This post was originally published on the White Coat Investor. It is published here as a Saturday Selection from the WCI network. Take it away, Jim!
How to Buy a New Car
We did something in 2016 that we had never done before — we bought a brand new car from a dealership.
The Demise of Our Beater
I left for a week-long Lake Powell canyoneering trip on a Sunday evening. I drove our nice car (the 2005 Toyota Sequoia with 181,000 miles that we always fight over who gets to drive) because I was towing the boat. That left my wife with the crappy car (the 2002 Dodge Durango with 180,000 miles on it that neither of us ever liked all that much, but that only cost us $4K in 2010.) The car had developed a bit of a noise from the engine in the previous couple of days, but seemed to be running fine when I left.
Monday morning, I put the boat in the water and we headed off into the boondocks to do a canyon. Meanwhile, Katie ran her first errand in the Durango. That noise got much louder and the car was barely running. She limped it into the mechanic, who pronounced it. “Time of Death- 9:47.” The engine was shot. She went home, got the title, and sold it to a scrapyard for $225.
By the time I spoke to her that evening, she was driving my sister’s spare car (which makes the Durango look really nice) and making plans to get a new car. Secretly, I was super excited. I mean, sure it sucks to have to buy a new car, but you also get a new car out of the experience. I would have preferred that someone backed into it in the parking lot (which also would have totaled it but would have gotten me a lot more money from the insurance company) but the engine blowing up is a close second. On Monday morning, after waking up from my night shift, we headed on down to the local dealers.
New Car Shopping
You see, the Durango was our last beater. As I wrote about earlier this year, I think poor people ought to drive cheap cars but I’m okay with rich people driving whatever they want.
In this case, a rich person is someone who is on track to meet their savings goals and has the cash to pay for the car. As discussed previously, my goal isn’t to die with the biggest possible stash. Thanks to investing, I fully intend to spend more money than I ever earn during my life. I deferred spending as a resident and young attending so that I could spend MORE MONEY later, so long as it was spent on something that increased happiness.
So our plan when one of our cars died was to go buy another Sequoia. However, I didn’t like the windshield in the newer Sequoias as much as I liked the more vertical one in the older ones, and although it has more power, the gas mileage isn’t as good as you can get with a Suburban. So we decided we’d better go check out a suburban too. Those of you who are tall enough to have to lean forward to see if the traffic light is green know what I’m talking about.
Although the Suburban had a lot more headroom, it was a little long for my taste, looked and drove like a bus, and despite the headroom didn’t improve my ability to see the traffic lights. So we decided to get another Sequoia. The Sequoia comes in three trim levels — SR5, Limited, and Platinum. For better or for worse, that’s pretty much the only decision you have to make aside from desired color, which actually makes negotiation a lot more straightforward.
The first dealership we went to didn’t have a Limited, which is what our old one was and what we thought we wanted, so we went to a second dealership to look at one. We had a few questions on options so we went inside with the salesman and got all of our questions answered. Then, and this is key, we stood up and walked out. Not because we didn’t know what we want, because we then did. But simply to improve our negotiating position.
Then, and this is key, we stood up and walked out. Not because we didn’t know what we want, because we then did. But simply to improve our negotiating position.
How to Negotiate
You see, in negotiating there are a few principles to be aware of:
- Information is power
- Negotiate on your own turf
- Negotiate on your time table
- Never buy stuff when you’re hungry
- Never be more desperate to buy something than the guy is to sell it
I was hungry. So we went to In-n-Out Burger, had fries, a double-double (mine was animal style, hers protein style), and a strawberry shake. Mostly because that’s pretty much all they serve there. Then we went home and I sat down on the computer.
The stalking was done, now all we had to do was pull the trigger. I was no longer hungry, I was no longer on their turf, and I was no longer on their time table. All I had to do was acquire sufficient information so that I was no longer at an information disadvantage.
Google showed me there were six Toyota dealerships that I was willing to drive to in order to buy a new car. I thought, “Sweet! This is going to be way easier than negotiating the boat,” where there was only one dealership in the state and they had a monopoly (other dealerships wouldn’t even sell to me if I drove out of state.) So I emailed all of the dealerships this email:
I’m interested in buying a 2016 4×4 Sequoia Limited with Pyrite exterior and Graphite interior as soon as possible at the lowest possible price and am contacting several local dealers. Please quote me your very best out the door (including tax, title, and licensing) price and let me know when it can be available for purchase.
What does that email do? Several things. It tells the guy on the other end that I’m
- Very serious about buying,
- That I already know exactly what I want,
- That I know what the car is worth,
- That he has competition,
That I’m not going to fall for silly pricing tricks,
- That he better not drag his feet getting me a quote.
Reviewing the Offers
Then I went to work. By the time I got out of bed the next afternoon, I had two offers, several “here’s what we have” and a couple of “please come on down and we’ll talk” emails. The two offers for an out the door price were $61,300 and $60,100. Were those a good price? Well, let’s take a look.
First, I went to Truecar, which gives you this nice graph you see below with all kinds of useful information including the MSRP, the average paid, and the factory invoice. It does not, however, give you a true “out the door” price. But it isn’t that hard to figure out.
For example, the sales tax around here is 6.85%, and 6.85% of $60K is $4,110. So subtracting $4,110 from the first offer, $60,100, leaves me with $56K. I’m already below the factory invoice, well into the “great price” category, and knocking on the door to the “exceptional price” category.
I confirmed this by going to a couple more similar websites such as Kelley Blue Book, which listed the “fair price” as $57,205. We checked with USAA and Costco which have car buying programs. Costco was the better one, which was $300 above factory invoice. That told me that these offers were serious offers and also that I probably wouldn’t get a dramatically lower price.
The Final Price
My goal with this negotiation wasn’t to get the lowest possible price. I primarily wanted to avoid being ripped off, but secondarily I wanted to minimize the time spent and I wanted to buy the car from the dealership closest to my house, since the car comes with 2 years of maintenance and a 3-5 year warranty. I wasn’t going to drive another 30-45 minutes to buy it much less to get it serviced for an extra $50 discount. But the dealers didn’t know that. They didn’t even know where I lived.
I was also able to check the online inventory for all six dealers. It turns out there were only two of these vehicles between the six dealers, and neither of them were at either of the dealerships I had already visited, including my preferred one.
I went back and forth by email and phone a couple of times between the lowest cost dealer and my preferred dealer. That knocked a couple hundred more off the price and eventually, the preferred dealer agreed to get the car from the other dealer that had it and sell it to me while matching the price, out the door for $59,900. That corresponded to a purchase price of $55,536.15. Not quite “exceptional” but good enough for my purposes, especially when I was able to get it from the dealer closest to my house.
I gave them a $3K credit card deposit (couldn’t talk them into letting me make a larger one) and we arranged a time to come in, sign papers, and pick it up. Not too bad. 24 hours of effort, no pressured sales, a good price, and a good experience. (Much better than buying the boat .) I actually had more trouble getting Ally Bank to send a wire for the cash than anything else.
So, now we have two Sequoias sitting in our garage (yes, we’re trying to ruin the planet singlehandedly) and while I’m not driving the new one, I do get to drive my preferred car which will hopefully last another 5+ years now that we’ll be putting less miles on it each year. And the kids think the third-row power seats and Bluetooth are pretty cool. Spoiled brats.
What do you think? Have you ever bought a new car? How did you negotiate the price? Any tips for readers? Comment below!
Reminds me of the way millionaires buy their cars in the book millionaire next door.
Love the blog