Hacking the Car-Buying Process

EDIT: Sorry, the comment spam was getting out of hand on this post. If you've got something you want to say, email me.

EDIT 2: I've gotten a few emails about the spreadsheet I use. Here it is:

• carpaycalc.xls

I bought a brand new black Mazda 3s about 5 months ago. Shortly afterward, a question about the car-buying process popped up at Ask MetaFilter, one of the best web sites ever. I wrote what ended up being an entirely-too-long response to the question. It got good reviews from lots of people, including a good friend of mine who ended up using it to get a better price than me on a similar car! I still get emails about it every few weeks or so from someone else trying not to get screwed. Here it is, in its entireity. After reading this, check out This article at edmunds.com that describes selling cars from 'the inside.' Then check out this MeFi thread.

I'll try to be as brief as possible, but I had an ALMOST-perfect car buying experience recently. I'll post what I did, and then throw in blurbs where I felt I could have improved. It's long, but I needed to type this up for a friend who's about to buy a car anyway. Take it all with a grain of salt.

DANGEROUS GROUND

My dad is a pretty smart fellow. One thing that he recently told me has stuck with me during my car buying experience. "When you walk into a dealership, just remember that every single person you talk to is going to do everything they can to take every last penny they can get out of you. They might pay lip service to 'customer loyalty,' but EVERYTHING is motivated by profit," he said. He's right.

THE BEGINNING

First of all, Edmunds True Market Value is your friend. Go to edmunds.com and go to the "pricing" tab. Configure the vehicle exactly as you want. The web site will show you exactly how much the dealer paid for the car, exactly how much the window sticker will read, and it also supplies the "true market value," which is supposedly what other people are paying for the vehicle.

You can use price or car model as your starting point. I used price at first to get a rough idea of what I could afford, then honed in on a specific model. Once you have it narrowed down to two or three models, go test drive all of them. DO NOT WALK BACK INTO THE DEALERSHIP AFTER YOUR TEST DRIVE. This will only lead to bad news. If you have to, wait outside while they go in to get your driver's license.

Once you know exactly what car you want, the fun starts. In my case, I knew I wanted a Black Mica-colored Mazda 3s with a manual transmission, a spoiler, and no other options. You will probably have more luck with this process if you are more flexible - I got into trouble because there was only ONE car like that in the entire Houston area when I was shopping!

Go back to Edmunds.com and get a pricing report for your actual car. If there are options that you are not sure whether you want or not, price it both ways. The object of this step is to know the retail, invoice, and TMV prices of every possible combination of car you would be happy with. Set your "target price" a bit above invoice, but below the TMV (if it's higher than invoice). This is the "art form" part of the process. The closer you get to invoice price, the less likely a dealer will be willing to sell you a car. Also, other factors such as holdback (read edmunds.com) and demand can affect your ability to get invoice price. I'd say that around halfway between invoice and TMV is a good goal. (For reference, on my car - Retail: $17,875; Invoice, $16,713; TMV, $17,388; I paid $16,900.)

CRAFTING YOUR MESSAGE

Next, prepare your message to all of the car dealerships in the area. Mine went like this:

Here's the story.  Last Thursday, I wrecked my beloved 2003 Mazda Protege.  I get my insurance check on Friday.  I know exactly what I want to replace it, so there's no reason for wasting your time or mine. At 11:00 AM on Saturday, I will be buying a new Mazda 3s.  I want Black Mica paint with a 5-speed manual transmission.  I want Mazda floormats and the Mazda factory wing spoiler (not the lip spoiler).  These are the only options I want (or the only ones I want to pay for). I will pay $16,900 for this car.  That might sound low, but it is still a few hundred dollars above your invoice price (not including holdback).  So although it seems low, you are making several hundred dollars for a few minutes of work. I have already test driven a Mazda 3; if you have this vehicle, I will drive to the dealership, sign paperwork, and be on my way. If you have this car, please call me or e-mail me as soon as possible.  If I do not answer, please leave a voicemail and I will call you back.  Thank you, and I hope to see you on Saturday.

There are a few things I might have done differently. I'll explain more about that later.

BLOOD IN THE WATER

After you've set a target price and written your message, find the "quick quote" tab on the edmunds site. Send out a request for info to any dealership within about an hour or so from where you live. When I did it, I provided them with a temporary e-mail address and a fake phone number.

Boy, am I glad I did.

What occurred next was nothing short of a communications onslaught. Every dealer (I sent messages to 11) sent me at least 1 email, and the average was two or three. In one round of messages, I accidentally used my real phone number; every single one called me. Be prepared... when these sharks smell the blood of a car buyer (especially one in a hurry), they get scary.

Out of the 11, 5 or 6 dealers e-mailed me telling me they wanted to "contact me by phone to discuss the details of the sale." WRONG. 3 or 4 said they had the car, but they made a counter-offer. Apparently they couldn't read my email. WRONG AGAIN. Two dealerships told me they could get me into that car for that price.

Now you simply bounce them off of each other. One of the dealers likely said they could meet your price, but they tweaked it in some way. Without using names, let them bid it out until someone quits. Keep it in email, not on the phone, so you have a paper trail. Once you have a winner, restate exactly what you're getting and how much you're paying in a final email. Use that same email to suggest a meeting time with the dealership, sometime in the next few days.

(This is where my method actually broke for my own purchase. As it turns out, there was only ONE black 5-speed 3s in the Houston area. One of the two dealers thought he could trade for the car - apparently he didn't realize that I was also in negotiations with the dealership that HAD the car!)

JUST WHEN YOU THOUGHT YOU COULD LET YOUR GUARD DOWN...

You can't. You'll still get screwed if you're not VERY careful.

Before you go to the dealership, go to your bank or a local credit union and apply for a new car loan. Take the amount you agreed on and add 10% for sales tax, title, license, and ridiculous dealer fees. That will be the rough total price for the car; subtract any down payment and there's your loan amount. Keep in mind, just because you get approved for the loan by your bank doesn't mean you have to use it. You'll hold on to this as your 'ace in the hole' when you get ushered into your second small, glassy room with a greasy finance guy instead of a greasy car salesman.

When you head to the dealership, take the car you're buying for a quick test drive. (I had originally forgotten this part - thanks, bim.) You should already know how the car feels - just make sure this one's the exact one you want. I know in my email I said I wouldn't drive it, but most salesmen will want you to anyway.

Assuming you get through the first part with your salesman without any major catastrophes, you'll probably be ushered to the finance office. This is where you can get nickeled and dimed to death if you're not careful.

The finance guy will try to sell you things you might want, and many things you won't need. For example, I DID buy gap insurance. If you're not familiar with gap insurance, it works like this: say I owe $14,000 on a car that's only worth $11,000, which is not uncommon in 5-year loans. If I total the car without gap insurance, my insurance company pays me $11k and I've still got $3k left to pay before I can consider buying a new car. Gap insurance pays that extra $3k.

On the other hand, he did try to sell me an "extended warranty." Even people that are vaguely familiar with the idea of buying a car know how stupid these things are. My finance agent told me that if I bought the warranty, he'd use his commission to buy down my interest rate, effectively making the warranty almost free! He shot a bunch of numbers by me that made questionable sense at best, and in one of the stupider moments of my life, I actually bought the warranty. (Cut me some slack - I was tired and I'd been there for 3 hours. By the way, make sure and eat food before you go so you don't make tired, stupid decisions like I did.) Of course, when I got home, I reviewed the numbers, realized that the warranty was costing me $40 a MONTH (even with the lower interest rate) for a total of $2400 over the life of the loan. The next day I called the dealer and returned the warranty. Luckily, most of those things come with a 30-day refund period before you start incurring penalties.

So after all is said and done, hopefully you've said no to most (if not all) of the financier's add-ons, and he should give you a final interest rate and monthly payment amount. Now is when you drop the bomb. In my case, he told me the best he could do was 9.9%, whereas my bank had already issued me a loan for 8.75%. It's funny how they can "find" an extra point or two when you wag that piece of paper in their face.

Also, one thing to consider is bringing some sort of financial calculator or other tool. After I got home with my stupid extended warranty, I set up a rather complicated Excel spreadsheet to calculate exactly how much I was getting ripped off. It then occurred to me that I could have easily put that spreadsheet on my Treo using Documents To Go and saved myself some hassle. Use technology to your advantage - the dealerships hate it, which means it's a good thing.

CONCLUSION (FINALLY)

I feel pretty satisfied with my car buying experience, and I hope you will too. Doing it this way seemed to calm my nerves a lot. By doing as much decision making as possible beforehand, you remove the chances of doing something stupid on the spot, which is how these dealerships stay in business. Leave the stupid buying decisions to Joe and Jane Six-Pack who wander in off the street and pay $1000 over MSRP - you can save more money that way.

BUT HINDSIGHT IS 20/20, MY FRIEND

There are a few things I would have liked to have done differently. First of all, I feel like I got a little reamed with dealer fees. Unfortunately, these things can vary widely from dealership to dealership. If I had it to do all over again, I would have taken the "target price" I got from edmunds.com, added 9% for TTL&F (tax, title license and fees), and done all of the bargaining with that number as an out-the-door price. Then, you can constantly remind the salesman and finance guy that if at any time you see a number bigger than your target number on any piece of paper anywhere, you will walk out of the dealership without saying another word. This can be a powerful thing if you let them waste 2 1/2 hours on you before threatening to leave.

Also, I would have been more prepared for the financing part. I didn't do enough advance work to have a good loan already in hand when I went to buy the car. As a result, I got into a higher-interest loan than I had to. I was able to take care of it a few days later at my bank, but it would have saved me a trip across town if I had gotten the loan before buying the car. Also, I would have really liked to have that Excel spreadsheet with me. You'd be amazed at how those finance guys can make up numbers that are factually untrue. edit for the blog: I've attached 2 spreadsheets you can use to the end of this post.

THIS TIME IT REALLY IS THE CONCLUSION

To sum up this longest-ever MeFi post, I'll say this again: "When you walk into a dealership, just remember that every single person you talk to is going to do everything they can to take every last penny they can get out of you. They might pay lip service to 'customer loyalty,' but EVERYTHING is motivated by profit."