In 2007, I walked into the lot of Brandon Honda looking for a price on a used Honda S2000. I was in love with the car, and the salesperson who saw me walk onto the lot must have sensed it.
“Great car! We can get you into a used one with about 60,000 miles for around $20,000” he said cheerfully.
My heart sunk. $20,000 for a car? My max budget was $15,000. When I told the salesman so, he laughed at me. No way, he said. No way I will ever find an S2000, even used, for less than 20k in decent condition. Those cars were way too popular, and way too expensive. I was out of my mind.
Being laughed at by a car salesman is not a fun experience for anyone. So when I came back to Brandon Honda to have my new silver S2000 with red leather interior, front and rear spoilers, and 20,000 miles on it have some warranty work done on it a few weeks later, I made a special point to show my new (used) car to that same sales guy. Purchase price: $14,000.
Ha. Ha. Ha. Eat that, Jeff the sales guy.
In college, I took a class on marketing psychology, and one of the case studies was car dealerships. More than anything else I took away from that class was one huge, glaring lesson: the game is rigged.
From the second you walk in the door of any car dealership, you are now part of a system specifically designed to extract as much money out of you as possible. First, you’ll meet a sales person who’s only interest is in “being your friend” and “helping you find a car”. The dealerships don’t always put the prices on the car any more… your new sales friend will have to go check on that for you. But for now, why don’t you sit in the car? Take it for a test drive? Smell the new car smell? Do anything that will make you form an emotional attachment to the car… see yourself in the car… mentally decide that this is YOUR car?
Once you have “bonded” with a specific vehicle, it’s time for good cop, bad cop. The sales guy is your ally, your friend, your buddy, and he walks you over to his humble desk on the sales floor. Can he get you a coke? A bottled water? Over refreshments, he explains that his sales manager is a price stickler. He lives in a back office somewhere, and he’s scary, but your new sales guy friend is willing to go back there and bravely fight for a great price for you on the car you want, because that’s the kind of friend he is. Sit tight right here, I’ll give that sales manager guy a fight if he wants one. We are buddies, after all.
Inevitably, he comes back with bad news. He fought hard, but the sales manager wouldn’t come down that far in price. Your sales friend didn’t want to disappoint you, though, and so he fought hard to get you a bit of what you wanted. You both feel defeated together, but your sales guy friend consoles you by telling you that it’s still a pretty good deal.
Once you agree to this (after however much good cop/bad cop/back and forth it takes), now it’s time for financing. Ooh, they can get you a great deal on that for sure. The car doesn’t REALLY cost (insert too high figure here), it only costs (insert low monthly figure here). See? You really can get all the extras you wanted on the car, like floor mats and whatnot! It will only cost you an extra $20 a month (over 72 months)! What a bargain! And with your horrible credit score of 760, they are still able to get you a low 5.99% interest rate.
What nice guys!
So after you sign all this paperwork and drive off the lot, your car depreciates in value about 9% instantly and you are now the proud slave… er… owner of a new car for the next 6 years! Congratulations!
Whether we’ve walked out of a dealership with a car or not, almost everyone can relate to this experience. In almost all cases, we didn’t come out ahead, even if we leave thinking we did.
Here’s the truth. In a few months, the new car smell goes away, but the payments don’t. Your sales guy friend? He is laughing at you before you drive off the lot. He never walked back and fought with his sales manager for you. That 30 minutes he was back there, leaving you sitting at his desk in the lobby, he was drinking a coffee with his sales manager and talking about the latest Bucs game. That great interest rate he got you? You could have found cheaper yourself if you had bothered to drive a half a mile down the road to your local credit union. You got screwed because you walked onto their turf and played their game, their way.
So how do you win this fight against the car stealerships? How do you find a great deal on a car for yourself with all this stressful nonsense to wade through?
It’s actually much easier than you think.
Step 1: Buy Used
When new cars decrease in value so much right off the bat, this is a no brainer. New cars lose 70% of their value in the first 4 years on ownership. Very few of us could afford to take a financial hit like that, so why do it when you don’t have to? There are tons of great used cars out there that look and drive like new.
Step 2: Realize that the Only Way to Win Against a Car Dealership is to Deny Them Battle
Yes, some people end up getting good deals at car dealerships, but those people are few and far between (there are exceptions to every rule. but the rule is not determined by the exception, is it?). If you can’t be swayed away from stealerships, the best way to get a good deal on a new car is to figure out exactly what you want before you go on the lot, create a form fax or email with your info and intention to buy this car, and then offering the dealership the opportunity to compete for your business. Then, send it to as many dealerships as you can and see what happens.
The problem with this tactic is that, first, when you cut into the profit of the dealership they are less likely to want to deal with the hassle, and second, your new car still deprecates by 9% when you drive it off the lot, even if you did get a good deal.
A much better plan is to realize that the deck is stacked against you when you deal with dealerships at all. You are much more likely to come out ahead when you deal with a regular Joe like yourself. Luckily, there are many tools already in place to help you do just that.
Step 3: Secure Financing if you need it.
This part is really easy if you have cash. Cash is by far the best choice if you have it. If you must do financing though, visit your local bank or credit union, explain that you are looking for an auto loan and are shopping rates, and see what they have to offer. Once you select a financial institution, they will be able to tell you how much they can loan you and at what rate.
Step 4: Do Your Research and Find a Car
Get online. There are ton’s of places to research used cars and find the one you want (and how much you should pay for it, like Edmunds.com or KBB.com. Once you have a year, make, and model in mind, start surfing for local people selling the car you want on websites like AutoTrader.com or CraigsList.com. The biggest advantage of this is that the people selling their cars are PEOPLE, not dealerships with overhead that need to make a profit. People can be talked to, reasoned with, and are more concerned in most cases about not getting screwed themselves than in screwing you.
Meet them in person, test drive the car, and if you like it, agree on a price with the understanding that you will have to have your mechanic look at the car (at your expense) and make sure there is nothing wrong with the car before you commit to buy it.
Step 5: Have your Mechanic Look at the Car
Hopefully you have a mechanic you trust, but even if you don’t, taking it to a random mechanic with good online reviews who YOU are paying to tell YOU if the car is a lemon is much better than trusting someone else or their mechanic. Have them do a thorough vehicle inspection and provide you with a report on everything that is wrong with the car.
Step 6: Haggle
Armed with your mechanics report, you’ll be better able to settle on a final price. Is the car in spectacular condition? Great, pay the price you talked about in step 4. Does it need new tires, belts, headlight bulbs, etc? Use that to politely haggle and get the price down lower. Once you and the seller agree on a final sales price, you are good to go.
Step 7: Take the Seller to the Bank/Credit Union you Visited in Step 3
If you are paying cash, you’ll just need the seller to sign over the title to you in exchange for the money. If you need financing, take them back to your credit union and let the staff there do all the paperwork for you (our last car a few weeks ago we did financing for just for this, with plans to pay it off with cash after all the paperwork was complete. It really reduces the hassle factor).
Step 8: Transfer Tags, Pay Taxes, Drive your New Car
Now head over to the DMV. If you financed the car, you will need to put a lien on the vehicle in favor of the bank who loaned you the money. You’ll also need to pay taxes on the vehicle and transfer tags from your old vehicle to your new one (or get new tags if you don’t have your old vehicle). This is not a huge deal, but “tax, tag, and title” is another thing stealerships charge you an arm and a leg for.
Once all that is done, congratulations! You now have yourself a heck of a deal on a reliable used car. You have had it inspected by someone you trust, you have purchased it way below what you would be able to buy the same car at a dealership for, and you have secured an interest rate (if you needed financing) better than you would have been able to get otherwise. This process MIGHT be a little more of a hassle than going to a dealership (maybe), but its certainly worth the thousands of dollars you saved. I personally would rather deal with this than with an entire car stealership staff trying to screw you out of as much money as possible.
Plus, now you can go visit Jeff the sales guy and laugh at him from the seat of your new car!