Shiny new 2015 vehicles are arriving at car dealerships around the country. But shoppers willing to forego the latest bells and whistles may be able to get a hot deal on a new 2014 model. Dealers and manufacturers offer large incentives to move last year’s models off the lot.
People who buy new cars in August or September save an average of $500 over purchases made in other months, according to TrueCar.com, an online car buying service. TrueCar also reports that the month with the highest monthly transaction price is actually December, challenging conventional wisdom that year-end is the best time to buy a new car.
One well-known tenant of car buying is: Never pay sticker price. But how low can you go? Here’s one strategy to pay less than the manufacturer’s recommended selling price (MRSP):
Informed Shoppers are Smart Shoppers
Websites — such as Cars.com or Kelley Blue Book (kbb.com) — can be valuable resources during the car-buying process. Here are four facts to consider before test driving vehicles:
1. The market prices of the cars you’re considering,
2. The trade-in value of your current vehicle,
3. Your personal credit score if you are financing, and
4. Current financing rates.
Step 1: Research First
What’s most important to you in a new car (reliability, prestige, fuel-efficiency)? Decide on your budget and must-have features. Then, compile a list of cars that fit your needs and preferences.
Remember Economics 101? Low supply plus high demand equates with over-paying for a new car. Observe the inventory levels of local dealerships. High volume models (or even unpopular colors) tend to receive the biggest rebates and discounts. Consider narrowing down your preliminary list to include models with higher inventory levels.
Studies show that most buyers research online before setting foot in the showroom. Salespeople work deals all day long and become very skilled at negotiating. Doing your homework evens the balance of power.
Step 2: Test Drive
The salesperson will likely say something like: “What can I do to put you in a new car today?” You can reply that you’re just window shopping and didn’t even bring a checkbook (or credit card). But reassure him or her that you’re planning to buy in the next few weeks — and take a business card to confirm that you’re a serious buyer.
Pick your top vehicles from Step 1 and take them for a test drive. Get a written quote from each dealership that lists the price for the new vehicle and the trade-in value separately. (The internet can be a great way to request quotes without even stepping into a showroom.) Ask that prices include all hidden costs, such as taxes and title, registration and environmental fees.
Salespeople might pressure you to buy on the spot, but impulsive decisions can be costly. If sales tactics become too high-pressured, stay unemotional and be prepared to walk. If you hate to haggle, consider bringing along an even-tempered friend or relative who is good at negotiating to help keep you grounded.
Step 3: Focus on Total Cost, Not Monthly Payments
Finance and leasing terms can be confusing. But only one number counts in the end — the total cost. Salespeople like to talk in terms of monthly payments, and they might try to persuade you that an extra $1,000 equates to only $20 per month over the course of a four-year loan. But don’t get sucked into playing that game — you don’t have to tell them your monthly budget. Instead, explain that you’re looking for the lowest overall price.
Nowadays, many dealers will openly share their invoices. But don’t settle for simply paying a few hundred dollars over invoice. What the invoice doesn’t tell you is how much — and if — the manufacturer will refund the dealer for rebates and holdbacks on your sale — or for reaching their monthly sales quotas. Remember, these incentives are paid by the manufacturer. The dealer should offer you a separate discount on their end, too.
When it comes to financing, you may want to follow these rules of thumb. Put at least 20 percent down on a new car purchase. And avoid loans that last more than four years. Otherwise, you may end up owing more than the car is worth.
Note: Your downpayment should come from a savings or checking account, of course. But, if you put it on a credit card that offers reward points and pay it off at next month, you could earn significant points on your purchase.
Step 4: Buy Add-Ons Later
Some dealerships offer rock-bottom prices, hoping to make up profits on the back-end. Any extras the finance manager offers you — such as rustproofing, extended warranties, service contracts and fabric protection — can generally be purchased after closing, often at a lower cost by aftermarket retailers.
Add-ons are the bread and butter of many car dealerships today. New vehicle sales generally earn a 3.8 percent gross margin on average. But finance, insurance, service contracts and other add-ons account for almost 40 cents of every dollar of gross profit earned on vehicle sales, according to NADA Data 2014, a report on dealership sales and financial trends published by the National Automobile Dealership Association (NADA) every year.
Major Long-Term Purchases Require Planning
Buying a car is one of the biggest purchases consumers make — and it’s a choice that buyers usually live with for several years. Choose wisely and take your time. But if you’re currently feeling the itch to buy a new car, end-of-summer sales may be a smart time to act.