Friday, January 23, 2009

On Buying a New Vehicle

Joyce asked me to send some new-car-buying advice to a friend. After Joyce had looked it over, she said, "You ought to post this on your blog." (And since, as you know, I always do what my wife says ... )

There are two things to remember when you buy a new car:
  1. You're buying a commodity. (All new cars of a given make and model are essentially the same, so a car in the showroom of one dealer is no more valuable than that in another showroom. In fact, if you order a car that a dealer doesn't happen to have in stock, he will simply get it from a nearby dealer who does have it. So the car you love on one dealer's lot may very well be the exact same one you'd get if you asked another dealer to quote you a price on a similar car. So in a sense you're shopping for a dealership who will sell you the car you want, not for the car itself.)
  2. Dealers get manufacturer incentives for meeting sales goals: either as a discount on the price they pay for the cars they receive from the manufacturer, or as a cash bonus for meeting sales goals. (You, as a buyer, have no way of knowing what a particular dealer's targets are, or which dealer is within one or two cars of earning his dealer incentive. So the best way to find a dealer who desperately wants to sell you a car is to get quotes from several the dealers in the area.)

Given these facts, you should never walk into a dealership and make an offer on a car. Of course, it's smart to wander dealers' lots to figure out what car you like best, but never negotiate with the salesman and never ever make an offer. No matter how low an offer you make, whenever you make an offer, you commit yourself to paying no less than that for the car. But it may just be that the dealer would be willing to go lower than that if this sale makes the difference between meeting or not meeting his sales goals for the quarter. Beside, you will never get the best deal from a salesman who doesn't have the authority to quote a price lower than what the sales manager has preset and who's only objective is to get the most for the cars on the lot.

So it's best to cast a wide net. The best way to do that is to email all the dealerships in your area and ask each one to provide you a price quote. Be sure your letter states precisely what the dealer is quoting a price for: including any warrantees or maintenance contracts. Of course, to be effective, your email has to be targeted to someone who has the authority to negotiate a price, so you have to call each dealership and get the name and email address of the sales manager. You can get the "invoice" prices (what the dealer pays for cars) from Edmunds. Here's a sample letter we used in contacting Toyota dealers in the DFW area.

Yyyy Xxxx
Sales Manager, Zzzz Toyota

RE: Buying a 2008 Toyota Tacoma

Dear Mr Xxxx:

I will be buying a 2008 Toyota Tacoma this week and I'd like a price quote from Zzzz Toyota.

I'm asking for prices from a limited number dealerships and expect to get replies from a few of them. I won't be wasting your valuable time with back-and-forth negotiations, so please respond with your best offer. I promise to inform all respondents of the best proposal.

I realize that competitive bidding is not your preferred way of doing business, but it is mine. And I will buy a car from the lowest bidder in the next few days, so I do urge you to participate. If you choose to participate, your quote should state two figures:
Price of the Truck; and
Our out-the-door cost (including tax, title, license and any other fixed costs, minus any incentives/rebates).

My ideal is a Toyota Tacoma 2WD PreRunner Access Cab 4-Cyl 5 Speed Manual ("super white," "silver streak mica," and "radiant red") would be equipped as follows (though I will consider buying a similar configuration):

-------------------------------     -------   -------
2WD PreRunner 4-Cylr 5sp Manual     $16,953   $18,480
Carpet Mat Set                         $199      $199
GL Tailgate Lock                        $52       $69
Destination charge                     $685      $685
TOTALS                              $17,889   $19,433

I realize that your invoice will include a necessary charge for Toyota's regional dealer advertising association and your legitimate holdback (three percent of total MSRP, minus destination charge). But I also know that manufacturer incentives include rewards for meeting sales and (occasionally) customer satisfaction index targets. Your offering me attractive pricing will let me help you meet your goals.

You can contact me by phone or email:
Cell Phone (xxx)xxx-xxxx

Thank you for considering my request,

But beware, to thwart your effort to get through to someone who has the authority to set a sales price, dealerships may redefine "sales manager". Be sure to ask for the "New Car Sales Manager", or the "Fleet Sales Manager", not just "a sales manager". Nowadays, some dealerships also have "Internet Sales" departments. My experience in buying James's truck was that we got the best price quote from an "Internet Sales Manager". In any case, the objective is to get the names and email addresses of people who actually have the authority to set a sales price, not just some car salesman.

Some dealerships may not want to play this game. A lot of sales managers are old car salesmen themselves, and they see their job as getting the most they can out of each customer. (Personally, I think such guys are more into dominance than sales, but exploring the twisted psychology of salesmen a whole different subject.) It's okay that some dealers won't play. You'll probably get quotes from most of the dealers you email, but the prices will range from somewhere near the sticker price (from those who don't want to play), down to near the dealer invoice price (from those who are serious). You should view your asking several dealers for quotations as a service you're offering to those dealers who most desperately need to make a sale. You're offering the sales manager a simple take-it-or-leave-it way to make a sure sale. If a dealership doesn't need to make that sale in order to get a manufacturer incentive, then it's probably best for him not play your game -- and that's okay.

When you call each dealer back to report the results of the quotations you've received, call them in the order of their quoted prices, from the highest quote to the lowest. You should inform each sales manager what the lowest quoted price was and then then pause to see if he has anything to say. If he says, "We can match that," then your response is: "Well, then you probably should have given me that price before another dealer did." If he says, "We can beat that," then say, "Okay, but I haven't called the dealer who gave me the lowest quote yet. It's only fair that I offer him the same courtesy of beating your price, so give me your absolute lowest price. This is the final price quote I'll accept from you." If he offers a lower price, that is then the lowest bid that you report to the remaining dealers.

One last thing, never talk about financing until you've settled on a price. If you're paying cash, don't tell the dealer.


Missy said...

This is great advice! We, actually me, will vehicle shopping this spring as a graduation gift for our son!
BTW, I love your I support Israel! I wish more people understood the importance of this!

joyce said...

I wish we had specified the package that takes care of all oil changes and tune ups, too, like James did. Whenever we have stopped in other dealerships, Toyota folks are very friendly and helpful. We bought the van in Mineral Wells, but it was time for that first oil change in Pekin, Illinois. And I remember an oil change near Atlanta, too.

JAMIE'S CREW said...

Will you two adopt me?

Bob said...

Ask Joyce - she makes the big decisions.

We live and learn. Next time in our solicitation letter we'll ask for the price of a maintenance agreement.

There's one other thing I failed to mention: The best time to buy your new vehicle is at the end of a quarter. Manufacturers' incentives are based on monthly, quarterly and annual sales targets. If you can, you might try to time your purchase so that you send your email blitz on a Tuesday morning before the last weekend of the quarter. (Car salesmen work weekends and are off on Mondays, so Tuesdays are their slowest days.) Then you call the dealers on that last Friday morning when the sales manager is gearing up to sell enough cars to make his sales goals on that final weekend of the quarter. This year that would be March 24th, June 23rd, September 22nd or December 22nd. (In December 2007 my son James bought his truck for just $68 over dealer's invoice.)

LadyBugCrossing said...

This is brilliant!
Thanks for the advice. I'm going to file it for when we need new cars... hopefully 5 years from now. Our cars only have 125k on them now... gotta run them into the ground...

JDP said...

Good Advice Bob, it always pays to get multiple dealers competing against one another to make a sale.


Chicka said...

Jamie and I are twins. You can't adopt Jamie without adopting me.

Bou said...

I like this because it takes the face to face haggling out of it. I do this all in person right now... and it takes A LOT of time visiting all these dealerships. Doing it this way is definitely to my advantage.

My husband bought his last car over the internet. Its used, one year, so the depreciation was already taken care of. He had a friend near the dealership take a look at it. We actually may never buy another brand new roll it off the lot car ever again.

Carson Ahlstrom said...

That's one good template for a letter to the dealers. You're right about trying to reach all of the dealers in your area. That way, you'll definitely find the right car for you. There's a chance that you'll miss one of the accessible dealers.

Mickey Doshi said...

I will rely on your pieces of advice since I'm going to buy an SUV by the end of the year. It will be my first car, and I want to make sure that I will not regret the car that I buy. I test-drove cars last week, and I haven't found the right car yet. Do you guys have any suggestions? :)

Horace Norman said...

Not everyone has good negotiation skills. This one's very important, if you want to get the best and cheapest offer available. Aside from the price, do check the quality of the car you are purchasing as well.

-Horace Norman @ BrandonDodgeOnBroadway