Americans’ on-again, off-again love affair with cars is definitely back on. New car sales jumped 17% last month, to 1.5 million, the highest level since the beginning of the Great Recession. Consumers are buying cars even while they remain reluctant to spend on other big-ticket items, and it makes sense – drivers can only put off buying a new car for so long. The average age of cars on the road today is 11.4 years, a record. So as millions of Americans trudge for the first time in years into dealerships during this, the traditionally best time of the year to get a deal on a new car, it’s time to remember this hard truth — the house (almost) always wins. That’s what I found when researching my book Gotcha Capitalism, and it’s even more true today.
Buying a car is still an inherently risky process, full of mine fields and booby traps that work only one way — in the house’s favor. The Internet, once seen as a great equalizer for consumers in the car-buying process, is now a part of those booby traps, and can hurt as much as it helps.
Never forget: Dealers are much better at selling cars than you are at buying them. They are professionals and do it every day. You do it once every 5-7 years. Start from this humble, skeptical angle and you’ll avoid getting screwed.
This is not a guide to beating a dealership out of every last $5. Many buyers haggle like they are at an Egyptian bazaar, only to overpay for car registration or some other tack-on. It’s about getting a fair deal. Many people think they are good at buying cars, but like a good wrestler, dealers are very good at using their alleged strength against them. Not long ago, I had to counsel a friend who called me bragging, “every single salesperson was shaking their heads saying I’d taken them for a great deal,” but when I did the math on his monthly payments, and I had to tell him something was wrong. He’d agreed to a $2,000 extended warranty without realizing it, and about $30 extra had been snuck onto his monthly payments right under his nose! (I’ll explain how to get out of those).
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The world is now full of consumers who think they’ve scored a great deal by getting “invoice price” off the Web, only to get screwed by tack-on delivery fees, expensive financing or back-room shenanigans like window etching. So here is a guide to the gotchas of car sales you might not see anywhere else.
1. Isolate the negotiation, part one: Get your auto loan at the bank first.
Dealers try to confuse you. A confused consumer is a profitable consumer. This isn’t the last time you’ll hear me say this. Always go to the bank and get your own car loan before you go to the dealer. This way, your discussion with the dealer will be about one thing: the price of the car. Not the monthly payment, not the interest rate, not the discount, not the rebate. You want to simplify, simplify, simplify the transaction. Bargain only on the price of the car.
2. Isolate the negotiation, part two: Do not trade your old car in at the dealer.
Many consumers overlook this last, but final, element of a new car sale. Dealers often give buyers a good price on a new car, then make up the markdown by lowballing the trade-in. With the deal nearly done, most consumers cave. Don’t muck up your good deal with a bad trade. Just sell the car yourself on Craigslist or somewhere else. It’s not that hard, and it’ll probably double the price you get for the car. Isn’t an extra $1,000 worth an annoying afternoon of test drives? More important: your only hope at a fair deal is to stick to one thing – the price of the car.
3. Isolate the negotiation, part three: Focus on the end result.
Always start by discussing the “out the door” price, and insist on this. Don’t negotiate up or down from MSRP, or bother with invoice, or any of those other distractions. Find out what you’ll have to write on a check to drive away with the car, and talk only and always about this.
A word on invoice price, which was a valuable tool when it first began appearing online: Dealers have figured this out, and now muck it up with holdbacks or other fees to convince consumers they are getting a cheap price while hiding their profits. Your job isn’t to screw the dealer by paying less than you *think* the dealer paid for the car. Your job is to get yourself the best price.