Buying a New Car

Purchasing a brand new car can be a daunting task, especially for a first-time buyer. In this lense, I will give a first-hand account of my new-car-buying adventures over the last several months. I'll include the various tricks and tips I picked up along the way, resources I sought out, and roadbumps I ran into.

Roadmap

The first part of this series will cover the preliminary research, most of which can be done in the comfort of your own home. Then, I will cover the art of the test drive: how to get the most out of your first visit to your local dealerships. The third article will break down the painful process of negotiation once you've decided on a car to purchase. Then, I will outline my experiences at the dealerships for the day of the purchase, and will provide invaluable insight into the various things to expect and to prepare for before you make your way to the car lot to pick up your new car. The fifth and final entry will include some of my afterthoughts, advice for new car owners, and of course, a grand showcase of my new car! No, the 2006 Lexus IS 350 below is not my new car. It's just a tad out of my price range. But there's no reason it can't be yours. And after reading this five part series, hopefully you'll walk away with enough knowledge to get a great deal on the car.

When it comes to automotives, the internet contains an abundance of valuable information. This should be your starting point. First, ask yourself some questions about the car you want.

Find the right car

What will you be using the car for? Will it be a daily driver? A weekend getaway? A project vehicle?
What aspects are the most important to you? Performance? Looks? Safety? Utility? Fuel economy?
What is your budget?
What is your brand preference? Japanese? European? American?
What type and size car do you want? Coupe? Sedan? Convertible? Hatchback? Truck? SUV?
What options and accessories do you want? Automatic transmission? Anti-lock brakes? Side-curtain airbags?

Getting advice

If you have a decent answer for most or all of these questions, then you may already have a few cars in mind. If not, I recommend checking out My Product Advisor. After entering some of your preferences in regards to auto usage, price, brand, body types, and other attributes, My Product Advisor gives you a list of cars, ranked by what it thinks fits you the best. Now, if you're anything like me, you really didn't care much about cars until you decided that it was time to purchase one. I always thought I'd be satisifed with a point-A-to-point-B car that got me where I wanted to go without a hitch. But once I started comparing the different cars out there, I got more and more excited. The more research I did, the more I found out about my personal car preferences, and it definitely helped me narrow down my choices. Before I started my research, the cars I had in mind were the Honda Civic and the Toyota Corolla. Both very reliable, standard, and popular cars. And both pretty dull, boring, and are a dime a dozen. To no surprise, the list I got from My Product Advisor included both the Civic and the Corolla. The list I got was (in order):

The recommendations I got

2005 Toyota Corolla LE
2005 Toyota Echo
2005 Honda Civic EX
2005 Hyundai Elantra GLS
2005 Mazda 3 i

Online resources

Keep in mind that this list is generated by a machine, and take it with a grain of salt. Nonetheless, it is a good starting point. Now that you have a place to start, it's quite easy to narrow it down to two or three cars. From here, focus your research exclusively on these cars. Reevaluate the criteria you set out for your car from the beginning. There are numerous other sources to tap into. You can look up the annual automobile ratings by J.D. Power and Associates; check out Edmunds.com, Yahoo! Autos, or Vehix for more in-depth specifications or side-by-side comparisons between multiple vehicles; get a nice breakdown of 5-year ownership costs for each car at IntelliChoice; or simply visit each of the manufacturers' websites to get more detailed information. If cost is one of your more pressing issues, don't just focus on the price tag. Remember to factor in things like insurance, fuel economy (gas prices will put a big dent in your wallet these days), and maintenance. Some insurance companies like Progressive, State Farm, and GEICO will give you insurance quotes online after answering some not-too-intrusive questions. It is always a smart move to be as well-informed a consumer as possible, and to factor in future costs into your car ownership.

Pick your ride

So, it turns out that my pick of the final three automobiles ended up being the Honda Civic, the Toyota Corolla, and the Mazda 3. All of these cars are in the same entry-level compact class, and have the basic set of features and options I wanted. The pricing is within my budget of around $18,000, and each make has the reputable Japanese reliability. The Civic was about to undergo a new-generation redesign, while the relatively new Mazda3 was getting rave reviews from all over the place. And with a Toyota Camry in the family, I knew that I could expect sound reliability from the Corolla. The choice was not so clear-cut.

Once you reach this point, you must be much more focused in your research. Take a look at the side-by-side comparisons of your vehicles of choice, and meticulously go through each feature and specification. Which car has more power? Which car has better features? Which car has a higher safety rating? And most importantly, which of these qualities matter to you the most? Of course, there's only so much you can learn about these cars while sitting in front of your computer. Remember all your unanswered questions. Once you've gotten a good sense of what these automobiles look like on paper, it's time to go down to the local dealership and take one out for a spin.

The dealership

So, you've done your research and found two or three cars that appeal to you the most, and you are itching to test drive these bad girls. The first thing to do is to find your local dealerships. The easiest way to do this is to go to Edmunds.com and request a price quote for each of the vehicles you're interested in test driving. Note that you don't actually have to submit the request, but simply provide your zip code and go through the process of requesting a quote. Right before you submit your information, Edmunds.com will show you a list of your local dealerships and how far each one is.

Once you've found the dealers you'll be visiting, it's time to prep yourself. Round up a couple friends that are willing to tag along for the ride. It's always a good idea to have someone with you when you go to a car dealership. It should be a very fun, relaxing experience, but it never hurts to have a familiar presence with you when making such a big decision. Your friends are there to help you make sound decisions, and prevent you from making dumb and/or impulsive ones.

Getting ready to test drive

In my opinion, the best thing to do is to test drive all the cars you're interested in on the same day. That way, you can instantly compare each experience with the previous one fresh in your mind. Remember that you're still in "research mode." There is absolutely no pressure to buy the car after you test drive it. But it never hurts to gather more information. When you step onto the lot, simply wander around and locate a vehicle that fits the model and trim you're interested in. Examine it and make sure it's what you expected. It's important to sanity check the car in person and make sure it lives up to what's on paper. If the doors are not locked, hop in the driver's seat and get a feel for the space. Adjust the steering wheel (if it's telescopic) and the seat. If you're tall, make sure there's enough headroom. Hop in the back seat and make sure there's ample leg room for your passengers as well. Pop the trunk and check out the space. Dimensions don't really mean much when they're just a bunch of numbers.

Evetually, a car salesperson will notice you on the lot and waddle out to greet you. Regardless of what you've heard about car salespersons, there's no reason to be highly defensive. You're only here to research the cars, and if you let the saleperson know that, he or she will understand. Plus, when you're actually negotiating, you probably won't be dealing with the actual floor salespersons (more on this later). Chat with the salesperson and ask him or her the burning questions you've had in the back of your mind. Double check that the car you were looking at is in fact the one you're interested in purchasing, and ask for a test drive. If it's not the correct one, the salesperson will be more than happy to bring one out, provided that they have one in inventory. At this point, the salesperson will probably ask for your driver's license (so make sure you have it), and will go make a copy of it for records. Some people think it's an unnecessary procedure and refuse to allow their licenses to be copied, in fear of an unauthorized credit check. Just know that it is illegal to run a credit check without permission, and you do have legal recourse in case the salesperson does so.

The test drive

The test drive itself usually takes place along a route that the salesperson has chosen ahead of time. If you are familiar with the area (or even if you're not) and would like to drive a different route, feel free to ask. The point of the test drive is to drive the car your way. Slowly but firmly push the car to its limits. Make mental notes about how well the car corners, accelerates, and brakes. Gauge the comfort level of the car, and listen for noise and feel how smooth or bumpy the ride is. If you're looking to buy a car with some loaded options, check those out if possible. Crank up the sound system and open up the sunroof. Edmunds.com has a good list of things you should go over in your head while test driving a car.

Now that the test drive is over, your mission is accomplished. You've completed the required reconnaissance work on each vehicle. Thank the kind salesperson and ask him or her for a business card if you so desire. It's useful to have a point of contact to direct any further questions you may have. Then get the heck out of there before your senses are inhibited by all the shiny new cars. Go home and reflect on your test-drive experiences, and take a day or two and sleep on it. Then, once you've made up your mind about the car you want, it's time to start negotiations. Start your engines, because this is where the fun begins.

Rounding up the figures

Now that you've decided on the car of your dreams, it's time to make those dreams come true. In my opinion, this stage of the new car buying process is the hardest part, hands down. This is where you make your stand against the relentless onslaught of the car salesperson trying to pluck every last penny from the depths of your pockets. After you read this article, you will become a gutsy, cunning general with a troop of fine soldiers, ready to charge head on into a fierce battle. This is your Alamo.

The most challenging aspect of car negotiations lies in the fact that humans naturally tend to avoid confrontations. Nobody wants to make the process an unpleasant one, not even the car salesperson. But with enough knowledge and preparation, you can breeze through the negotiations and get what you want, while still maintaining your grace, dignity, and integrity.

Let's get right down to it. By now, you should be familiar with the numerous online car consumer resources. Now that you know the exact make, model, and options you want on your new car, you need to start thinking about pricing. Go to Edmunds.com and enter in the exact vehicle you wish to purchase. Make sure you have the correct trim, options/packages, and even the color. Once you've provided this information, Edmunds.com gives you two valuable pieces of information.

The first valuable piece of information is the invoice price of the car. A commmon misnomer is that the invoice price is the price at which the dealer paid for the car. This is not true, as there are a couple other factors that go into determing the actual dealer cost (we'll go into this later). For now, the invoice price should be used as a reference point. In my opinion, it should be your goal. If you can purchase a new car at dealer price before taxes, title, and license fees, then you are getting a pretty good deal. Unless you're purchasing a car at the end of its model year. In this case, you should expect to get an even lower price.

Crunching numbers

In fact, the best times of the year to get a good deal on a new car are at the end of a model year (usually around August or September) or at the end of the calendar year, in December. August and September are good months to buy a car because this is when next year's line is just coming off the assembly lines, and dealers will be anxious to push out old inventory to make room for new ones. At this point, you should expect to get invoice price, if not lower. Winter is a slow season for the car retail industry, and December is the time when many dealers want to meet certain numbers before the end of the year. It's a great time to catch a great deal. But, I digress...

The second piece of information Edmunds.com provides is the True Market Value (TMV) price. This isn't a standard auto industry term, but is specific and exclusive to Edmunds.com. In essence, the TMV price gives you an estimate of what other car buyers in your particular area are paying for the same exact car you're interested in. This is a good number that you can use to benchmark the progress of your negotiations. If a dealer ever throws you a curve ball and asks for too high of a price, the TMV price is a good leverage point.

The next source to consult is CarBuyingTips.com. Even though this site is littered with shameless advertisements, referral links, and looks asthetically unappealing, it does contain quite valuable information. Make sure you read through the entire series on purchasing a new car.

One of the most useful things on the site is the pricing spreadsheet. With this spreadsheet, you can get all the numbers you need to make solid negotiations. There are some things I don't like about the spreadsheet, so I extracted the valuable information and made a custom spreadsheet myself.

Using the spreadsheet I used for my new 2006 Mazda3 i Touring as an example, I'll go through each important portion:

The numbers, explained

Invoice and MSRP prices. You already have this information from Edmunds.com. The base invoice and MSRP prices for your car, along with prices for each of the options and the destination charge. To sanity check, you can confirm these numbers with other auto sites such as Yahoo! Autos or even the manufacturer site (for the MSRP prices).
Dealer's cost.To figure out the exact dealer cost of the vehicle, you take the total invoice price (that's base plus all options and destination charge), and subtract factory holdback, factory to dealer incentives, and floorplan fees. Aside from factory holdback, these numbers are usually hard to attain since they are rarely made publicly available. Holdback, on the other hand, seems to be set at a standard price for each manufacturer. Once again, do not confuse the invoice price with the dealer's actual cost. This is the number you should be using.
Dealer profit and customer offer price. From here, it's up to you how much profit you want the dealer to get. CarBuyingTips.com suggests that a 3-5% margin is a good ballpark range at which to make the offer. This is more of a personal choice. If you set up a customized spreadsheet, you can also use this value to figure out how much profit the dealer would make at the price the salesperson is offering. If it's over 5%, then he or she is probably high balling you.
Extra fees and pre-TTL cost. Here is the easiest place to lose the money you're trying to save. You can read about each of the different fees on CarBuyingTips.com. For the most part, these fees are superfluous, and you can and should insist that they be taken off. After adding up all these fees along with your initial offer, you have the true price before taxes, title, and license fees (which are legitimate and unavoidable).
Taxes, title, and license fees. These are pretty self-explanatory. Obviously, the tax rates and title/license fees will vary, depending on your location.
Out the door price. This is what you'll have to pay before you can drive off with the car. You can either pay the amount in full, or get a loan.
Loan-specific numbrers. This last portion is for buyers that need financing. These figures are pretty standard, but will help you in determining whether or not you are getting a good rate from the dealer.

Request a price quote

There you have it. This spreadsheet gives you all the numbers you need to negotiate with the dealer. But the hard part is next: the actual negotiations. This is the part of the process for which there are no resources online. Your best bet is pretty much to play it by ear. It is a little intimidating for first-time buyers to waltz into the showroom and start talking numbers. But with the help of the internet (again), the Force will be with you.

The first thing you should do is request an online price quote from the local dealers for your car. You can either do this through Edmunds.com, or the manufacturer's website (if possible). As a first-time buyer, it's probably easier to correspond with the salespersons through e-mail, so make sure to indicate that e-mail is your preferred form of communication. Sometimes the dealer will still ignore that and give you a call. Just talk to them but tell them to send you all numbers in e-mail so you can document it.

After you've requested the price quote, the dealers will either respond with an initial price or ask you for more information about the vehicle. Provide them with whatever info they need, but don't respond to any of the prices until you've received quotes from all the dealers you're interested in purchasing from. Once you have all the prices, you can compare them. Are the numbers all the same? Does one dealer's quote beat the rest? The next step is the tricky step.

Negotiations

When I was negotiating the price for my car, I e-mailed dealers individually, telling them how one of their competitors had beaten their price for the same car. I also used location or reputation as a leverage and told them something along the lines of: "I've heard great things about your dealership, so I'd hate to go to another one just for a slightly better price" or "your dealership is just down the street from me. I'd hate to have to take a long trip out to the other dealership." The problem with this is, after a while, the salespersons just get annoyed. Sometimes, they claim that you are just yanking their chain, and making up price quotes for them to beat. A more straightforward approach would be to simply e-mail each dealer, telling them the best offer you've received overall. Tell them you don't want to have to e-mail dealers back and forth, and want them to give you the lowest price they're willing to part with. In a sense, this is an ultimatum, and it lets them know you're serious and don't want to play silly price games.

You should also use the numbers you got from the spreadsheet. If you're intent on keeping under a certain budget, give the salesperson your "magic number" and tell him or her to make it happen. If a certain quote is just slightly over your target price, tell them so and they'll budge. There's really no "right" way to negotiate with different dealerships on price. Just remember to leverage technology to your advantage, as e-mail and phone communications give you the ability to instantly compare and bargain prices without having to physically go from dealer to dealer.

Once you've settled on a price you're satisified with with a particular dealer, call up the salesperson and confirm it. Make sure that there are no hidden fees. If you have consumer rebates, don't tell him or her about it until the price has been set. At this point, the salesperson will probably ask you to put a deposit down. This is perfectly normal, and is actually recommended as it will effectively reserve your car. Make sure you put the deposit down with a credit card, so that if things go sour, you can easily dispute the charge. Now, you're almost ready to go pick up your car! But before you can drive off with your brand new ride, you'll need to deal with the paperwork, and if necessary, work out the financing details. You're almost done! The final stretch is next.

References

My Product Advisor: Product recommendation engine. Good place to get started on deciding the car for you.
J.D. Power and Associates: Consumer information site, which includes annual automobile ratings.
Edmunds.com: Edmunds car buying guide lists new car prices, used car prices, car comparisons, car buying advice, car ratings, car values, auto leasing.
Yahoo! Autos: Find cars, new car prices, kelley blue book prices, car pictures, car reviews, and more.
Vehix: Car comparison and car reviews.
IntelliChoice: Automobile pricing, ownership cost, safety, recall, rebate, incentives, lease and finance data.
Progressive Auto Insurance: Compare car insurance rates for auto insurance companies. Find an auto insurance agent/broker.
State Farm - #1 Auto Insurance and Homeowners Insurance, get an online car insurance quote: Auto and homeowners insurance. Online car insurance quotes available.
GEICO Car Insurance: GEICO auto insurance, online car insurance quote, motorcycle insurance quote.
CarBuyingTips.com: Buying new cars, car dealer scams revealed, auto leasing, negotiating tips, used cars, car loans, used car prices, car insurance, auto extended warranty tips.
10 Steps to Buying a New Car by Edmunds: Not all dealerships are created equally. Of course you want to go to a car lot where you will be treated fairly and get a good price.
Dealer holdback: Dealer holdback is a percentage of either the MSRP or invoice price of a new vehicle (depending on the manufacturer) that is repaid to the dealer by the manufacturer.

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