carefully thought out and researched choice of year, make, model, accessories, and what price you offer to pay him.
20% to 40% OFF MSRP. Never buy a car based on how big a discount you are quoted. Always calculate the price you are willing to pay based on an accurate understanding of the cost of that vehicle. Different makes and models have different markups and factory incentives can cause the true markup to vary widely. What sounds like a big discount may also pay the dealer too big a profit.
LIQUIDATION SALE. Most of the time you pay just as much for a car during a “sale” as you do without a sale. The only exceptions are factory incentives which do have an expiration date. A “sale” is what advertisers refer to as a “call to action”. They are looking for something that will motivate you to come in today, rather than procrastinate. It doesn’t seem to matter if the motivation is untrue.
UP TO $15,000 OFF. Many dealers have an additional markup on top of the manufacturer’s suggested retail price, MSRP. They commonly label this a “Market Adjustment Addendum”. This can be thousands of dollars. Discounting a car thousands of dollars means nothing if the dealer just added a “Market Adjustment Addendum” for an amount equaling or exceeding the discount.
STK#62029A. When you see a number like this next to the price of a new car, it means that that is the only car you can buy for that price. The number is the stock number for that specific car which is supposed to tell you that this is the only car at this price. Many of these ad cars are of undesirable colors and accessories. They are advertised below cost and the loss is charged to advertising if they have to sell one. You chances of buying one of these are slim and none.
CREDIT PROLEMS ARE NO PROBLEM. This type of ad is particularly insensitive and distasteful. It is meant to attract people who have such bad credit that they think they cannot obtain financing. Unfortunately, there are people whose credit is so bad that no lender will offer them financing. These people are disappointed and embarrassed when they learn the truth that “credit problems can be, in fact, big problems”.
MINIMUM $10,000 TRADE-IN ALLOWANCE. This is just like the huge discounts. A trade in allowance means nothing if the car has been marked up high enough to offset the extra trade-in allowance.
WITH ACCEPTABLE CREDIT. This allows dealers to add a fine print disqualifier which is an extremely high Beacon score that disqualifies 99% of the car buying population. It is used in conjunction with very low lease payments or purchase payments. It is a “bait and switch” which affords the dealer the opportunity to raise your payments (and his profits) because your credit is “not acceptable”…to him.
PRICE GOOD ON DATE OF PUBLICATION ONLY. You will find this only in the fine print at the bottom of the page. This is added protection to the dealer, in addition to the stock # mentioned above, that he won’t have to sell you the car at the advertised price.
AS LOW AS or FROM. You will see this in smaller print next to a very big price and a big, pretty picture of the car. This is a further “C.Y.A.” for the dealer so that he doesn’t have to sell that car at that price.
WE’LL BEAT ANY OTHER DEALER’S PRICE OR THE CAR IS FREE. Some claims are so outlandish that I hesitate to bother warning you about them. Applying the old saying “if it sounds too good to be true, it probably isn’t” should protect most people from this kind of ad.
I could go on and on, but I hope I have already made my point. Car dealers’ ads are the absolutely worst way to decide which car you should buy and what price you should pay. When you respond to most car dealers’ ads, they are in control. You must take control and let the dealer respond to your carefully thought out and researched choice of year, make, model, accessories, and what price you offer to pay him.
Six Most Common Questions Asked by Car Buyers
At my dealership every other month we invite all of those who recently purchased a used or new vehicles from us to our “New Owners’ Event”. Our customers enjoy a buffet dinner and meet my customer relations manger, service manager, parts manager, top technician, and me. There is a lot of Q & A and here are the six most frequently asked questions with my answers.
(1) What grade of gasoline I should use? Use the grade of gasoline recommended by your manufacturer. Most cars run just fine on regular, but higher compression engines, and all V-8’s, require high test. There is absolutely no value to using a higher test, more expensive gas than your car’s manufacturer recommends.
(2) What brand of gasoline should I buy? I recommend that you stick with major national brands and avoid the independents. If you buy from Sunoco, Amoco, Mobil, etc, you are far less likely to get contaminated gasoline. Condensation and debris in your gas can cause some very expensive repairs. I also recommend that you buy your gas from the same gas station as often as possible. If you do have a problem, you will know exactly where it happened. Gas stations that do a high volume and regularly refill their tanks are less likely to have condensation or debris in their tanks.
(3) If I don’t put very many miles on my car, do I still need to bring it in every 6 months for service? The first recommended service is usually after 6 months or 5,000 miles. Even if you have driven only 1,000 miles in 6 months, you should bring it in to have your oil changed, your tires checked, and your car inspected. Time is as big a cause of wear on your car as is mileage, especially in South Florida with our high humidity, heat, and salt air.
(4) How often should I check my tire pressure? Having the correct tire pressure is one of the most underrated maintenance requirements on a car. Not only will maintaining correct tire pressure maximize the life of your tires, but it will increase your gas mileage, and make your car safer to drive by improving the braking and handling. Check your tire pressure at least one every month.
(5) How important is it to have my car serviced by the dealer rather than an independent garage? If you have a trusted mechanic or you are a competent “do-it-yourselfer” there is nothing wrong with having routine maintenance, like oil changes and tire rotations, done outside of your car dealership. I do recommend that you bring it to your dealer for checkups periodically and always for any kind of repair. Today’s automobile “is not your father’s automobile”. It is a very sophisticated, highly complex, computerized machine. Factory authorized dealers must invest hundreds of thousands of dollars in computerized diagnostic machinery and maintain a staff of highly trained technicians who specialize in that make of car.
(6) Should I use regular or synthetic oil? As long as you change your oil at least every 5,000 miles or 6 months (whichever comes first), you cannot go wrong with either. Synthetic oils are much more expensive than regular oils and are touted by some to be superior. I have heard pundits on both sides of this issue. If you choose to use synthetic oil because you believe it is better, be sure that you still change your oil at least every 5,000 miles or 6 months.
(1) What grade of gasoline I should use? Use the grade of gasoline recommended by your manufacturer. Most cars run just fine on regular, but higher compression engines, and all V-8’s, require high test. There is absolutely no value to using a higher test, more expensive gas than your car’s manufacturer recommends.
(2) What brand of gasoline should I buy? I recommend that you stick with major national brands and avoid the independents. If you buy from Sunoco, Amoco, Mobil, etc, you are far less likely to get contaminated gasoline. Condensation and debris in your gas can cause some very expensive repairs. I also recommend that you buy your gas from the same gas station as often as possible. If you do have a problem, you will know exactly where it happened. Gas stations that do a high volume and regularly refill their tanks are less likely to have condensation or debris in their tanks.
(3) If I don’t put very many miles on my car, do I still need to bring it in every 6 months for service? The first recommended service is usually after 6 months or 5,000 miles. Even if you have driven only 1,000 miles in 6 months, you should bring it in to have your oil changed, your tires checked, and your car inspected. Time is as big a cause of wear on your car as is mileage, especially in South Florida with our high humidity, heat, and salt air.
(4) How often should I check my tire pressure? Having the correct tire pressure is one of the most underrated maintenance requirements on a car. Not only will maintaining correct tire pressure maximize the life of your tires, but it will increase your gas mileage, and make your car safer to drive by improving the braking and handling. Check your tire pressure at least one every month.
(5) How important is it to have my car serviced by the dealer rather than an independent garage? If you have a trusted mechanic or you are a competent “do-it-yourselfer” there is nothing wrong with having routine maintenance, like oil changes and tire rotations, done outside of your car dealership. I do recommend that you bring it to your dealer for checkups periodically and always for any kind of repair. Today’s automobile “is not your father’s automobile”. It is a very sophisticated, highly complex, computerized machine. Factory authorized dealers must invest hundreds of thousands of dollars in computerized diagnostic machinery and maintain a staff of highly trained technicians who specialize in that make of car.
(6) Should I use regular or synthetic oil? As long as you change your oil at least every 5,000 miles or 6 months (whichever comes first), you cannot go wrong with either. Synthetic oils are much more expensive than regular oils and are touted by some to be superior. I have heard pundits on both sides of this issue. If you choose to use synthetic oil because you believe it is better, be sure that you still change your oil at least every 5,000 miles or 6 months.
The Internet Price is the Lowest Price for a New Car
Ten years from now, I believe that at least 75% of all new cars will be purchased over the Internet. Right now it is less than 20%. The reason is simply that that Internet price is usually your lowest price and more and more car buyers are figuring that out every day. Dealers must give their best price to a prospect inquiring over the Internet because that dealer probably will have only that one chance to sell the car. If they try “the old negotiating game” the Internet prospect will simply choose the lowest price from several other quotes he gets. When my friends ask me to advise them on how to get the best price on a new car, I always tell them to use the Internet. If they ask me for the best price on my product, Toyota, I give them my Internet price.
I am not suggesting that you don’t visit your local dealer to see, touch, smell, and drive the new vehicles you are considering. This is very important. You can’t make a valid, final decision on which new vehicle is best for you by solely reading data and looking at pictures on the Internet, Consumer Reports, or any other source. Research of that nature is important, but you should finalize your decision with visits to the dealers to actually experience the vehicle.
Once you have made your final decision on the year, make, model, color, and accessories, you are ready to sit down at your PC and choose the dealer from whom you will buy this specific vehicle. If you are not handy with a PC, ask a friend or relative who is. First, go to the manufacturer’s Web site like www.ford.com, www.toyota.com, www.chevrolet.com, etc. You will be able to type in your zip code to find all of the dealers of that make within a given radius, usually about 40 miles, giving you 3 or 4 dealers. To expand the radius, choose another zip code further from yours. The dealers within your radius will show their Web site addresses. Click on their Web site and ask for a quote on the specific car you have selected. Most Web sites have a page for what is called a “quick quote”. You type in the year, make, model, color, and accessories. It will also ask you for your name, telephone number, address, if you have a trade (check “no”), whether you are ready to buy now (yes), and other questions. All you really need to fill out is year, make, model, and accessories and your email address. If you prefer not to be contacted by phone, don’t fill in the phone number. If they require it before you can submit your request, type in any 10 digits so that the Web page will allow you to. If you can’t find a “quick quote” page, just email your request to their Internet sales department.
Depending on your PC and typing skills this whole process should take less than half an hour. Think of all the time, gasoline, shoe leather, and especially aggravation you are saving compared to visiting as many dealerships in person. The time it will take to get back quotes varies from dealership to dealership. You may get some back within a few minutes, some will take a few hours, and some may take a day or two. Believe it or not, some might not respond at all. There are even a few dealers who will not quote a price on the Internet, but try to lure you into their store with false promises. Ignore them. I recommend that you get a minimum of 3 valid price quotes on your specific vehicle. It’s so easy to get quotes, why not get a half dozen or so? You are not necessarily even limited by driving distances. If the best price is from a dealer who is too far away, show that quote to a dealer nearer you and ask him if he will match it.
There are some things that you must be careful about. Be sure that that the price you get is an “out the door” price. That is a price which excludes only federal, state, and local fees and taxes which are usually just for tax and tag. Most dealers in Florida tack on a fee or fees of their own which are variously referred to as “dealer fee”, “delivery fee”, “documentary fee”, etc. This is illegal in many states, but not in Florida. These fees vary from around $500 to $900. Be sure that this fee which is just profit to the dealer is included in your “out the door” price. Also be absolutely certain that you are comparing “apples and apples”. When you select your low bid, double check that this dealer is quoting you on the same year, make, model, and accessories as the other dealers. A good double-check is to compare the MSRP. The MSRP, manufacturer’s suggested retail price, will be identical on identically equipped cars of the same model and year. Also, be sure that the car you have the price on will be there when you come in. Give them deposit on your credit card to hold the car for you.
Internet car buyers are the wave of the future. The retail car business is going through rapid changes and the old fashioned, price-haggling way of buying cars is slowly but surely becoming obsolete. If you haven’t already, now is the time to join the ranks of the smart, sophisticated car buyers.
I am not suggesting that you don’t visit your local dealer to see, touch, smell, and drive the new vehicles you are considering. This is very important. You can’t make a valid, final decision on which new vehicle is best for you by solely reading data and looking at pictures on the Internet, Consumer Reports, or any other source. Research of that nature is important, but you should finalize your decision with visits to the dealers to actually experience the vehicle.
Once you have made your final decision on the year, make, model, color, and accessories, you are ready to sit down at your PC and choose the dealer from whom you will buy this specific vehicle. If you are not handy with a PC, ask a friend or relative who is. First, go to the manufacturer’s Web site like www.ford.com, www.toyota.com, www.chevrolet.com, etc. You will be able to type in your zip code to find all of the dealers of that make within a given radius, usually about 40 miles, giving you 3 or 4 dealers. To expand the radius, choose another zip code further from yours. The dealers within your radius will show their Web site addresses. Click on their Web site and ask for a quote on the specific car you have selected. Most Web sites have a page for what is called a “quick quote”. You type in the year, make, model, color, and accessories. It will also ask you for your name, telephone number, address, if you have a trade (check “no”), whether you are ready to buy now (yes), and other questions. All you really need to fill out is year, make, model, and accessories and your email address. If you prefer not to be contacted by phone, don’t fill in the phone number. If they require it before you can submit your request, type in any 10 digits so that the Web page will allow you to. If you can’t find a “quick quote” page, just email your request to their Internet sales department.
Depending on your PC and typing skills this whole process should take less than half an hour. Think of all the time, gasoline, shoe leather, and especially aggravation you are saving compared to visiting as many dealerships in person. The time it will take to get back quotes varies from dealership to dealership. You may get some back within a few minutes, some will take a few hours, and some may take a day or two. Believe it or not, some might not respond at all. There are even a few dealers who will not quote a price on the Internet, but try to lure you into their store with false promises. Ignore them. I recommend that you get a minimum of 3 valid price quotes on your specific vehicle. It’s so easy to get quotes, why not get a half dozen or so? You are not necessarily even limited by driving distances. If the best price is from a dealer who is too far away, show that quote to a dealer nearer you and ask him if he will match it.
There are some things that you must be careful about. Be sure that that the price you get is an “out the door” price. That is a price which excludes only federal, state, and local fees and taxes which are usually just for tax and tag. Most dealers in Florida tack on a fee or fees of their own which are variously referred to as “dealer fee”, “delivery fee”, “documentary fee”, etc. This is illegal in many states, but not in Florida. These fees vary from around $500 to $900. Be sure that this fee which is just profit to the dealer is included in your “out the door” price. Also be absolutely certain that you are comparing “apples and apples”. When you select your low bid, double check that this dealer is quoting you on the same year, make, model, and accessories as the other dealers. A good double-check is to compare the MSRP. The MSRP, manufacturer’s suggested retail price, will be identical on identically equipped cars of the same model and year. Also, be sure that the car you have the price on will be there when you come in. Give them deposit on your credit card to hold the car for you.
Internet car buyers are the wave of the future. The retail car business is going through rapid changes and the old fashioned, price-haggling way of buying cars is slowly but surely becoming obsolete. If you haven’t already, now is the time to join the ranks of the smart, sophisticated car buyers.
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
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.
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.
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.
Friday, July 21, 2006
NEGOTIATING TO BUY A CAR
Buying a new or used car is one of the last bastions of the negotiated price. In some countries, negotiation is fairly commonplace in retail stores, but in America virtually all products are sold at a fixed price. Some of us are simply not comfortable negotiating and most of us are not very good at it.
As I have said in previous columns, the best way to buy a new or used car in on the Internet. You can do your research on which car is the best to suit your needs, get guidance on what kind of price you can expect to pay, and finally get quotes from several dealerships on that specific car. However, everybody is not “Internet savvy” and if you are not, you may find it necessary to walk into a car dealership and negotiate for the lowest price.
If you are not comfortable with negotiation, the best advice I can give you is to bring someone along with you who is. Car sales people and sales managers are trained experts in negotiation. This is how they make their living. Here are some tips for you if you decide that you want to negotiate the best price on a car.
(1) If you have a trade-in, keep that separate from the negotiation. Negotiate the best price on the car you are buying and then negotiate the best price you can get for your trade-in. Don’t fall for the old “over allowance” on your trade-in ruse. This is where the dealer makes up the price of car you are buying higher so that he can make you think you are getting more for your trade-in.
(2) Never buy a car on payments alone. Always negotiate the best price you can for the car you are buying and then calculate your best payment when you have negotiated for the best interest rate.
(3) Be sure you understand how the dealer arrived at his retail price. Federal law dictates that a Monroney label be affixed to every vehicle with a manufacturer’s suggested retail price. Many dealers mark that up with another label, often referred to as a “Market Adjustment Addendum”. This markup can be several thousands of dollars.
(4) Expect the first price you are given to be substantially higher than what you can buy the car for. Sales people and sales managers are trained to “start high because you can always come down”. Don’t be afraid to offer substantially less than the initial asking price. You should look at just like the car salesman does, but the reverse…”start low because you can always go higher”. If the salesman excepts your first offer, you probably offered too much. In fact, shrewd car sales people are trained to always ask for more money, even if the offer is good one. This is because they don’t want to “scare off the customer” by telegraphing to the customer that he “left some money on the table”.
(5) If the sales person asks you for a deposit before he will begin negotiating, determine whether the deposit is refundable. Florida law requires a nonrefundable deposit be disclosed in writing on the receipt. If this is printed on your receipt, insist that this be waived in writing on your buyer’s order. If the dealer will not agree to this, be warned that he may be able to keep your deposit if you change your mind about buying the car.
(6) Be prepared for a lot of “back and forth” when the salesman takes your offer back to the manager. When you get close to finding a mutually acceptable price, the manager himself will often come to talk to you. Don’t be intimidated stick to your guns even when they tell you this is “positively, absolutely the lowest price”. Even if you think you do have the lowest price, a great strategy is to get up, walk out of the showroom, and get into your car to drive away. This will often precipitate an even better price. When you try this, the worst case scenario is that you really do drive home, but you can always return and buy the car the next day for the last price they quoted you. They may tell you that you have to buy today, but nine times out of ten that is a bluff. The only exception is when there are factory rebates and incentive expiring.
(7) The last day of the month really is a good time to buy a car. The salesman’s bonus money is maximized, the factory incentives are in effect, the managers are desperate to make their quotas, and it is the one time of the month when the buyer has the best edge in negotiation.
Caveat emptor “let the buyer beware” could have been written specifically for what you can expect when you walk into a car dealership to negotiate the best price. You are up against experts who negotiate for living. But, if you will follow my advice above, you should be able to hold your own and maybe even get a great deal.
As I have said in previous columns, the best way to buy a new or used car in on the Internet. You can do your research on which car is the best to suit your needs, get guidance on what kind of price you can expect to pay, and finally get quotes from several dealerships on that specific car. However, everybody is not “Internet savvy” and if you are not, you may find it necessary to walk into a car dealership and negotiate for the lowest price.
If you are not comfortable with negotiation, the best advice I can give you is to bring someone along with you who is. Car sales people and sales managers are trained experts in negotiation. This is how they make their living. Here are some tips for you if you decide that you want to negotiate the best price on a car.
(1) If you have a trade-in, keep that separate from the negotiation. Negotiate the best price on the car you are buying and then negotiate the best price you can get for your trade-in. Don’t fall for the old “over allowance” on your trade-in ruse. This is where the dealer makes up the price of car you are buying higher so that he can make you think you are getting more for your trade-in.
(2) Never buy a car on payments alone. Always negotiate the best price you can for the car you are buying and then calculate your best payment when you have negotiated for the best interest rate.
(3) Be sure you understand how the dealer arrived at his retail price. Federal law dictates that a Monroney label be affixed to every vehicle with a manufacturer’s suggested retail price. Many dealers mark that up with another label, often referred to as a “Market Adjustment Addendum”. This markup can be several thousands of dollars.
(4) Expect the first price you are given to be substantially higher than what you can buy the car for. Sales people and sales managers are trained to “start high because you can always come down”. Don’t be afraid to offer substantially less than the initial asking price. You should look at just like the car salesman does, but the reverse…”start low because you can always go higher”. If the salesman excepts your first offer, you probably offered too much. In fact, shrewd car sales people are trained to always ask for more money, even if the offer is good one. This is because they don’t want to “scare off the customer” by telegraphing to the customer that he “left some money on the table”.
(5) If the sales person asks you for a deposit before he will begin negotiating, determine whether the deposit is refundable. Florida law requires a nonrefundable deposit be disclosed in writing on the receipt. If this is printed on your receipt, insist that this be waived in writing on your buyer’s order. If the dealer will not agree to this, be warned that he may be able to keep your deposit if you change your mind about buying the car.
(6) Be prepared for a lot of “back and forth” when the salesman takes your offer back to the manager. When you get close to finding a mutually acceptable price, the manager himself will often come to talk to you. Don’t be intimidated stick to your guns even when they tell you this is “positively, absolutely the lowest price”. Even if you think you do have the lowest price, a great strategy is to get up, walk out of the showroom, and get into your car to drive away. This will often precipitate an even better price. When you try this, the worst case scenario is that you really do drive home, but you can always return and buy the car the next day for the last price they quoted you. They may tell you that you have to buy today, but nine times out of ten that is a bluff. The only exception is when there are factory rebates and incentive expiring.
(7) The last day of the month really is a good time to buy a car. The salesman’s bonus money is maximized, the factory incentives are in effect, the managers are desperate to make their quotas, and it is the one time of the month when the buyer has the best edge in negotiation.
Caveat emptor “let the buyer beware” could have been written specifically for what you can expect when you walk into a car dealership to negotiate the best price. You are up against experts who negotiate for living. But, if you will follow my advice above, you should be able to hold your own and maybe even get a great deal.
Saturday, July 15, 2006
COPING WITH INSURANCE COMPANIES AND BODY SHOPS
I guess one of the worst things that can happen to us in our driving experience is to be involved in an accident. Hopefully there are no injuries, but we still have to cope with our insurance company and maybe the other party’s insurance company. We also have to select a body shop or accept the one recommended by our insurance company.
After you notify your insurance company of your accident, your first big decision is to select a body shop. This is every bit as important as selecting the right doctor or dentist, except they are working on your car, not your body or teeth. Most of the time your insurance company will recommend a body shop. Consider their recommendation, but also do your own due diligence. If you choose the body shop, that body shop is working for you and is your advocate, not your insurance company’s. Remember that your insurance company is the one paying for your repairs and one of their very important considerations is the cost of repairing your car. They, of course, are interested in a quality repair too, but cost is, at least, an equal consideration. Your number one concern should be quality, not cost. Your insurance company may tell you that it’s OK to have your car repaired at the body shop of your choice, but they “won’t guarantee the repairs”. A reputable body shop will guarantee their own repairs and you don’t need two guarantees. I strongly recommend that you give first consideration to a body shop owned by a franchised dealer of the make of your car. This body shop will have an advantage of faster availability of factory parts, more experience repairing your make and model, and the technicians will usually be better trained in repairing your make of car.
Obviously, a car that has been damaged and repaired is worth less than one that has not been repaired. Even with a quality repair, a late model car with substantial repairs could be worth thousands of dollar less when you trade it in. This sad fact is a very good reason you should be sure that your car is ruled a “total” by your insurance company if it meets their criteria. A car that will cost 70% of its current market value to repair is usually considered a total and your insurance company should replace your car, not repair it. If it’s a close call resulting in a decision to repair the vehicle, you should get a second opinion. This is the time when it’s good to have a body shop that you chose that is beholding to you and not your insurance company.
Your insurance policy will dictate the parts the insurance company may use in repairing your car. It is highly desirable to use OEM parts (parts manufactured by the company that built your car) as opposed to “after-market” parts often manufactured in Taiwan or another foreign county. These parts are copies of OEM parts and much cheaper than the genuine parts. They may not fit as well or have the correct tolerances. You should find out before you purchase your policy if it will provide for OEM parts. If your insurance company won’t authorize OEM parts, ask if you can pay the difference. It is worth the investment.
It is very difficult to forecast accurately the time it will take to complete a major repair. This is because there is usually hidden damage that is impossible to detect until the car has been disassembled. When hidden damage is detected, the body shop must call your insurance company’s adjustor to authorize supplemental work. This work may require parts that were not anticipated in the initial repair and they have to be ordered. There is no one to blame for this; it’s just a fact of collision repair. The bottom line is to expect delays when your car is having a major repair. A quality body shop will “under promise and over deliver” by building in some extra time to allow for the inevitable supplemental repairs.
Be sure you understand what degree of rental reimbursement coverage you have. It varies from policy to policy. Some policies have no rental car reimbursement whatsoever, some have partial, and some complete. In a major repair, you can be without your car for over a month.
In summary, choose your insurance company carefully and read your policy carefully before you commit. Choose your body shop just as carefully. You need a quality body shop owned by the franchised dealer for your make of car that will be an advocate for your interests, more than your insurance company’s.
After you notify your insurance company of your accident, your first big decision is to select a body shop. This is every bit as important as selecting the right doctor or dentist, except they are working on your car, not your body or teeth. Most of the time your insurance company will recommend a body shop. Consider their recommendation, but also do your own due diligence. If you choose the body shop, that body shop is working for you and is your advocate, not your insurance company’s. Remember that your insurance company is the one paying for your repairs and one of their very important considerations is the cost of repairing your car. They, of course, are interested in a quality repair too, but cost is, at least, an equal consideration. Your number one concern should be quality, not cost. Your insurance company may tell you that it’s OK to have your car repaired at the body shop of your choice, but they “won’t guarantee the repairs”. A reputable body shop will guarantee their own repairs and you don’t need two guarantees. I strongly recommend that you give first consideration to a body shop owned by a franchised dealer of the make of your car. This body shop will have an advantage of faster availability of factory parts, more experience repairing your make and model, and the technicians will usually be better trained in repairing your make of car.
Obviously, a car that has been damaged and repaired is worth less than one that has not been repaired. Even with a quality repair, a late model car with substantial repairs could be worth thousands of dollar less when you trade it in. This sad fact is a very good reason you should be sure that your car is ruled a “total” by your insurance company if it meets their criteria. A car that will cost 70% of its current market value to repair is usually considered a total and your insurance company should replace your car, not repair it. If it’s a close call resulting in a decision to repair the vehicle, you should get a second opinion. This is the time when it’s good to have a body shop that you chose that is beholding to you and not your insurance company.
Your insurance policy will dictate the parts the insurance company may use in repairing your car. It is highly desirable to use OEM parts (parts manufactured by the company that built your car) as opposed to “after-market” parts often manufactured in Taiwan or another foreign county. These parts are copies of OEM parts and much cheaper than the genuine parts. They may not fit as well or have the correct tolerances. You should find out before you purchase your policy if it will provide for OEM parts. If your insurance company won’t authorize OEM parts, ask if you can pay the difference. It is worth the investment.
It is very difficult to forecast accurately the time it will take to complete a major repair. This is because there is usually hidden damage that is impossible to detect until the car has been disassembled. When hidden damage is detected, the body shop must call your insurance company’s adjustor to authorize supplemental work. This work may require parts that were not anticipated in the initial repair and they have to be ordered. There is no one to blame for this; it’s just a fact of collision repair. The bottom line is to expect delays when your car is having a major repair. A quality body shop will “under promise and over deliver” by building in some extra time to allow for the inevitable supplemental repairs.
Be sure you understand what degree of rental reimbursement coverage you have. It varies from policy to policy. Some policies have no rental car reimbursement whatsoever, some have partial, and some complete. In a major repair, you can be without your car for over a month.
In summary, choose your insurance company carefully and read your policy carefully before you commit. Choose your body shop just as carefully. You need a quality body shop owned by the franchised dealer for your make of car that will be an advocate for your interests, more than your insurance company’s.
“RED FLAGS” TO WATCH FOR WHEN BUYING A CAR
The “Big Sale Event”. If you look in today’s newspaper, you will find that most car dealers in your area are having a sale of some kind. It may be because of a current holiday, “too large an inventory” of cars, to “reduce their taxes”, “the manager is out of town”, or some other nefarious lure. Advertising 101 says that you should give the prospective buyer a “motive to act”. Unfortunately it doesn’t matter whether the motive is real or not. The fact is that most car dealers do not sell their cars for less during “sales events” than they do at any other time. I point this out so that you don’t rush your buying decision. If you don’t buy a car during the tight time constraints of a phony sales event, you can negotiate just as good a price the next day. The exceptions to this are legitimate rebates offered by the manufacturer. These often expire at the end of the month which is one reason why the “last day of the month” really can be the best time to buy a car”.
“The Price I’m giving you is only good for today”. If a salesman or sales manager tells you that, it is probably only a tactic to push you into buying the car. The only exception would be the expiration of a factory rebate. Once again, this is simply a tactic to push you into buying before you have a chance to do your comparative price shopping.
“Take the car home tonight and see how you like it”. Driving the car you are considering buying home can be a good thing. It will give you a lot better idea about how the car performs, etc. However, there are two reasons the car salesman offers this. One is that you must leave the vehicle you might be trading in with the car dealer. This means that you cannot shop prices with other dealers. The second reason is the psychological impact of parking that new car in your driveway where your family and neighbors can see it. The slang expression for this is “the puppy dog”. If you were to take home a little puppy from the pet store, you and your children would fall in love with her and could not return her the next day.
“You must give me a deposit before I can give you a price”. This has to be one of the most insulting ways that some car salesmen have of intimidating a prospective buyer. It’s amazing how many people actually succumb to this which allows the salesman an element of control….you can’t leave until they give you your money back. If confronted with this ultimatum, simply walk away.
“Are you ready to buy a car today”? Often times, if you say no to this question, the salesman will tell you to come back when you are ready to buy. He will tell you to shop around and come back with your best price so that he can beat it. The salesman is afraid that, if he does give you his best price, you will go somewhere else and that salesman will beat it. Of course, that is the whole idea of competition and that is exactly what you want to do. If the salesman is afraid to give you a price because his competitor will beat it, it must not be the best price!
“Make me an offer and I will take it to my manager for approval”. This is a very common tactic which you have probably already encountered. It is not unethical. It is simply part of negotiating. I point this out so that you are fully aware that this is part of the negotiating game. Be aware, that no matter what price you offer, the manager will ask you for more money. Even if you offered a high price that would be a very large profit for the dealer, the manager would ask you for more money. The psychology behind this is that if you suddenly accepted the offer, you may frighten the customer by thinking he had offered too much (which he would have). When you negotiate, you must be well versed on what is a good price for that car. Start out below the best price you think you can buy it for. If you cannot negotiate a price close to your best price, get up and leave. Continue this process with another car dealer.
The “really big” discount”. The other day a friend showed me direct mail advertising piece from a new car dealer with a coupon good for $2,000 discount on any car in his inventory. This is very common for newspaper and TV ads too. Federal law requires new cars to have a price sticker on the window named the Monroney label. A discount from this suggested retail price gives you a fair basis for comparison. Unfortunately, most car dealers today, increase the suggested retail price substantially with the use of an addendum to the Monroney sticker often referred to as a “Market Adjustment Addendum”. This “adjustment” can be several thousands of dollars. Be sure you know what the asking price is for the car when you have been offered a “big discount”.
The best protection from all of the above is to find a car dealer that you can trust. Ask your friends about their experiences with dealers and call the Better Business Bureau and the County Office of Consumer Affairs. All things being equal choose the dealership that has been in business a long time and an owner or general manager who will make himself accessible to you and all of his customers.
“The Price I’m giving you is only good for today”. If a salesman or sales manager tells you that, it is probably only a tactic to push you into buying the car. The only exception would be the expiration of a factory rebate. Once again, this is simply a tactic to push you into buying before you have a chance to do your comparative price shopping.
“Take the car home tonight and see how you like it”. Driving the car you are considering buying home can be a good thing. It will give you a lot better idea about how the car performs, etc. However, there are two reasons the car salesman offers this. One is that you must leave the vehicle you might be trading in with the car dealer. This means that you cannot shop prices with other dealers. The second reason is the psychological impact of parking that new car in your driveway where your family and neighbors can see it. The slang expression for this is “the puppy dog”. If you were to take home a little puppy from the pet store, you and your children would fall in love with her and could not return her the next day.
“You must give me a deposit before I can give you a price”. This has to be one of the most insulting ways that some car salesmen have of intimidating a prospective buyer. It’s amazing how many people actually succumb to this which allows the salesman an element of control….you can’t leave until they give you your money back. If confronted with this ultimatum, simply walk away.
“Are you ready to buy a car today”? Often times, if you say no to this question, the salesman will tell you to come back when you are ready to buy. He will tell you to shop around and come back with your best price so that he can beat it. The salesman is afraid that, if he does give you his best price, you will go somewhere else and that salesman will beat it. Of course, that is the whole idea of competition and that is exactly what you want to do. If the salesman is afraid to give you a price because his competitor will beat it, it must not be the best price!
“Make me an offer and I will take it to my manager for approval”. This is a very common tactic which you have probably already encountered. It is not unethical. It is simply part of negotiating. I point this out so that you are fully aware that this is part of the negotiating game. Be aware, that no matter what price you offer, the manager will ask you for more money. Even if you offered a high price that would be a very large profit for the dealer, the manager would ask you for more money. The psychology behind this is that if you suddenly accepted the offer, you may frighten the customer by thinking he had offered too much (which he would have). When you negotiate, you must be well versed on what is a good price for that car. Start out below the best price you think you can buy it for. If you cannot negotiate a price close to your best price, get up and leave. Continue this process with another car dealer.
The “really big” discount”. The other day a friend showed me direct mail advertising piece from a new car dealer with a coupon good for $2,000 discount on any car in his inventory. This is very common for newspaper and TV ads too. Federal law requires new cars to have a price sticker on the window named the Monroney label. A discount from this suggested retail price gives you a fair basis for comparison. Unfortunately, most car dealers today, increase the suggested retail price substantially with the use of an addendum to the Monroney sticker often referred to as a “Market Adjustment Addendum”. This “adjustment” can be several thousands of dollars. Be sure you know what the asking price is for the car when you have been offered a “big discount”.
The best protection from all of the above is to find a car dealer that you can trust. Ask your friends about their experiences with dealers and call the Better Business Bureau and the County Office of Consumer Affairs. All things being equal choose the dealership that has been in business a long time and an owner or general manager who will make himself accessible to you and all of his customers.
Monday, July 03, 2006
What to do if you are Treated Badly by a Car Dealer
Hopefully the sales or service experience with your car dealer went well. But, sometimes they don’t. Now what? The advice I give you applies to all business transactions, not just car dealerships.
Your first step should be to communicate your complaint ASAP to the General Manager or, preferably, the owner. Be sure that you are talking to the real owner or the real general manger. A General Manager is over all employees in the entire company. A general “sales” manager is not a General Manager. If you can’t reach the owner (Many car dealerships are either publicly owned or owned by absentee owners), ask to see the General Manager. Often times the owner or General Manager is not aware of everything that goes on with all of their customers and employees. They might have new employee that should not have been hired or received inadequate training. Or, they may simply have a “rotten apple” that should not be working there. The ease and speed with which you can meet and speak to a General Manager or an owner is a pretty good measure of the integrity of the company as whole. If the owner or General Manager cares enough about her customers to allow total access, it is probably a very good place to do business. In fact, it is a good idea to find this out before you do business.
If you cannot reach the owner or General Manager, contact the manufacturer who franchises the dealership. Car dealers have a contract with the manufacturer called a franchise agreement and this contractual agreement requires that they treat their customers with courtesy, efficiency and integrity. Most manufacturers have a customer hotline that allows you to call and register a complaint directly. The owner or General Manager of the dealership will be made aware of your complaint. As you might guess, the manufacturer has quite of bit of clout with their dealer. If a dealer does not live up to his side of the contract, his franchise could be canceled or not renewed.
The third step I recommend, if numbers one and two don’t work, is to contact a consumer agency like The Better Business Bureau or the County Office of Consumer Affairs. These agencies will send your complaint to the dealership and request a written reply. No car dealership or business wants an unanswered complaint in the file of a governmental or private consumer agency.
Your last resort is to contact an attorney. I list this last because hiring an attorney just about eliminates the possibility that you can quickly, amicably and inexpensively resolve your differences with the car dealer. Be very careful which attorney you choose. Try to choose one that is primarily interested in helping you and not in generating large fees for himself. Under the Florida Unfair and Deceptive Trade Practices Act, an attorney is entitled to his fees and costs from the defendant in a lawsuit if he wins. These fees can be much larger than the amount of your claim, motivating an unethical attorney to spend more time than is needed and dragging out a case to generate more fees than are necessary. This can be very dangerous for you because the car dealer’s attorney’s fees run roughly parallel to your lawyer’s and you can be held liable for those if you lose the case.
Hopefully you never have to resort to the final step of hiring a lawyer. In trying steps one, two, and three try to present your complaint as concisely and politely as possible. You have every right to be angry when you are taken advantage of, but try to let your anger subside before you speak to or write to someone about your problem. We all react negatively to someone who is profane, raises his voice, or is sarcastic. Your goal of communicating and resolving your complaint is best reached by communicating clearly, politely and concisely.
Your first step should be to communicate your complaint ASAP to the General Manager or, preferably, the owner. Be sure that you are talking to the real owner or the real general manger. A General Manager is over all employees in the entire company. A general “sales” manager is not a General Manager. If you can’t reach the owner (Many car dealerships are either publicly owned or owned by absentee owners), ask to see the General Manager. Often times the owner or General Manager is not aware of everything that goes on with all of their customers and employees. They might have new employee that should not have been hired or received inadequate training. Or, they may simply have a “rotten apple” that should not be working there. The ease and speed with which you can meet and speak to a General Manager or an owner is a pretty good measure of the integrity of the company as whole. If the owner or General Manager cares enough about her customers to allow total access, it is probably a very good place to do business. In fact, it is a good idea to find this out before you do business.
If you cannot reach the owner or General Manager, contact the manufacturer who franchises the dealership. Car dealers have a contract with the manufacturer called a franchise agreement and this contractual agreement requires that they treat their customers with courtesy, efficiency and integrity. Most manufacturers have a customer hotline that allows you to call and register a complaint directly. The owner or General Manager of the dealership will be made aware of your complaint. As you might guess, the manufacturer has quite of bit of clout with their dealer. If a dealer does not live up to his side of the contract, his franchise could be canceled or not renewed.
The third step I recommend, if numbers one and two don’t work, is to contact a consumer agency like The Better Business Bureau or the County Office of Consumer Affairs. These agencies will send your complaint to the dealership and request a written reply. No car dealership or business wants an unanswered complaint in the file of a governmental or private consumer agency.
Your last resort is to contact an attorney. I list this last because hiring an attorney just about eliminates the possibility that you can quickly, amicably and inexpensively resolve your differences with the car dealer. Be very careful which attorney you choose. Try to choose one that is primarily interested in helping you and not in generating large fees for himself. Under the Florida Unfair and Deceptive Trade Practices Act, an attorney is entitled to his fees and costs from the defendant in a lawsuit if he wins. These fees can be much larger than the amount of your claim, motivating an unethical attorney to spend more time than is needed and dragging out a case to generate more fees than are necessary. This can be very dangerous for you because the car dealer’s attorney’s fees run roughly parallel to your lawyer’s and you can be held liable for those if you lose the case.
Hopefully you never have to resort to the final step of hiring a lawyer. In trying steps one, two, and three try to present your complaint as concisely and politely as possible. You have every right to be angry when you are taken advantage of, but try to let your anger subside before you speak to or write to someone about your problem. We all react negatively to someone who is profane, raises his voice, or is sarcastic. Your goal of communicating and resolving your complaint is best reached by communicating clearly, politely and concisely.
Tuesday, June 27, 2006
Should I lease or buy my next car?
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.
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.
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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