Last week I stupidly offered to send out a copy of our 2005 column on buying a new car. Surprisingly, this week I found I have more than two readers and the newspaper said the cost of buying stamps for all the envelopes would be too much.
Today, here is an updated column guaranteed to save you at least $5000 off the price of your next new or used car.
First, the golden rule: Buying a car is an emotional decision. You buy a car every pancake Tuesday. The car salesperson sells three or four a day. You are already behind in the game.
Second, the silver rule: There are lots of really good cars out there (across all price points), so it’s hard to make a bad decision — the only bad decision is on a car that is not right for you. Make sure you look, see, touch and drive.
Third, the bronze rule: Look at used cars. Since 2009 the SUV segment has gone crazy so look at some used cars such as a 2012 Hyundai iX35 highlander (top of the line) with 80,000km-100,000km for $20,000 a year of new-car warranty left; $25,000-$30,000 will get you any number of 2010-2012 Mercedes-Benzs or BMWs with under 40,000km. The Ford Mondeo, an absolute catastrophe from a new-car popularity point of view, is now really cheap.
Fourth, the lead rule: The trade-in price of your current car will make you weep. That 2014 $54,000 Toyota Rav is now worth $22,000 on a good day.
Fifth rule: If you are buying in the $50,000-plus bracket, use a buying service. I see David Whealty at executivecarbuying.com.au.
Now let’s take a look at how car dealers make money.
New car retail: The recommended retail price is set by the manufacturer. For the dealer, it’s a starting price. Dealers, even of prestige brands, are salespeople at heart. They love selling cars more than making profits on the cars.
Depending on the version of the car they sell, their margin is between 8.5 per cent and somewhere in the teens. Carmakers understand that car dealers understand sales, not margins, so they developed the “hold back”. By holding back a commission of 2-4 per cent of sales until the end of the year, hold backs are aimed at stopping dealers going belly-up. So dealers, even of luxury brands, will give away up to 8 per cent or more of margin to get a sale.
Some luxury carmakers run a fine line between price fixing and “value” selling. That is, they are encouraged to stick to the RRP by pointing out all the features that make the car worth the money, until the customer starts to walk away. Then they drop the price. Even on the most popular makes, but especially on prestige brands, you will always get $5000 off RRP.
Used car retail: Used — sorry, pre-owned — cars are the most profitable segment of the industry. New-car dealers make more money selling near-new cars than selling new cars. A brand-new car might bring margins down around 3-5 per cent, while a near-new car will generate up to 10 per cent, and a pre-owned, low-mileage car will return 15 per cent. This doesn’t make any sense but it does mean you can negotiate hard.
Wholesalers: Most have disappeared. The big dealer groups are keeping the good used cars; the rubbish goes to wholesalers. Dealers won’t tell you that. They will tell you the wholesaler will only pay this much for your car. If you have a decent trade-in, negotiate with the salesperson. If not, sell it at auction.
Accessories: The most profitable part of the auto industry is accessories. Here the margins start at 50 per cent. In many new car dealers, after the dealer has sold you the car for no margin (after reading this article) an attractive young female person will then sell you paint protector, rust protector, upholstery protector, alarms, undercoats, extended warranties and a whole range of other protectors. These are a waste of time and your money. They give the dealer back the $5000 he just gave you off the price of the new car.
Finance and insurance: The next biggest profit centre in a dealership is the finance department. Don’t let the dealer finance manager sign you up on the day you buy the car. Here’s the golden rule guaranteed to save you at least $1000 a year for every year you own the car: never, ever buy a car based on weekly repayments.
Buy a car on the total price and ask your bank or a specialised automotive independent broker to give you a quote on financing.
Ask any finance provider, particularly the dealer, if they pay the salesmen trailing commissions. If they do, don’t do it. Why pay a commission every month to the person who sold you the car?
Second rule: Never, ever buy a car on a five-year/50 per cent residual. The monthly payments will be small but you will always have negative equity in the car.
Fully loaded: See accessories.
Lemons: No matter what the ads say, even the most prestigious brands make cars that are simply dogs. Sometimes it’s one car; for one luxury brand it was five years of cars. But don’t worry, the manufacturers will never admit it.
Private sale: You will get the most money for your car by selling it yourself. No dealer wants you to do this, so they will say, “why wait for months when you can have the same money now” (see wholesalers). The reality is, you won’t. Then again the prices you see quoted on online sites bear no relation to reality.
The downside with selling privately is that you may have to wait for a few months to sell. And you do have to put up with early calls, people coming to your house, and for certain kinds of cars the possibility of someone nicking it.
Auctions: Trying to buy a car at auction (not classic car auctions) is for professionals. Unless you know a lot about cars, it is the worst way to try to buy a car.
Selling: The two things that will add the most value to the car you want to sell are servicing by the brand’s dealer and a log book.
This is a shortened version of the original article. To read the rest go to: http://www.theaustralian.com.au/life/motoring/buying-and-selling-cars-is-easy-even-for-wood-ducks/news-story/dfddd82563be48a4c4b1a2a559e69411
