Tea Leaves

My recent experience buying a car has taught me a few lessons that I hope I remember next time. I’m going to write them down so I don’t forget.

Let me acknowledge up front that these lessons are colored by my personal hangup about “not getting ripped off”, where “ripped off” is defined as “paid too much for a given new car, by some semi-objective standard.” If you don’t share that hangup, a lot of this won’t apply to you.

Also, many people believe that the best way to avoid paying too much money for a new car is to buy a great used car. I am sure that this is true. However, I’m too stupid about cars to pick a good used car, so someone else will have to help you with that, if that’s how you want to go.

So warned, please read on.

Don’t Panic

If you, like me, are the sort of person that drives your car until it dies, then you may end up shopping for a car because you need a car immediately. This is not a state that leads to good decision making. If you can borrow a car while you shop, do it. If you need to, rent a car for a couple of weeks while you shop. The couple of hundred dollars you put into a rental will probably pay off on the back end (and if you’re lucky, you may even be able to rent one of the cars you’re thinking about buying).

Your Local Car Dealer

Your local car dealer is an obstacle between you and the car you want to buy. The most useful thing about them is that they have the car you want to test drive. So go test drive a bunch of cars! If you walk into the dealership knowing that you’re not going to buy a car, test driving cars can be fun.

In this round of test drives, I always told the dealer I wasn’t buying that day, and they always assumed that I was lying. Since I assume that everything that comes out of the dealer’s mouth is a lie, too, that ended up working out for the most part. This leads directly to a rule of thumb I have.

Rule #1: When test driving, never sit anywhere in a car dealership except in the car you want to test drive. At one Suzuki dealership I went to, the dealer managed to get me into his office and promptly disappeared to “look up a few numbers.” So I left. This is related to…

Rule #2: Don’t talk money with your test-drive dealerships. Nothing good can come of it, for reasons that I’ll explain later on.

If you don’t have your heart set on a particular car, test drive lots of cars. Enjoy the process. But most importantly, when you’ve winnowed the candidate cars down to a short list…

Rule #3: Test drive the cars you’re serious about back-to-back. Your memory will play tricks on you, and lie to you. Driving the cars you are interested in one after the other will crystallize their differences. After my first round of drives, I ranked the Mazda3 and the Volkswagen Jetta TDI as offering about the same driving experience, with only a slight edge to the TDI. When I drove them back-to-back in my second round, the TDI trounced the Mazda3 by a mile.

Rule #4: Note the most common option packages while you’re test driving. Walk around the lot a little. Ask the dealer about which options the cars on the lot have. This is going to come into play later when you make an offer on the car by email.

Decisions

Eventually, you’ll get down to a short list of cars, and you need to pick one. My only piece of advice here is “Make the decision at home, not at the dealership.”

Research

The gold standard for information about car prices is Edmunds.com. You tell their web site what car you’re looking for, what options you want, and it boils it down to what they call their “True Market Value”, or “what others are paying.” If you’re a kick-ass hardcore negotiator, or if you’re buying a car that isn’t hugely popular, the TMV is probably higher than what you could negotiate. But if you’re that sort of person, you stopped reading this article ten paragraphs ago because you love buying cars. I, on the other hand, hate buying cars. For me, the Edmunds TMV basically is my “sucker line”: if I can get to the TMV, then I at least know I’m paying about the average of what everyone else is paying. Edmunds also has a pretty nice system to inform you of manufacturer to consumer (or dealer) incentives and financing deals. You’re going to use Edmunds to figure out what you plan on offering for the car.

If you are buying a hugely popular car (poster child: the MINI Cooper), the TMV will be around MSRP. Congratulations! Your negotiation just got easier because you’re likely going to just go into your MINI dealer and pay them MSRP. Stop reading, and go do that, and enjoy your new car.

A word about options: Edmunds lets you configure the options packages in great detail. You want to configure a car with the ‘common’ option packages that you discovered while you were at the dealer doing test drives. The more specific your needs are, the more difficult the next phase of the process is going to be. So it’s in your best interests to be happy with the typically configured car in the class you’ve chosen.

Financing

This is up to you, but if you can finance the purchase yourself or through some service like E-Loan, you’re removing another variable from the negotiation, which is always good. Obviously if the manufacturer has a good incentive, you may want to take them up on it.

The Pitch

So you know what car you want. You know how much it costs. You know exactly what color you want (Note: I don’t really care about the color of my car, and maybe you don’t either. Car dealers get really, really upset if you tell them “I could care less what color the car is.” You can literally watch their synapses start to fry if you say this to them. So be a mensch, and just say “black” if you really don’t care.) You’re going to send an email to every dealer of the brand you want within a certain radius of where you live. Your email will read like this:

Dear car dealer:

I plan on buying a car within 3 days. I will be purchasing a 2009 Vauxhall Vectra, black with the gold lamé interior, with the bluetooth (VVBT3) and navigation (VVNV3) options, for the price of $18,600, plus tax and transfer. I will be [paying cash / financing through Vauxhall Credit with a down payment of $4,000]. I [will / will not] be trading in a car. I will be buying the car from the first dealer to meet my offer. You may contact me by email, or call me at (555) 555-1212.

I look forward to hearing from you,

A. Buyer

This letter does a few things to get the dealers’ attention:

• It tells them that you are ready to buy, and aren’t just looking.
• It tells them that you know how you are paying.
• It tells them that you know exactly what you want.
• It tells them that time is of the essence, and if they want to sell you a car, they have to act immediately.

In other words, you’re removing variables from the negotiation, and making it easier to get to yes. In some sense, the Internet can be used to reverse the traditional equation: the dealer applies pressure to get you to agree to his demands on a timeframe of his choosing. Instead, you’re setting the timeframe, and the price, and pressuring the dealer into agreeing to your terms.

Probably the most significant variable in any car deal is the value of your trade-in. I have absolutely no advice on how to negotiate this, because I never trade in my cars. I’d be interested in hearing from alert readers on this topic, though.

You’re giving them your phone number because that’s how you’re going to let them close the deal. You shouldn’t expect a bid by email: I’ve seen them, but many dealers don’t like to give them because they (reasonably) assume you’ll turn around and use them to bargain someone else down. If you’ve done your homework, you should be able to get to a deal within 2 or 3 short phone calls. The main thing you want to nail down on that call is what the tax and transfer fees are going to be, exactly, so that you’re not ambushed by the Finance guy during the actual closing.

How many dealers should you contact? Well, how far you’re willing to drive to pick up your car is up to you, but obviously, the farther you’re willing to go, the more likely someone is going to meet your price. I arbitrarily picked 150 miles as my limit, and I found someone within 40 that met my price.

A variant of this tactic is to not name a price, but to ask the dealer for their best price, and indicate that you’ll buy from the dealer with the lowest bid. Some people report success with this method. From my perspective, it just means having to have longer conversations with car dealers, which is something I attach a pretty high monetary cost to.

Does It Work?

Well, it worked for me. The phenomenon that’s happened over the past few years is that most dealerships have ended up with a salesman – typically just one – who works mainly on Internet sales. This is the guy you want to be talking to, because he gets compensated primarily on volume rather than on commission. I can tell you that when I decided to buy an Acura TSX, I made the mistake of talking price with one dealer in person. They wasted 45 minutes of my time trying to tell me that they couldn’t possibly come within $2,000 of the Edmunds TMV price of the car. The next day, I had 3 dealers from around the state calling me up practically fighting each other to accept my offer.

Why would the dealership I visited be so stupid? I have a few theories. First, they assume that they have an inside line because you are already in their lair. You visited that dealer because they’re conveniently located to you, and that convenience is worth a premium. Second, I think that there’s a specific personality disorder you need to be a car salesman, and there’s a level of narcissism that simply doesn’t want to be outnegotiated. When you make a firm offer by email, those complexes and emotions just don’t come into play in any real way. It’s a purely financial decision. Since you did your homework, you already know that you’re making an offer that is close to what other dealers have accepted, so the odds are on your side.

If you’re looking for a car, I hope this little essay is of some help. Good luck in your search. Kill a dinosaur for me.