New car buying guide: the algorithm (2021)

Yes, that a Texan car dealership buying the AS Roma (soccer team, Italian capital).

When I came in US, I had no car, I saved money, went to dealership (Toyota) and pointed a used Matrix, test drive it, and said, I will buy it. The guy started to show me a long form (like 3 letter pages long form)... I said I do not want to make a loan. He looked at me like I came from another planet. I want to buy the car. He said that he can only accept a bank check. It was close to noon on Saturday, I asked if he could drive me with the Matrix to the nearest bank quickly, he reluctantly said yes. Maybe he thought I was going to scam him or something. He did stay in the car, while I asked for a bank check. He drove me back to the dealership. Unfortunately I had to leave the car, so they do a final inspection and prepare some papers. I came a week later to pick up the car.

Clearly the sales guy seemed a bit puzzled by the transaction. But there was no way I was going to drag a car purchase process like describe in https://github.com/kutinden/buyingacar/blob/main/README.md (13 steps !?)

Now I see the why Tesla sells online. US dealerships have been fat cats for too long.

1. Test drove four different brands

2. Went to six banks and found out the lowest interest rate I could get. Everyone told me that it would be at a credit union but instead it was a brand new bank that apparently was hungry to get new business

3. Emailed every dealer for the brand I chose within 225 miles.

4. You want to do one thing at a time. I wanted the price out the door. I avoided talk about trade-ins or financing. But I did state I was open to financing the vehicle with them if they were competitive.

5. Be very patient. The vast majority of the dealerships in the first round either never answered the email or quoted me over MSRP. I would engage with everyone who wrote me back. I would reiterate that I was ready to buy a new vehicle to whomever gave me the best deal. As time went on I responded with specific price I was willing to pay. There are forums for most brands where people share the prices that they were paying. So I had a pretty good idea what might get accepted.

6. I was getting ready to start shopping for my second choice. It came down to a single salesman who sent me dozens of emails. All the sales guys want you in the dealership where you're on their turf. This guy kept dropping the price $500 at a time. He asked me what it would take for me to visit the dealership. I quoted him $1000 below his last offer - and he accepted! I made it clear that wasn't a price I would accept, just enough for me to visit him. I wanted $1000 more I when visited the dealership.

7. I got a bunch of prices for my old vehicle online so I had an idea what it would bring. They quoted me on the high end of what I would receive but they wouldn't budge on the new vehicle price. Eventually they agreed to add $500 to the price of the trade-in which I wearily accepted. Only to have them give me $400 of free mats so its obvious that I probably could have gotten them lower. However they had factory financing that was 1.25% lower than the best bank rate I received so I financed the vehicle with them.

Going online is the only way to purchase a vehicle. December I learned later is a really good time to purchase.

1. Go to nearest dealer, 2. Sit at nearest salesman’s desk 3. Buy nearest car 4. Go back to designing computers.

Or then you outsource this whole process to someone else and pay them a slight premium, which is what I would do. My time isn't worth an email battle and spreadsheet acrobatics to save $3k.

That seems unlikely to me, though this depends on which car company you're buying from.

Take Ford for instance. A significant amount of Ford's business is banking/financing. Much like how the Dealership wants to sell you a car, Ford actively wants to be your financier and they're competing against the banks to get your business.

Furthermore: Ford is known to sweeten the deal and offer financing-credits rather than straight $$$ off of a car. For example, you might find that Ford can offer 5% right now, when typical banks are going to be offering 8%. This is effectively Ford choosing a "shadow-discount" in the form of financing-incentive. They're willing to lose money on the finance but gain a customer. Its a hidden negotiating tactic on top of all the other offers they're doing to you. You might as well give the sales-guy the opportunity to offer you a financing deal.

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But Toyota doesn't have as big of a financing arm, and its more of an (expensive) service to the customer. You'll probably lose money on Toyota financing compared to a regular bank.

I think its a good idea to be pre-approved. This means that you know what the "fair" % interest rate should be right now, and get a good idea of what "shadow deals" various car manufacturers are doing.

I know I've seen 1.9% APY deals in the market today. Financing is seriously just another step in this annoying negotiation process you have to normalize and account for.

1. Looks up nice new car

2. Realize a fancy new car is like $2-3k per MONTH (financing, insurance, etc).

3. Decide that there are about a million better ways to spend 2,000 a month (e.g. a $200 dinner every 3rd day, personal uber chauffeur, house-cleaners, etc)

4. Get used camry.

2. Realize a 25 year old car does all that

3. Just pay the few thousand in cash

I may be weird but I don't get why anyone would make dept just buy a fancy car they can't afford?

A day later I bought a better equipped Hyundai for the same price and a decent trade in. 2 days after that I get a call from the Mazda dealer asking was I still interested and they could work a better deal.

I had great pleasure in telling them I bought the Hyundai, best decision I ever made as it turned out the Mazda model I was interested in had windshield stress design defects causing them to crack and issues with the gearbox.

I still have the Hyundai and it's survived 2 accidents from people driving into me :D

I know nothing about the car business in the states, but it seems to me after reading these comments and the article that the actual business of car dealerships is most probably - selling financing, and the cars are the 'vehicle' for this.

(emphasis mine)

This part is buried in the whole document, but is probably the most important.

If you have some temporal wiggle room, go on the last day of the month. Not the second to last day, the very last day. Possibly after lunch if you can. You are going to get a much better deal.

Also, never buy a car at night.

How is depreciation for cars calculated correctly when the dealers are adding this random markup and/or cross subsidizing finance deals?

I originally started thinking about this due to stories about EV depreciation that make no mention of $8k plus federal/state subsidies that the buyer received.

Is it as simple as some average second hand price vs MRSP?

If your bank offer this service, you still have to figure out which car you want and what the fair price for it is. But those are minor roadbumps compared to haggling at the dealership.

There was no payment for the service or obligation to get the loan through the credit union. I did finance through them anyway since I intended to pay the car off pretty quickly.

TLDR: investigate if your bank offers a car buying service.

The tactic was simple: disarming empathy. It was a method presented by a hostage negotiator via this NPR podcast: https://www.npr.org/transcripts/167802325 Basically you agree with the salesman that whatever price they are offering is actually very fair, and in a normal situation you would accept it... but you apologize profusely saying you just can't spend this much because it is too expensive for you. When he says such and such product quality justifies the price, you wholeheartedly agree with him... but you can't afford this.

So that day I had identified a specific car I wanted, online, at a dealer in my area. I went in to see it in person. I explained I was ready to buy it today, got sat down at a desk with one of their salesmen. And he starts by presenting his price. I explained it's a really good price, but I really can't afford that, and asks if there is anything they can do to reduce it? After a while he says, sure, OK, what about this new number? And basically I keep doing the same thing over and over. I profusely thank him for reducing the price, but explains it's still too much. Over a span of 20 minutes, he cuts the price down 5 or 6 times, up to a point where I finally say we've reached a price that I am able to afford. I don't remember the numbers but I think we had started around $19k and got down to $16k. The salesman is mildly happy, but I distinctively remember him not being that enthusiastic. He said he's going to get the paperwork ready to finalize the sale. He leaves me at his desk while he walks way. And a few minutes later he comes back, with a very sad look on his face, and apologizes while explaining that the owner of the dealership refused to let the sale close at this price. He says there is nothing he can do for me, shakes my hand, and remains awkwardly silent, then apologetically stood up to make me understand it was time to leave. I kept thinking the guy probably had just been yelled at by the owner about he could have screwed up the negotiation so badly.

Then all I do is basically pick the dealer that is able to get me what I want, or as closest to it, at best price.

Sometimes this has meant traveling to a dealership in another state. Sometimes it meant ordering from the factory.

Then again, the cars I’ve always shopped for haven’t exactly been the likes of Camrys or RAV4s, so…

I called a dealership. Asked if they had X car at MSRP. They said yes. I waited for it to arrive. I went there (10 minute drive), paid via check and drove out with it.

The worst part of the experience was the lack of color options.

I knew the displayed price was the real price.

Because I ordered it online, I could even return it up to two weeks after the delivery as the local law mandates.

What a nightmare vs a simple fixed price.

Very genuinely—-I ask because my patience is thin, and I am likely to hurl expletives at the salesperson, especially if I detect tactics such as those described here. If the salesperson is slimy, then my verbal response is likely to be exceptionally offensive, as I’ll calculate for the most severe expression.

A thing that will control your outcome a lot is the dynamic of the car market itself at that moment, and what's going on in the dealership. In my case, we bought our car in 2021 amid the chip shortages/supply chain issues. I called a good number of dealers and got the following response:

One dealer had the car coming in a few weeks and can sell it to me for the MSRP. One dealer said "we charge 1k OVER the MSRP for every car." The rest said "we don't have this car and won't have it anytime soon."

In that environment, knowing the dealer costs and all that other bullshit doesn't matter. You have one guy who knows he's got a car that nobody else has, and if he doesn't sell it to you there's gonna be someone else who wants it that same week. You have zero leverage to drive the price down. We bought it for the MSRP and considered ourselves lucky.

In another environment, getting consistent apples to apples quotes is your key to driving down cost. Basically you are putting dealers in competition. If Bob has more cars than he can sell, his best outcome is to sell to you for MSRP, but his second best outcome is to sell to you at all vs having you buy from someone else. What usually happens in this approach is you understand the range of quotes, pick your lowest quote and then ask the dealer you would rather deal with if they can beat it. "you are my local guy and I liked talking to you, would rather buy from you but you are a lot pricier than someone I can get from two towns away. Can you give me your best quote please?" can do wonders.

The reason you get a range of quotes is that dealers face different environments. Bob may have a lot of car X and not a lot of people asking about it, and John may have sold most of his X and has a lot of interest. This can be for totally arbitrary reasons from what their area is like, to total luck of the draw and in a few weeks Bob and John may have their situations reversed, but at the moment Bob's probably gonna be more open to giving you a deal.

A thing that also works is to make sure they know you're a thoughtful money conscious person who is doing his due diligence will make them give you a better quote. I say straight up "full disclosure, I am speaking to a few other dealerships to get a couple of quotes." That tells you that if they give you a high quote you will simply ignore it. If you seem naive and aren't going to be equipped to shop around, they might give you a higher quote to see what happens.

The article makes a good point that you should negotiate (as always) one thin at a time. So lock in the new car quote separately from financing and trade-ins. Better get one number down and then work on getting the next number up.

Finally and this is key - realize your situation and the leverage you do or don't have. If you don't need a new car right away, and dealers have more cars than they know what to do with, you can really work on this to squeeze out another grand out of the deal. If you are in a situation like I described above where I needed the car and literally nobody had one, don't feel bad paying the MSRP because that was the best price possible under that dynamic

I can also say in general that people undervalue and under-study how to negotiate. Negotiation is often a collaborative thing where both sides win (the dealer wins because I did the deal w them vs their competitor, I win because I paid less) and people often fail to negotiate because they assume negotiation is a confrontation and it scares them. If you are a person that lives in the world where you're not just ordering off a menu, taking a negotiations class or reading a book is a great use of time.

I dont know, i stopped buying new cars once computers were added. I own a 95` landcruiser with 300k on the clock and i beleive it has another 300 which will basically mean it will do me for life. And the advantage of buying and old car, and learning todo the maintence yourself, is that not only do you save money from every angle, your car is on the other side of the bell curve where they start to increase in value again. In the 10yrs ive owned it, my car has increased in value by ~40%. Its made of metal, and is held together with bolts not glue. It will not dry rot away, and rust is easily controlled with modern epoxy paints. It will not go out of fashion given the thirst car collectors of the future will have the past.

My plan is to swap a hydrogen motor in i guess once mature the tech and consequently ban diesel.

This is from someone who in 2005 bought his first ~50k$ car over the internet, one click style, without seeing it in person from a used car guy (it was 2nd hand, 10k on the clock, ~10% of retailm had 2yrs warrenty). Thats really the problem with buying a one-click these days though, the people who buy them are too risk adverse to be without a warrenty or buy second hand. So they crash the value of their own investments because the others know what to expect with seconds on a modern car. The reason people sell cars after 1 or 2 years is many, in my country, leasing cars like this is maximises your dollar vs tax.

Any moden car: ~50k outlay, 10yr useful life

vs

i bought a 2002 rav4 with 400k for ~2k, 5~ yrs ago. Ive spent roughly ~500$ repairing different things on it in that time putting on ~40k because they reused the same parts for this car across many different years and models which means CHEAP CHEAP. It means parts have been copied and mass reproduced on a scale that sees me paying $30 for a waterpump and ~1hr to install DIY on the side of the road not $600 ~ $2k labour for a moden car that requires half the car to be dissaembled to even just see the water pump. And since your modern pump is made of plastic, and all the pipes are plastic, and the pipes are have special numbers of propritiy fittings.... well yes, you see why modern cars suck in terms of investment ratio.

let me show you that math. ~2.5k outlay / 5yrs = ~500$ per year total cost. The car is now worth ~10-12k because people are so sick of modern cars and toyotas keep their value.

2nd hand, high milage, reliable cars (toyota/honda) > anything modern made in the last ~15yrs. The morphing from 1 or 2 modules per car, to 20-100 modules per car with tonnes more emmisions gear IMO is the worse thing to happen to cars since their inception. BUT it has given me a retirement plan ... im thinking about becoming a ECU/electronics repairer once i get sick of tech :D All those modules are pretty much the same, they just allow you todo things via comment instead of lever. Once you learn the basics, its like hacking on VB or JS.