In disagreement with the countless columns, articles, books, blogs and tomes written on the topic, auto retailers in general aren’t out to sell someone a vehicle they don’t want, need, nor can afford. New and used car facilities alike are in the business to earn repeat business as they all know it costs exponentially more to find and attract new customers than it does to keep existing ones. That being said, there are a few easy steps that consumers can take to keep them on the right track and end up with the vehicle they want, need, and can afford.
1. Do your homework. Rather boring, but the last place you want to learn about the various choices for your next vehicle is in a dealership showroom. There’s simply too much emotion wrapped up in all that sheet metal and chrome to make a logical decision. Shop according to 99% of your driving needs. For example, if you only haul your golf buds to Florida once a year and it’s just you and a partner the other 51 weeks, then a minivan might not be the best idea. Pick-up trucks might look great and carry lots of cargo, but if you only hit the lumber yard for your own home projects, remember they deliver. Never forget, in most households more than one person will be involved in the selection process. If you can’t agree on a particular make and model, you might want to move on to another selection. Picking a vehicle your partner hates will be something you have to live with every time you get in that car together.
2. Arrange your own test drive. It’s no surprise most consumers would rather book back-to-back root canal procedures over a visit with a car salesperson. If you fall into that category, consider renting a sample of your choice for a weekend to really see how it fits into your lifestyle and driving needs.
3. Check the packages. Custom ordering a vehicle is a real rarity and most automakers have developed option packages that fit 99.9% of consumer demand. These packages can mean major price differences in any model line, so check the manufacturer’s website to review the costs and features. Warning: choosing a manual transmission almost always means a lower trade-in value at replacement time.
Dealer demonstrator vehicles will cost less than a brand new car.
David Zalubowski, Associated Press
4. Focus on overall price, not monthly payments. Whereas five years was pretty much the maximum term for a car loan not that long ago, today eight-year plans are very common. Leasing is also promoted heavily as a method of reducing monthly costs, but there are drawbacks. First, if you put any more than 25,000 km per year on your vehicle, financing it over eight years means it will be perilously close to minimal value at the end of the loan. And for every extra month of payments you sign up for, you add additional interest costs. Try to keep your loan terms to five years or less.
5. To lease or not to lease. Leasing is still a viable financing option, but should only be considered if you have very predictable annual driving distances. Extra mileage fees can run as much as $0.15/km. Another risk area in leasing is the ominous “wear and tear” clause. Leasing companies are well within their rights to expect that their property (remember you only borrowed it) is returned in a reasonable condition. But interpretations of what’s reasonable vary and more than a few customers have been shocked to receive substantial reconditioning bills months after dropping off their cars at the end of the lease term. It’s bad enough that most leasing firms offer “wear and tear” insurance up front in an effort to keep customers from getting stung.
6. Consider paying cash for accessories. Many buyers like to add some degree of individuality to their rides or need the added functions of roof racks or trailer hitches. Adding these onto a vehicle purchase loan greatly inflates their cost with interest rates.
7. Do your own trade-in assessment. One of the most contentious points in a new vehicle negotiation is the value of the trade-in. You can easily figure out your old ride’s value by searching any number of used vehicle listing websites and looking for the same make/model as yours with the same mileage and equipment. Remember these sites list asking-retail prices only and your retailer will be offering a wholesale value less the cost of reconditioning. The average markup from wholesale to retail on a mainstream car valued between $15,000 and $30,000 is around $1,500 to $2,000. Unless your current vehicle is meticulously maintained, expect to deduct another $1,000 for reconditioning.
8. Protection packages and extended warranties. The pros and cons of these depend on your aversion to risk. When it comes to extended warranties, remember, carmakers on average accrue about 10% of a vehicle’s retail price for warranty costs over the life of the factory guarantee. So if they’re holding back about $2,500 to cover a $25K car for three years and you plan on keeping it for six, well you do the math. Can you afford the risk or not?
Not only do they provide worry-free vehicle ownership, but extended warranties can also increase the resale value of a car if you plan to upgrade in a few years.
Photographer: Chris Ratcliffe/Bloomberg, Driving
