When to buy a new car?

There are no free lunches in this world. If you borrow money, you will pay interest for that loan somewhere, somehow! Manufacturer sponsored financing like GMAC and Ford Motor Credit add the interest, (the difference between the advertised 1.9% and the true cost of the loan), to the price of the car when they give you the loan. There is no such thing as free money! That 1.9% you see advertised is called an advertising hook. It is there just to get the consumer to walk on the lot and talk to a salesman, but you, the consumer, pay for that discount one way or the other when you buy the car. Car manufacturers don't make billions by giving away money.

Harold_Hill said:

There are no free lunches in this world. If you borrow money, you will pay interest for that loan somewhere, somehow! Manufacturer sponsored financing like GMAC and Ford Motor Credit add the interest, (the difference between the advertised 1.9% and the true cost of the loan), to the price of the car when they give you the loan. There is no such thing as free money! That 1.9% you see advertised is called an advertising hook. It is there just to get the consumer to walk on the lot and talk to a salesman, but you, the consumer, pay for that discount one way or the other when you buy the car. Car manufacturers don't make billions by giving away money.

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Y'all listen to this man; he speaks the truth.

I do not finance with the dealer, nor do I offer a trade-in. This is the only way to know, for sure, what I am paying for a vehicle. One shell, one pea.

If you agree to sell me a car for 10K - which I determine to be a competitive price based upon my already completed research - and then the interest on my 10K is 1%, where am I paying extra? How is that different than the 1% I can get at the bank because of a pre-established relationship with my employer?

By offering the interest free loan, you have agreed to make the loan equivalent to the value of a cash purchase. You still get to turnover inventory and you've kept me from going to another dealer.

This may be a "hook" if you're dealing with a consumer who has not already researched the car financially, but it's already been stated that the research is the biggest security blanket that a consumer can have.

I agree that Joe Shopper become the victim, but not everyone.

Buy used, you can beat the dealer over the head with the Kelly Blue Book price, and you always in most cases get good value for your money. Unless you buy a from a fly by night company that only sells you flood cars....but then there is carfax.

Wow.. I looked away for a day and this thing exploded! Thanks everyone!
Yes, I have done my research, know what car I want, know how much the base price is, know the best reputable dealer in town, know their inventory, know which one I want, and...
I have a new car
I did take a little less than I wanted for my trade in, but not that much less. It was 7 years old and a discontinued model that had a kind of bad rep, so I felt ok taking a little less and not worrying about having to deal with selling the car on my own as I usually do. I got a 48 month loan, over which period I will pay $650 in interest, with no penalties if I pay it down faster.
And I have something I have wanted my whole life and never had before.. a sun roof!

GiggLeGasm said:

If you agree to sell me a car for 10K - which I determine to be a competitive price based upon my already completed research - and then the interest on my 10K is 1%, where am I paying extra? How is that different than the 1% I can get at the bank because of a pre-established relationship with my employer?

By offering the interest free loan, you have agreed to make the loan equivalent to the value of a cash purchase. You still get to turnover inventory and you've kept me from going to another dealer.

This may be a "hook" if you're dealing with a consumer who has not already researched the car financially, but it's already been stated that the research is the biggest security blanket that a consumer can have.

I agree that Joe Shopper become the victim, but not everyone.

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One of the first things you learn in the car business is that everything is negotiable, even interest rates. In the example you cite, that $10,000 car may have only cost you $9500, if you had agreed to a higher interest rate. When you are sitting across the closing table from a salesman in a car store, his job is to make you think that you are getting the deal you want when you aren't. There is the a saying in the car business, "while the customer is under the ether". When a person is buying a car, they often fall into a mental state similar to a person who has been exposed to ether. While in this mental state, (under the ether), the buyer hears only what they want to hear. Why do you fall into this mental state? Because you have fallen in love with that particular car and you want it, and that's all you can think about. Why have you reached a state where all you can think about is driving that particular car home? Because it is part of the salesman's job to make you fall in love with a car, and want it regardless. That's why the salesman won't talk price until you have driven the car. Make the customer fall in love with the car first, then take them to the closing table. While at the closing table, the salesman is thinking, "what can I say to this customer that will give me a good commission on the sale?" And the customer is thinking, "what can I say to the salesman that will make him sell me this car?" The hook is set, and the salesman reels you in.

Salesman, (and salesman managers), work with numbers, and when you want a lower interest rate, the numbers go down in the interest column, and go up in another column. The numbers that go up are not always the price of the car, sometimes it is the cost of any accessories you may have had added to the car, or it may be the cost of Life Insurance. You think you aren't buying Life Insurance when you buy a new car? In most states, lenders are allowed to require buyers to purchase Life Insurance when they buy a new car, so the bank is guaranteed payment if the buyer dies before the car is paid for. When you sit down across the table from the finance manager, ready sign the final contract, (and actually buy the car legally), he will tell you that you are buying Life Insurance, and while you were under the ether, you won't hear a word he says. Why? Because while you are under the ether, you *think* you already know what is in the contract. Do you read the contract when you buy a new car? Probably not, because new car contracts are usually pages and pages of fine print. Most consumers don't have the patience, or the understanding of legal language to read one, and actually understand it.

When I was selling cars, I loved customers who thought they knew all about buying a car. They were the easiest. Tell them what they want to hear, and they will sign anything. The hardest sale is the customer who doesn't particularly love the car. There are two ways to sell a car. First, sell the car on quality, make them love the car. If you can't make them fall in love with the car, then you have to sell the deal. When you have to sell the deal, then the price of the car starts going down, along with your commission on the sale.

NippleMuncher said:

Rule #4 - ALWAYS start your negotiations from invoice, which is roughly what the dealer paid for the vehicle. I say "roughly" because in my experience, there will be an arbitrary amount added to the bottom line with no itemization. This arbitrary number is what the dealer is already making above and beyond their cost.

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I loved buyers who wanted to buy a new car at the invoice price. When I had a customer who wanted to see the invoice, I would go get the invoice and lay it in front of them and say, "if I can sell you this car at invoice plus $100, will you buy the car and drive it home today?" And every time the buyer would say yes. Contrary to what consumers think, invoice is not what the dealer pays for the car, invoice is the lowest *retail* price he will take for the car. MSRP is the retail price he wants for the car, not what he is willing to sell it for. An invoice a buyer is one of the quickest sales. I could pick up a couple of hundred bucks in commission for about an hour's work.

Harold_Hill said:

Contrary to what consumers think, invoice is not what the dealer pays for the car, invoice is the lowest *retail* price he will take for the car. MSRP is the retail price he wants for the car, not what he is willing to sell it for.

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Call it what you will, "invoice" is still thousands less than MSRP, which is a huge savings to the consumer.

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NippleMuncher said:

Call it what you will, "invoice" is still thousands less than MSRP, which is a huge savings to the consumer.

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You are right, buying at invoice does save you money. However, people mistakenly think invoice is the Dealer cost, but Dealers don't even know the true cost of the car until the end of the year when the manufacturers give the Dealers their sales incentives and bonuses based on how many cars the Dealers sold for the year. Because of sales incentives and bonuses, big Dealers pay less for their cars than small Dealers. People often think they can get a better deal from a small Dealer, but that is not always the case. Getting a good deal from a Dealer more often depends on how well the Dealer can keep his overhead in line. Some Dealers can't control their costs and therefore can't give much of a discount. Often you can get a better deal from a high volume Dealer. They depend on the year end paybacks from the manufacturer to make most of their profits. And to do so, they have to move a lot of iron across their lot. And to move the iron, they will often take short deals to move slow selling models.

Money moves through car stores in ways buyers never know. Consumers think car stores make their money on just the sale of the car its self, but in reality, in addition to paybacks and bonuses from the manufacturer, they make money on incentives from lenders, life insurance policies, accessories added to the car, Dealer prep and handling, warranty repairs after the sale, customer paid reparis, parts sales to other garages, etc. Buyers often think car stores make too much money; however, the overhead of a car store is obscene. Where the electric bill for your home may be a couple of hundred bucks, with the bright lights on his lot, a dealer's electric bill runs in the thousands every month. Then consider a big Dealer may have up to 150 employees on their payroll. Take 150 employees at an average of $2000 to $4000 per month, and you could retire on their yearly payroll. And that doesn't include the benefits, taxes and insurance they have to pay on their employees.

With the exception of actually building the car, the biggest single cost of a car is advertising. It costs several hundred dollars in advertising just to get one customer to walk onto the lot and say hello to a salesman, regardless of whether he makes the sale or not. Think about what a 30 second Super Bowl ad costs, and consider how many cars it takes just to pay for that ad. Dealers live well, but they aren't the richest person in town. True, they make an obscene amount of money, but to keep any of it, it's really a lot of hard work.

Collar_N_Cuffs said:

When is the best time to do so?
Looking for insights from people with experience in the industry please.
Buy a 2014 model before year end? January? Does the market get even more desperate to dump them in February? Is there anything left at that point? Etc, etc.
Thanks for any tips you can supply!

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Don't buy a new car. They're overpriced. Used cars, especially coming off a lease, are just as reliable and the previous owners had plenty of insentive to keep it well maintained. Buy a nice Japanese car of a three-year vintage. It'll be reliable, still relatively new, and a whole order of magnitude cheaper.

that's very exciting.. a new car..

With a sunroof

congratulations!

GiggLeGasm said:

that's very exciting.. a new car..

With a sunroof

congratulations!

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Thank you
Now if it would just stop raining... !

I would never buy a new car.

The depreciation as you drive it out of the dealer's lot is horrific. A car that is a year old with a full history would cost you far less.

My father and his older brother had completely different attitudes to buying a new car.

My father would buy the latest, brand new model, one of the first of that model. Three times he ended up with problems, mainly sorted under warranty and by manufacturer's recalls, that he wouldn't have had if he had bought a car that had been marketed for a couple of years. The new car that is a two-year-old model will have had the teething problems corrected.

My uncle always bought the end of a model, the line becoming obsolete or actually obsolete. Although he saved money compared with my father, within a few years he had problems with spares. His new car depreciated even faster because it was an obsolete model. Two of his 'new' cars were not just obsolete models, but even the manufacturer had ceased trading before he bought the car, or within months of his purchase.

Both were wrong.

This thread has been really interesting.

Felix_Jones said:

Don't buy a new car. They're overpriced. Used cars, especially coming off a lease, are just as reliable and the previous owners had plenty of insentive to keep it well maintained. Buy a nice Japanese car of a three-year vintage. It'll be reliable, still relatively new, and a whole order of magnitude cheaper.

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This is fantastic advice. I've never purchased a new car. The value depreciation is staggering and, often times, used cars have far better warranties. 100k miles as opposed to 36k. Of course, that depends on how many miles are on the used vehicle.

I'll offer my nerdy financial advice here, for whatever it's worth. Most people assume they need a car payment. It's the mantra of the middle class and dealers love it. If they can keep you in a perpetual state of making payments, they have a steady flow of income. Most people feel that when they pay off their car, it's time for a new one. This can so easily be avoided.

Ex:

You buy a car at $28k, 2% interest at 48 months. Your payment would be about $600 a month. You pay off your car in 4 years and decide to keep it for 10 years. During that 6 years of no car payment, if you continued paying that amount into a modest mutual fund, earning 4% a year, you would have $50,000 in an account.

Now it's time to buy another car for $30k. Take that money out of the account, pay cash for a (preferably used) car and you're still left with $20k. But continue paying that $600 into an account for just another 5 years. Let's say after 5 years you want to get another car. Well, you have $65k in that account now. And that's after buying a car in 5 years. Wait 10 years and the account is at $120k. At that point, the money you are using to pay off the car is probably all interest.

I have never had a car payment and I just don't like them. I'd rather be my own bank where I can. Pay the "interest" to myself and make the interest myself. I realize this is nerdy and all. But whatever. I love finance stuff and it is such a mystery to so many people.

And those numbers aren't magic. I didn't use some crazy high rate of return. I used 4%. That's modest. Anyone can do this.

pmann said:

This thread has been really interesting.



This is fantastic advice. I've never purchased a new car. The value depreciation is staggering and, often times, used cars have far better warranties. 100k miles as opposed to 36k. Of course, that depends on how many miles are on the used vehicle.

I'll offer my nerdy financial advice here, for whatever it's worth. Most people assume they need a car payment. It's the mantra of the middle class and dealers love it. If they can keep you in a perpetual state of making payments, they have a steady flow of income. Most people feel that when they pay off their car, it's time for a new one. This can so easily be avoided.

Ex:

You buy a car at $28k, 2% interest at 48 months. Your payment would be about $600 a month. You pay off your car in 4 years and decide to keep it for 10 years. During that 6 years of no car payment, if you continued paying that amount into a modest mutual fund, earning 4% a year, you would have $50,000 in an account.

Now it's time to buy another car for $30k. Take that money out of the account, pay cash for a (preferably used) car and you're still left with $20k. But continue paying that $600 into an account for just another 5 years. Let's say after 5 years you want to get another car. Well, you have $65k in that account now. And that's after buying a car in 5 years. Wait 10 years and the account is at $120k. At that point, the money you are using to pay off the car is probably all interest.

I have never had a car payment and I just don't like them. I'd rather be my own bank where I can. Pay the "interest" to myself and make the interest myself. I realize this is nerdy and all. But whatever. I love finance stuff and it is such a mystery to so many people.

And those numbers aren't magic. I didn't use some crazy high rate of return. I used 4%. That's modest. Anyone can do this.

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And that's exactly what I did
I continued paying myself a "car payment" after I finished paying off my last car, and did exactly what you described!! It is waaaay better than paying a finance company!
This has been a great thread with a lot of great advice.
Thanks all!

Some companies have "family and friends" discount plans for buying a car without hassle, with some being better than others.

pmann said:

This thread has been really interesting.



This is fantastic advice. I've never purchased a new car. The value depreciation is staggering and, often times, used cars have far better warranties. 100k miles as opposed to 36k. Of course, that depends on how many miles are on the used vehicle.

I'll offer my nerdy financial advice here, for whatever it's worth. Most people assume they need a car payment. It's the mantra of the middle class and dealers love it. If they can keep you in a perpetual state of making payments, they have a steady flow of income. Most people feel that when they pay off their car, it's time for a new one. This can so easily be avoided.

Ex:

You buy a car at $28k, 2% interest at 48 months. Your payment would be about $600 a month. You pay off your car in 4 years and decide to keep it for 10 years. During that 6 years of no car payment, if you continued paying that amount into a modest mutual fund, earning 4% a year, you would have $50,000 in an account.

Now it's time to buy another car for $30k. Take that money out of the account, pay cash for a (preferably used) car and you're still left with $20k. But continue paying that $600 into an account for just another 5 years. Let's say after 5 years you want to get another car. Well, you have $65k in that account now. And that's after buying a car in 5 years. Wait 10 years and the account is at $120k. At that point, the money you are using to pay off the car is probably all interest.

I have never had a car payment and I just don't like them. I'd rather be my own bank where I can. Pay the "interest" to myself and make the interest myself. I realize this is nerdy and all. But whatever. I love finance stuff and it is such a mystery to so many people.

And those numbers aren't magic. I didn't use some crazy high rate of return. I used 4%. That's modest. Anyone can do this.

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Why the heck have I never thought of doing this? Sometimes you just need somebody to slap you upside the head with common sense. Thanks Pmann!

simplegirl said:

Why the heck have I never thought of doing this? Sometimes you just need somebody to slap you upside the head with common sense. Thanks Pmann!

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It's so simple, but no one does it. Or so few people do it. It's not only a way to have a car fund, but a way to build wealth. One that makes no change in behaviour. You're already paying that amount, so it doesn't change your monthly cash flow.

I've done a lot of financial counseling in my time and I'd says he number one thing that keeps people poor are car payments. They aren't necessary.

Two draw backs to driving a car into the ground (even though it does make sense overall money wise):

1. You don't actually pocket the entire payment amount every month because as the car gets older and older you have more mtnc & repair costs and usually your gas mileage goes down

2. Your car gets more and more undependable. While some can just deal with this there are many drawbacks. Personal safety is one of the many, another of which might be losing your job by being late too many times.

subwannabe said:

Two draw backs to driving a car into the ground (even though it does make sense overall money wise):

1. You don't actually pocket the entire payment amount every month because as the car gets older and older you have more mtnc & repair costs and usually your gas mileage goes down

2. Your car gets more and more undependable. While some can just deal with this there are many drawbacks. Personal safety is one of the many, another of which might be losing your job by being late too many times.

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This is true, to an extent. But there is no reason why a car can't be driven for 200k miles or for 10-15 years. Unless you buy a German or British car.

The secret to making a good deal on a car, (any car), is in how much you like the car. Of course you have to be comfortable with the payments, including insurance and upkeep. You can't leave yourself broke at the end of the month. If you love driving the car, it's a good deal no matter what you paid for it, and of course, the opposite is also true. If you hate driving the car, (and being seen in it), it was a bad deal no matter how much you saved on it. Everyone wants to make the best deal on a new car, but the deal should not be the deciding factor. It's how good owning the car makes feel. A car is more than just a transportation machine: mobility is part of our American way of life.