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Knowing what you want -- or need -- before you start making the rounds of dealerships can save both time and money. It's human nature to go looking for a practical family vehicle like a minivan, but be distracted in the showroom by a flashy sport sedan that costs more. Also, more buyers than ever are climbing out of passenger cars and into light trucks -- sport-utility vehicles, minivans, and pickups. Light trucks now account for 55.5 percent of new vehicle sales. Whatever the model, if emotion drives you to an impulsive purchase, you are likely to pay more and suffer regret later. While the nation's economic recovery has been sluggish during the past year or two, new vehicle sales remained reasonably strong, topping 16.86 million units in 2004. That was an increase of just 1.5 percent compared to 2003, according to the National Automobile Dealers Association (NADA). With so many brands and types of vehicles to choose from, consumers have more possibilities than ever. So, automakers have to fight for every sale. Record-high incentives in the form of cut-rate financing and/or cash rebates, which averaged more than $3100 in 2003, certainly helped move the metal. Raj Sundaram, president of the Automobile Lease Guide, predicts average incentives near $3600 in 2005. Affordability remains a key issue among shoppers, especially since the average cost of a new vehicle reached $28,050 in 2004 (according to NADA). Fortunately, initial price increases for 2005 were largely moderate. Many manufacturers are expected to continue offering tempting incentives on some or all of their models during the months ahead. Overall vehicle affordability has actually been improving steadily, according to monthly estimates by Comerica Bank. In 2004, the average new vehicle cost $28,050, approximately 22.4 weeks of median family income. On average, new vehicles were more affordable in 2004 than they'd been in the previous 25 years. Even if cars are more affordable these days, it makes good sense to explore all your options and make informed, practical decisions. In this guide, we’ll arm you with some key survival tips.
To get the right vehicle at the best price, it's important to do your homework before starting to shop. Begin with the basics. Decide how much you can afford and how much you are willing to pay before you shop for a vehicle. If, like most consumers, you have to borrow money, shop for a loan before you shop for a vehicle. Calculate what you'll have to pay each month, including interest. For instance, if you borrow $10,000 for 4 years at 8 percent interest, your monthly payments would be $24.41 times 10, or $244.10. Borrowing that same amount at 8 percent for 3 years would raise the monthly payments to $313.40 ($31.34 times 10). Keep in mind, too, that you'll probably need a down payment of about 20 percent (in the example above, about $2000), unless your trade-in is worth that much. The total of your loan, down payment, trade-in, and any factory rebate will have to cover the price of the car, as well as fees and sales tax. Your bank or credit union can discuss loan options to help you set a realistic price range that fits your means and budget. Buying a new car is a financial stretch for many consumers and out of reach for quite a few. Many have turned to used cars and others to leasing, hoping to avoid a hefty down payment and lower their monthly payment. As greater numbers of consumers wind up in bankruptcy or with insurmountable credit problems, even a used car becomes difficult. Credit-challenged customers are consigned to the rank of sub-prime buyers, who are obligated to pay interest rates far higher than the norm -- assuming they can get credit at all.
Is a Pre-Owned Vehicle Best for You? Buying a secondhand vehicle always carries some risk, and most of them include no warranty. To counteract that concern, almost all automakers have certification programs that operate through their dealers. About 1.58 million certified pre-owned vehicles were sold in 2003. Programs vary, but only vehicles up to a certain age, with less than a specified number of miles on the odometer, are certifiable. Each is given a thorough inspection at the dealership, according to manufacturer directives. Additional warranty coverage is included. Certified used cars cost more, but many consumers are willing to pay extra for the added peace of mind they provide.
Before visiting a dealership at all, gather as much additional information as you possibly can on the vehicles in your price range. Consumer Guide's Car & Truck Test offers prices, evaluations, and other valuable data for virtually all makes and models. Additionally, automakers' brochures and Internet sites can offer other pertinent details, such as exterior-color and interior-trim availability. It's always a good idea to visit an auto show, if one is held in your area, because they present a rare opportunity to compare many makes and models side by side. If possible, rent or borrow the particular vehicle you're considering, so you can take an extended test drive. Perhaps the right "car" for you is a "truck." SUVs, minivans, and pickups are considered "light trucks," which account for more than half of new-vehicle sales. However, some of these vehicles are tall and/or long, so make sure the one you want will fit in your garage. In addition, shorter riders may have trouble entering and exiting tall trucks. Look over the specifications for the vehicle that interests you, comparing them to similar models. Most trucks and SUVs offer four-wheel-drive systems, as do some cars and minivans. To help determine what kind of 4WD system is right for you, consult our four-wheel-drive report. Whichever type of vehicle you choose, select a model with options that suit your needs, not just your desires. Some features may come as stand-alone options only. Or they may be included as part of higher trim levels and/or bundled with other items in specially discounted packages. Generally, it's best to choose the trim level that includes most or all of the features you desire, instead of equipping the base model with individual options. On the other hand, if you'll wind up with added features you may not otherwise want, taking the higher trim level can be a lesser value. Not all features may be available with all trim levels in a given vehicle line, and some features may only be ordered as part of an option package. Take the time to compare ownership costs. Consider factors such as insurance premiums, resale values, and fuel economy-including whether the vehicle requires costlier premium gasoline. Compare financing rates from local lenders to find the best deals on new-car loans. The difference in such costs can add hundreds-even thousands-of dollars to your final purchase price in the long run.
Informed shoppers have an edge when negotiating price. To get the best deal, plan your moves and take your time:
Rebates and incentives are legitimate money-savers, and are likely to be available on plenty of models this year. Incentives are placed on certain models for a specified period of time. They come three ways:
In each case, the manufacturer -- not the dealer -- is the source of this "generosity." Rebates are intended to spur sales of specific models that are already on dealers' lots, so they won't apply to a car you have "built to order." In fact, not many people order vehicles anymore, and many dealers aren't eager to complicate their lives by getting into custom-ordered models. Cash rebates are often advertised. These consist of a check made out from the automaker to the buyer, and they can usually be applied to your down payment. As an alternative, you might get a low-interest loan. Rates typically range from 0.9 to 7.9 percent APR (annual percentage rate), but they can be as low as zero-percent for shorter-term loans. Only the best credit risks qualify for the lowest rates. If you have weak credit, or little credit history, the rate you'll be offered is certain to be higher-often a lot higher. Do the math to determine which is best: the low-interest loan or the cash in hand. Cash might sound good, but in some cases you could save more money with the low-interest loan. Dealer incentives are trickier to learn about, but they're reported in trade magazines, such as Automotive News, and by some newspapers. Basically, a manufacturer is offering dealers specific amounts of cash to sell certain cars. Unless you want one of those particular models, these incentives won't apply to your purchase. Remember that incentives come from the manufacturer, not the dealer. Don't allow a salesperson to use them as a means of "giving you a deal" on the final sale price.
Is "At Invoice" or "Below Invoice" Too Good to be True? It works like this: Many manufacturers refund to dealers a small percentage of the invoice price, such as 2 or 3 percent. These "holdbacks" are distributed to dealers as a lump sum several times a year. Manufacturers might also offer dealers various cash incentives to sell specific cars. These incentives increase as they sell more cars. With these twin "safety nets," dealers can make a profit even if they sell the car at, or sometimes below, invoice price.
Some dealers still cling to traditional hard-sell methods. Others take a kinder, gentler approach. If a specific dealer or salesperson makes you uncomfortable, look elsewhere. Buying a car should be a pleasant experience, so find a dealer that makes it one. Plenty of dealers these days are concerned about generating satisfied customers, who may come back again later for another purchase. Even at dealerships where the atmosphere is congenial, the salesperson's job is to make as much money as possible on each sale. Your quest as a consumer is to get the lowest possible price on the car you want. You need to find a happy medium between getting a good deal and allowing the salesperson a reasonable profit. Dealers are businesses, after all. If they don't make profits, they won't be around long. When you're at the dealership, keep these tips in mind:
Once you're ready to negotiate in earnest with a salesperson, you'll probably be brought to a "closing room" off of the sales floor. If there's a choice, though, ask to stay in one of the cubicles in the showroom. Staying out in the open is generally less intimidating when you face an intense salesperson. Start by making the first offer, which should be at or a little above the vehicle's invoice price. Tell the salesperson how you arrived at this price. Explain that if he or she can meet it or come close, you'll close the deal on the spot. Typically, the salesperson will respond with a counteroffer that will be slightly less than the vehicle's retail price. Next, raise your initial offer by incremental amounts of, say, one or two hundred dollars at a time. With each new figure, the salesperson will likely lower his or her price in the same manner. At some point, the salesperson may leave to "present your offer to the sales manager" (though he may not actually do so). He or she will probably return with another bid. If it's close to your last offer, try standing firm; but if it's considerably higher, continue the negotiating process. If the salesperson goes to "see the manager" a second time, his or her next counteroffer will probably be the dealership's lowest price on that day for that model. At this point, decide whether to accept the offer, leave and try another dealer, or keep negotiating. Once you've reached an agreeable offer, bring up the subject of your trade-in and negotiate that price separately. Getting the absolute lowest figure isn't always worth the aggravation, and can lead to hostility that may be troublesome later. If you show a little willingness to accept a close offer, you may be treated more courteously when you have to return to the dealership. That's human nature. Paying a few dollars more than rock-bottom isn't a tragedy when you're talking about a purchase that runs to many thousands of dollars.
Do you hate to haggle? Here's how to minimize--or even skip--that sometimes-uncomfortable part of the new-car buying process. Alternative choices range from auto brokers and buyers' agents to buying clubs and online services. They operate differently, but these options usually offer a low-price, no-haggle approach to obtaining a new car or truck. An auto broker works with a network of dealers to shop on behalf of the buyer for the best price on a new vehicle. A broker looks for a vehicle that comes closest to your color and equipment requirements while netting that dealership's lowest-price offer, which may be within a few hundred dollars of a car or truck's invoice price. A broker will also inform the buyer of any factory rebates or other promotions. Most brokers can assist with financing, trade-ins, and paperwork; and facilitate the final payment. Once the deal is finalized, the car can usually be picked up at the selling dealership or, for an extra fee, the broker will have it drop-shipped to a local dealer or even driven right to your front door. Note, however, that some states ban auto brokers. Buying services work similarly to auto brokers, selling certain vehicles at deep discounts. Some operate through credit unions; others are affiliated with warehouse-club chains like Sam's Club and Costco. Many clubs will locate a participating dealer in your area that has the vehicle you're looking for and is willing to sell it to you at a predetermined price. Buyers' agents generally charge a flat fee to the shopper, but get no reimbursement from dealers or other organizations. They simply act on your behalf, using their own resources and negotiating skills to get the vehicle you want at the lowest possible price. Another service is the Consumer Guide Personal Auto Advisor (1-888-402-9182). It directs consumers to nearby dealers who offer vehicles at prearranged, non-negotiable prices.
Technology has already transformed the buying process. Most of today's new-car buyers spend at least part of the shopping process on the computer, taking trips to "virtual showrooms" and gleaning valuable information from a variety of Internet sites. Nearly every automaker has a Web site brimming with product information. Some entertain and inform. Many let you "build" your vehicle of choice, get retail prices, and even apply for a loan and make an appointment with a dealership. Others are little more than online sales brochures. More than 94 percent of the nation's 21,640 new-car dealers have a Web site, according to the National Automobile Dealers Association. On most, consumers can browse new- and used-vehicle inventories. Generally, online buying sites enter into financial agreements with a number of auto dealers around the country that pay a fee to be a part of the service. Web sites transmit purchase requests to their participating dealers who respond with prices for that particular model. This means that if you use an alternate buying service, you'll probably still need to go to a dealership for a test drive, to complete the transaction (which may include the usual sales pitch for rustproofing, service contracts, option packages, and other add-ons), and to take delivery. Some people do purchase vehicles directly over the Internet, without setting foot in a dealership, but they're comparative rarities. Analysts don't foresee this trend growing substantially -- especially since a test drive is essential. If you've already driven the type of car that interests you, however, it is possible to arrange all details of a deal without ever leaving the computer. Web shopping is convenient, but research shows the price you receive over the Internet may not be the lowest available. Shop around-online and/or in person-to get the best deal. Remember, much of the preliminary work of buying a new car can be done online, but there is no replacement for spending some time walking dealer lots. While a resource like the Internet or a book can prepare you to go shopping, they are not substitutes for touching and driving a vehicle you are considering.
Buying a new set of wheels is a big event. Rushing to complete the deal may be tempting, but it invites a dealer to take advantage of you. Make sure you understand every charge you're being assessed. Before you sign anything, read the entire contract. Be certain you understand exactly what you're buying. The salesperson will likely pressure you to sign on the spot, to get a legally binding contract that sets the terms of your purchase. Worse, you may be in a hurry because you're eager to drive off in your new car. Once you sign that document, it's difficult, if not impossible, to get it changed. A little time spent reading now can save you a sizable amount of money later. If in doubt, take the contract home. Go over it at your own pace, and contact the dealer if you have any questions. If a dealer doesn't want you to take the contract home, get a written purchase agreement that spells out all the details. Once you're satisfied with that agreement, it can be written into a contract. If a dealer won't provide either, it's probably best to walk away from the deal. Here's what a contract should spell out:
Don't be swayed by low monthly payments if they result in paying a higher total price than is warranted. Too many shoppers think of little beyond the monthly payment, and are easy prey for salespeople who adjust figures to fit that requirement, but which wind up with a far greater total price paid by the end of the contract term. For more information on car buying and selling, check out the links in the top section.
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