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Hagerty
Hagerty Employee

8 steps to buying a new car without getting ripped off

Meet Joe Schreiber. He's just like you, an automotive enthusiast who wants the most bang for his buck. He's been everything from a jail guard to an amateur boxer to a teacher of high-school special education: all character-building endeavors that led to him become a gifted lawyer and writer.
https://www.hagerty.com/media/buying-and-selling/8-steps-to-buying-a-new-car-without-getting-ripped-...
76 REPLIES 76
Tinkerah
Engineer

Is there's no prepayment penalty I'd happily take whatever financing they offered, drive off and pay the loan off in full with the first payment.
Sajeev
Community Manager

A lot of time (all the time?) there is no prepayment penalty...well, for the buyer. 

If you pay off the loan in the first 3-6 months (from what I've seen, that duration likely varies) the finance company does a "chargeback" which penalizes the dealership. If you were happy with the dealership experience, you wouldn't want to do that to them. More info/commentary here: https://www.reddit.com/r/askcarsales/comments/eupo0m/financing_chargebacks/ 

DanC
Intermediate Driver

As a former salesman, I knew the dealers got "holdback". By that, the dealer would get 2-3% of the invoice price paid to them in the form of parts credit. So even selling the car at "invoice" they were getting 2-3% of that invoice in profit...as long as they did service work and sold parts. My old dealer principal (boss) told me there were months when he would get $15-20,000 in credit against his parts bill. (he had a HUGE CHevy story) My boss said it was GM's method of ensuring that the dealership had a robust service dept. It made some sense. I also learned that neither new or used sales were the heart of the dealership's sales profits...it was the F&I (finance and insurance) office. The banks were kicking back 2-3% of the financed amount as a reward to the dealership for bringing the bank a loan. The extended warranties were split 70-30 with the dealership, so that $300 warranty (1980s) was worth $40-50 to the dealership. So back then...that $5000 car sale might represent $600 in profits to the dealership in parts and kickbacks...and the salesman got none of it. If those hold true today, that $40,000 pickup might be worth $2500 in profit even if sold at "invoice". Let's not get started talking about mudflaps, floormats, or pseudo ceramic coatings.....
Sajeev
Community Manager

And holdback is why it's important for customers to buy cars at or near invoice price...even in today's tough times. 

tarpatel
Pit Crew

hello Sajeev, i am still confused what the best sources are to get the invoice price. Where or how do you get invoice price on a vehicle?

And when you mean "buy cars at or near invoice" is that drive out price or pre taxes/title etc?

Sajeev
Community Manager

Invoice price is often found on Edmunds.com after a fair bit of clicking around. I haven't checked in a few years to see if they still provide it without forcing you to give more information out to a local dealer to complete a sale. 

 

I do not mean the drive out price, that was only the price of the vehicle alone. I find it hard to believe that anyone, even an employee at a high volume dealership with a lot of holdback, can get a "drive out" price for a car that's anywhere near invoice price in our current economy.  

Kinda wish I could have gone over all these terms in the story, but it was long enough as-is. 

TG
Gearhead

Step 1 - Don't go
That has been my technique my entire adult life, but I doubt it works well for everyone
Now for full disclosure, I did buy one used car at a dealership, but it entirely matched my specifications, I test-drove it, went home and did some research on the car, then came back later and made the purchase
bassicdave
Pit Crew

I can tell you with certainty that everything accepted as "conventional wisdom" in car buying is out the window. Forget it. You WILL get ripped off.

The trick now is to get ripped off as little as possible.

There is no inventory. You can't make it magically appear. You can order a car but it may never get built. You can order a car but there are 1000 other cars ahead of yours that dealers (who make all the money for the factories) will get every priority. The factory has zero interest in building a low-margin car for you. You want a high-margin car? Great! Dealers have plenty because that's all the factory is shipping.
How to get ripped off as little as possible?
Forget negotiating on price or ADM. They'll throw your a$$ in the street.
Some - but not all - dealers are refusing outside financing. They will only accept financing arranged through the dealer where they can mark up the rate 1%-2% (or more in some states.) You want the car? It's gotta be cash or their financing. Most dealers have relationships with local credit unions. Those that require in-house financing will gladly finance through your CU but only through them rather than you bringing the CU check to buy the car.
Dealers that don't use ADM add over-inflated accessory packages. The optional alarm system for $695 is now $1295 and you can't leave without it. Paint sealant, some crap they put on the glass, door trim, roof racks, mudflaps, or whatever else they can stuff it - if you want the car, you're paying for all of it.
And the best part? It can't be residualized in a lease! You pay for all of it - then give it all back to the dealer at the end of the lease!
On top of that, the finance companies have radically increased lease money factors, which fattens their profits.
There is no escape - and when the market finally settles down, you'll be so buried in negative equity that your car will have to double as a casket.

The way to get minimally screwed is to pay cash or have pre-arranged financing with a dealer that will accept that check. Avoid the ADMs but you're going to pay for the addendum stuff but at least you're getting something for your money. I have not done any real-time analysis on leases but today, I don't have much faith in lease viability for as long as there are ADMs, addendum stickers, and inflated money factors.
Tinkerah
Engineer

Is leasing ever wise? I've never understood the benefit.
Sajeev
Community Manager

Leasing used to be: 

1. Significantly cheaper due to inflated residual values when the lease ended, which doesn't seem to be a thing any more. Basically OEMs were robbing Peter to pay Paul, essentially taking some loss when the vehicle goes to auction after the lease.  

 

2. Better for a company's cash flow because of possible tax benefits (long story, and I am not an accountant qualified to dig into it) and the insanely low "money factor" when financing a lease. 

 

I am not sure if either benefit exists today, but poking around a Luxury OEM's website for a few minutes might shed some light on this. 

Gary
Detailer

Last May I decided to look at a new Camry hybrid. So I happened to see Truecar on line and decided to give it a try. I already new what I was willing to pay and I expected to haggle to get it. Anyway, I got three nearby dealership spec’s and prices with vin number. The Olympia Toyota dealer beat the other two by $3000 and Even had way more options including a sunroof. Went down put a deposit, car would be coming in the end of the week (had no Camrys on the lot, but 3 scheduled for delivery). They called Thursday car was in, went over paid and picked it up. No hassles, no trying to sell me anything else $23665 + tax & license easiest car I ever bought and they were about $2000 under what I was expecting. I still don’t know how they could sell it for that. Guess that’s why they don’t have any on the lot
MrKnowItAll
Advanced Driver

IMHO:
Now is the time to drive the wheels off your present car. This is not a time to buy a car, (it's a time to sell an extra one). Just wait....this is the absolute best advice anyone can hand you... this market will turn.
Don't be a sucker, don't make an emotional impulse buy, know what you're interested in and the bottom line. It's easy today- years ago Edmunds had a quarterly magazine listing car wholesale/retail. Now, it's online.
Oh, having a good credit rating makes it much much easier.
New cars are an absolute waste of money. A disposable depreciating commodity, they are one of the worst financial drains on most peoples pocketbook. I'm a car guy, through and through, and as a result I really know my P's and Q's. I did buy a new car from a dealer; it was a new 2001 sitting on the lot when the 2003's were coming off the truck. Got it for less than a comparable used. 20 years later, I'm still driving it. I definitely got my moneys worth.
Would I buy a new car again? Nope. There's too many good used cars out there.
Dealerships are usually not the place to buy. They know all the ropes: most people don't. There's still plenty of "4square" dealers playing the **bleep** car. Used, private party, for cash.
Tinkerah
Engineer

My 12 year old daily, that I'm delighted with, has some 212k on it and as long as I can keep rust at bay it'll be cheaper to just keep fixing/replacing what breaks. Added benefit is not buying into more tech than I already have.

golfnut53083
Intermediate Driver

I am totally amazed that in all these comments, I have yet to read anything about people going by dealer reviews that other customers have left citing positive experiences. In the "old days" we called it "word of mouth" and you knew if your neighbor got treated well at a store, you would too. You need to make a positive connection with a salesperson who will treat you fairly. YES, there are a few good dealers and salespersons around, but are not easy to find. Check out reviews and ask around. You'll be glad you add this task to your due diligence!
Sajeev
Community Manager

Reviews only take you so far, especially with bigger dealerships.  Going by reviews alone isn't a good idea, as the person that earned the 5-star review could very well be gone, as employee turnover in Automotive Retail is stunningly high. This is less so at smaller dealerships, as the owner/General Manager might assist in all deals and ensure they beat everyone's price on the vehicle, the financing, the trade, etc. 

Going by reviews alone might set you up for a huge disappointment when you walk into the dealership, it's best to also do the 8 steps listed in the article. 

Tinkerah
Engineer

They **bleep**!
Sajeev
Community Manager

@Tinkerah PLEASE send me a PM if you didn't use a naughty word but the system still filtered it out, please! 

Tinkerah
Engineer

Oops, sorry everyone, I left the laptop unattended again:

 

Marveltop.jpg

janedon
Advanced Driver

WoW-this sounds like just another Game-- Only Now-without even a Test drive of the actual car your buying- I Do agree that your usually better off having your own financing though-- & of course having a good ideal of the prices - then it's simple--be willing to walk out if the deal doesn't suit you needs/wants, as long as your offer is reasonable- Most of this ""Advice" here (from someone who is in the business of selling cars) is just to convince you your smarter than they are & get you to buy from them- A mind game if you will-
aviones1
Pit Crew

Regarding the following comment on the "tax savings" ""If you don’t like the dealership’s offer (keep in mind the tax savings) then just sell directly to Carmax, Carvana, etc."" the hyperlink under "TAX SAVINGS" takes you to another page that indicates that the vehicle sales tax will be reduced by the amount of Trade-in . I believe that to be misleading . You pay sales tax on the vehicle value, at least that is true in California.
Sajeev
Community Manager

It's a reality in other states, I didn't know CA did that! I will edit that copy to reflect this. 

JayUtah
Pit Crew

The snarky comments here are unwarranted. I would love it if people in car sales could go and demand your wages decrease to make them happy all while telling you what awful people you all are.
02-orignal-ownr
Advanced Driver

Back in 1985 my lovely wife wanted a new car, and settled on a dark blue Buick Century. We hadn't bought a new cr since 1969, so I tried a different tactic. I looked at a Buick sales catalog, picked out the options we wanted with RPOs, wrote this up on a sheet of paper, and took it around to all the Buick dealerships in the area--seven, IIRC. This was long before the internet so it was in person.

When we walked into the dealership and were greeted by a sales person, I handed him/her the build sheet and said, "We're taking bids on a new Century. Here's how we want it equipped, so it'll have to be built--you won't have this option list on your lot. No trade in. My contact information is on the sheet. We'll be ordering it in the next two weeks; lowest bid wins. And remember, you won't have to floorplan this car, we'll pick it up the day it arrives."

You never have seen so many shocked looks in your life. Apparently none of these salespersons had ever had a customer approach them that way. We took the top two bids, gave each dealer another chance to sharpen their pencils, and ended up with exactly what we wanted for well under sticker. We did the same thing with an Acura Legend purchase in 1991, and by 2007, when we could do it by internet (and broaden our dealership range to 125 miles) we we bought a RAV4 the same way.
RossA
Pit Crew

Re: The finance piece, research the rate for someone with your credit rating, then tell the dealership they can finance the car if they can beat that rate.
I’ve had the bank tell me they cannot finance me as cheaply as I can get through the dealership-so I think the dealer has access to better rates, they just don’t give it to the buyer unless their buyer seems to know to squeeze them on it.
I have a small fleet for my business so I am usually buying a car at least once per year, and this has always gone well for me.
Sidebar-if you are looking to lease, check Edmunds lease forums. Google the year and model you want, followed by “…edmunds leasing forum” They are very active, and give the base money factor and residual for every scenario, month by month. Knowing those 2 numbers will save you at the dealership. I leased a Macan GTS from an out of state dealer, and spent 10 minutes on the phone arguing with the finance guy about the MF. Me, “Your numbers are wrong”, him, “No they aren’t.”
The next day the GM called me to confirm my numbers. He said they always bump the rate because most of the time the customer doesn’t qualify for Tier 1, and it’s easier to tell them the payment will be lower, than quoting a lower number and trying to go up.! Yes, he actually said that. My take is they always bump the rate and most lessees never realize it, but he would never admit that.
pdcurran
New Driver

Brooklynraised
New Driver

I bought my first new vehicle, a 1997 GMC Yukon through a new-at-the-time online service called AutobyTel. I had gone to a number of nearby dealers and had gotten what I thought were crazy prices, so I thought I'd give it a shot. My wife thought I was crazy. By the end of the day after sending my request in, I was called by a manager at one of those dealerships I had previously been to, and he gave me the best price anyone had quoted me (including their sales staff when I visited). The next day I put a deposit down and got the vehicle in 6 weeks (factory order). Unfortunately, by the time I was shopping for my 2005 GMC Envoy, AutobyTel had become a shell of itself. Pricing was no longer competitive, and they were no longer able to supply the detailed dealer price lists for the vehicle and options like in 1997. I got the same results at other services that had popped up by then. Obviously the industry started cracking down on these services.
Hacksaw
Detailer

If you purchase a new car, you just got ripped off. There is no way a new car should cost what they do. A shiny box filled with rubber hoses, sensors, computers, wires, solenoids and plastic to where you can't see the engine, let alone work on it. Just changed the water pump on my 64 Corvette, 4 bolts, 2 hoses, and a fan, On a new car, you can't find the water pump, it is buried somewhere in a rubber, plastic and wire rats nest. Sounds negative doesn't. I don't call it progress. I would like to see NASCAR teams design and build a car with the requirements that, it must get X gas mileage, burn clean, and achieve 80 mph in 15 seconds. Every piece and part on the engine and drive train must be visible and accessible. Don't let the big three engineers touch it. Then we have a race, 500 miles with 4 mandatory pit stops. First stop, you have to change the water pump. Second stop, you have to change the spark plugs. Third stop, you have to change the valve cover gaskets. Fourth stop, change the intake manifold gaskets. These folks will design and build a car that can be worked on and take home a 5 million dollar prize.