Before Buying a New Car, Do Your Homework

By
ELISABETH LEAMY
November 17, 2006, 10:05 AM ET
7 min read

Nov. 17, 2006 — -- Fall is always a good time to buy a brand-new car, and this year may be better than ever.

That's because sales have been sluggish this year and dealers -- especially of American-made cars -- need to sell the 2006 models to make room for the 2007s.

A car is the second-biggest thing most of us purchase in our lifetimes. And yet most of us aren't very good at it. After all, we only do it a few times in our lives, and the back-and-forth rituals of new-car dealerships are pretty baffling.

Let me see if I can help.

Beware of the Bait and Switch

Once you've chosen the make and model of the car you want, learn the reputations of the car dealers in your area that sell that car.

Check with the Better Business Bureau and/or your county and state consumer protection agencies. Find out the number of complaints against each dealer, the nature of those complaints, and whether they were resolved satisfactorily. Cross complaint-ridden dealers off your list.

Look in the newspaper and see whether the dealerships you're interested in are offering any specials. Call and get the details of these deals. Often you'll find that the ad in the paper only refers to a single car. It's usually a stripped-down model with manual transmission. If that's what you're looking for, you could do very well.

But beware, some dealers advertise a breathtakingly cheap car, but when you call first thing in the morning, they say it's already gone. They may be playing a game of bait and switch to lure customers to their lot. Call them on it. Dealers are not allowed to advertise a car unless they have it in stock.

Research It Online

Now, consult a car-pricing resource like www.edmunds.com to find out how much the manufacturer charges dealers for the car you want. These guides are incredibly detailed. They give the invoice price for the basic model, and they break out prices for every optional upgrade.

You can also look up any rebates the manufacturer is currently offering its dealers. Say Toyota is offering dealers a $1,000 bonus for every new Camry they sell. That means that if the dealership sells you the car "at invoice," it still makes a $1,000 profit. It also means you've got another $1,000 worth of wiggle room when you start haggling.

Know the Vocabulary

Here are a couple key terms you'll need to know when you visit a dealership:

  • The invoice price is the amount the manufacturer charges the dealer for the car. It's the rock-bottom price.
  • The MSRP is the price at the top of the scale. Many people believe MSRP stands for "manufacturers suggested retail price," but the Federal Trade Commission says the official name is "Monroney Sticker Price." Anyway, you want to negotiate from the invoice price up, rather than from the MSRP down.

    • Don't Be Afraid to Walk Away

    As you bargain, make it clear that you are talking about what you'll pay to take the car "out the door."

    In other words, your offer should include tax, tag and licensing fees. I once made what I thought was a decent deal, but then the dealer added in $1,500 worth of tax and tag fees, because I had not made my intentions clear.

    At some point during your haggling, I HIGHLY RECOMMEND WALKING OFF THE LOT.

    Just go home. If there are plenty of similar cars in stock. If it's the end of the month when salesmen must make their quotas.

    Chances are you'll get a call offering to drop the price some more. New-car dealerships use a bit of psychological warfare to make sales, so you should too!

    Speaking of psychology, a colleague of mine once investigated a dealership that routinely took the keys of little old ladies' trade-ins and refused to give them back. Sleazy!

    Before you visit the dealer, find out how much your trade-in is worth. Use guides like the Kelly Blue Book and the NADA book, available online.

    Also, look at similar cars in the classifieds. You can probably make more money by selling your old car yourself. Another option is to take it to a used-car superstore where you can get an estimate and/or sell it on the spot.

    If you want to trade in your old car, don't discuss that transaction until after you've negotiated the price of your new car. The value of your trade-in is another variable the dealership can use to bamboozle you. Keep the transactions separate.

    If you are uncomfortable doing the dealership dance of bargaining back and forth, you may be tempted to get somebody else to do it for you.

    Be aware that some online services that offer to get you price quotes from dealerships in your area are owned by the dealers. You'd be better off using an online car shopping service run by a consumer group instead. Credit unions often negotiate with car dealers to get fixed prices for their members.

    You could also try a "no-haggle" dealership. In my experience, the prices at these dealerships are somewhere in between the MSRP and the invoice price.

    However you do it, once your contract is drawn up, do not sign it until you've scrutinized it carefully. Ask for some privacy and take your time. Make sure the dealer has not added in a freight or destination and delivery charge. That should be included in the invoice price. Balk at "conveyance fees," a made-up charge for processing the paperwork for the sale.

    Look for add-ons that you didn't ask for and delete them. For example, extended warranties are often unnecessary because today's manufacturer warranties are so good. Undercoating and protective coating are also obsolete. Credit life insurance is a real rip-off. It pays the car off if you die. Your standard life insurance should provide plenty of money for that.

    If you want any additions to the contract, get them in writing. Verbal promises carry no weight. One guarantee you should always get is that the car has never been damaged. That's right. New cars sometimes get wrecked coming off the truck or during test drives. Dealers are not required to disclose the damage to you if it's only a small percentage of the vehicle's value. Outrageous! So I always ask the dealer to write a letter stating that the car has never been damaged.

    Once You Buy It, There's No Returning It

    OK. Ready to sign on the dotted line? Wait! Once you do, the deal is final and that car is yours. Contrary to popular belief, you cannot return a car!

    Many people believe you have three days in which to change your mind. It's one of the most pervasive consumer myths and drives me absolutely crazy.

    A few rare and noble dealerships have started allowing limited returns. But it's NOT the norm. So take a deep breath. Consider the price. Consider the financing. And then if you're comfortable, sign your life away. Did I mention that YOU CANNOT RETURN A CAR?!

    Do Your Homework

  • Check dealer reputations.
  • See what kind of financing you can qualify for at your bank or credit union, so you won't be forced to rely on the dealer's financing -- another number they can play with to make you pay too much.
  • Scan the classified ads and call to see what's actually being advertised.
  • Read pricing guides to learn the "invoice" price of the car you want.
  • Bargain from the bottom price up.
  • Research the value of your trade-in and make it a separate transaction.
  • Scrutinize the contract and ask for a letter guaranteeing the car's never been damaged.
  • If you want even more information on new-car buying, there are entire books and Web sites devoted to the subject. This column is just a start.

    • Where to Complain:

    If you made a bad deal, and now you want to return your new car, don't expect any sympathy or help from the authorities. Overcharging somebody is not a crime.

    If you believe the dealer did something illegal or unethical, contact the DMV or Motor Vehicle Dealer Board and also your county and state consumer protection offices.

    Also complain to the Better Business Bureau, so the next person who checks a dealership's reputation can take your complaint into account.