« Almost Infinite Investment Return | Main | Buy Term and Invest the Difference »

July 07, 2014

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

Wow sounds like you did a great job and got one heck of a deal. Good work!

Pretty cool. Subtracting the 8k from the accident you'll receive you're stepping up to a 2014 for 11k in cash. Drive that car for 9 years (like i guess the 2005 was done for) and it basically costs you $100mth. Thats the kind of math I like seeing when I buy a new car...

Did you check Costco Auto program? Costco offers 1-4k (depends on the make/model) off of MSRP with no hassle or negotiations.

Nice work. I'll bet email makes it easier for a lot of people to do this--easier to juggle/compare offers, less stress from the high-pressure sales pitch (though some of it bled through in the email from Jeff). $1K saved is $1K earned!

Having just gone through the buying process myself, I think your approach is the best way to get a new vehicle. I used the Costco program (and the True Car program) to get my starting prices and then worked with the dealerships directly. One thing that I learned with this buying experience is that is in absolute waste of time to go to a dealership to get a price quote. Lots of wasted time just sitting around, and the quotes are not any better than quotes received over email or phone. The car buying process is such a cluster! It would be great for someone revolutionize this process. I think the car industry is like the old saying that you don't want to know how sausage is made.

What, no 'Dealer Appearance package'? I just bought a Toyota Sienna and they tried to charge me $695 for pinstripes, door guards, and nitrogen in the tires.
I had to get up to leave before they removed the charge.

I love buying by email! diddo, ..at/around/below "invoice" is typically the number you will get this way.

I just purchased a new waverunner and the PWC/boat dealerships are just as ugly as car sales, again, emails and phone calls made it less than an hour appointnment (and saved a lot of dollars) to get the paperwork done!

The last two cars that I bought were used ones.

After retiring in 1992 I didn't get my first social security check until 1996, that's when I went to our local Mercedes dealer and celebrated by buying a pristine 1991 Mercedes 560SEL in Black Opal with very low mileage and lots of extras. The car has been a joy to own and I still have it.

In 2002 I repeated the experience by buying a 1998 Mercedes C230 in Artic White for my wife. This car has also been a joy to own.

My wife gave up driving over a year ago because of vision problems so I drive the C230 and use the 560SEL as a backup. Now that we are homebodies aged 79 and 80 the cars get very little mileage put on them and they will likely last us the rest of the way.

Wow! Very impressive. One of the best posts on negotiating car purchase. I like the way you articulated info in your e-mails. To the point. I will refer back to your post, if I have to buy a car in the future. Thanks!

Nice work on getting the new car FMF. Recently went thru the process myself and was able to get a great price thru e-mail as well.

Did y'all look at the Mazda 3? We love it and it is similar in price to the Corolla.

I tried this once and got no replies to any of my emails. Any secret in getting dealerships to actually engage in negotiations by email?

Jclimber -

I didn't. We have never wined Mazdas and wanted to stick with cars/makes we knew/trusted.

Jack -

I have no idea why a dealership would not return an email. Perhaps they got stuck in spam folders, you used incorrect email addresses, or your note was bad in some way. There's no way I could tell for sure what the issue was.

This is absolutely the right way to buy a car, make the dealers compete for your purchase. The worst thing you can do it look up pricing info online and go into a negotiation attempting to use that as leverage. Most people don't realize this but if you understand the dealership business model it makes complete sense.

Years ago, before the internet, a dealer would buy a car from the manufacturer at one price (invoice) and offer it higher (MSRP). Customers could negotiate for a lower price than the MSRP and dealers would happily take part, ensuring that the final price was above their cost. Sticker/invoice spreads were much larger at the time averaging around 15%.

Fast forward to the information age and now dealer invoices are widely available, it became incredibly difficult for the dealer to negotiate effectively when the customer knows his cost exactly. What was the solution? Obscure the true invoice price (cost) of the car.

They have accomplished this in many ways. Every major manufacturer offers what is known as a "holdback" to dealers. Essentially this is an automatic rebate given to the dealer on every car sold, the typical level is 2%. If the invoice price on a car is $25,000 when the car is sold the dealer gets paid $500. These are not the same as dealer incentives you hear advertised, those are special public offers similar to a "sale" on cars. The holdback is paid on every sale of every car always but it's never advertised and rarely discussed. In my $25,000 example where the dealer gets an automatic $500 rebate what is the real cost of the car? Economically it's $24,500, yet if you simply looked at invoice information online you wouldn't know any better and think it's really $25,000.

This holdback is standard and fairly well understood. Another profit source that is much more closely guarded are manufacturer incentive programs offered to dealers. These take various forms but they involve meeting various sales targets; increase revenue X%, sell X number of cars this quarter etc. These are never made public and they can be VERY significant. They are usually dealer or region specific, they can be for monthly, quarterly, or yearly windows, and they can focus on a particular make, model, or more specific criteria.

One specific example I can give is a major Japanese manufacturer that offered a $500 rebate per car sold once the dealership exceeded 1000 sales in a quarter. To make that completely clear, if the dealer sold 999 cars that quarter they got $0, if they sold 1000 cars in the quarter they got a check for $500,000. What was the marginal profit on the 1000th car sold? Do you think they would be willing to sell below invoicwhen they were near their target and short on time? These incentive programs are standard operating procedure in the car dealership business. They were put in place specifically to obscure the true cost of the car to the dealer to combat the "problem" of information transparency.

So what's a car buyer to do? There are massive hidden adjustments to each specific dealer's cost of goods that you can't possibly know. The answer is simple, make them compete just like FMF did in this post. If a dealer is really axed to sell cars he's going to make an aggressive offer, ask enough dealers and you can root out the guys with the lowest marginal cost. When I bought my Kia two years ago I got offers from $1,000 to $500 under, ended up buying it for $1,000 below invoice.

The comments to this entry are closed.

Site Sponsors


Enter your email address:

Delivered by FeedBurner

Disclaimer


  • Any information shared on Free Money Finance does not constitute financial advice. The Website is intended to provide general information only and does not attempt to give you advice that relates to your specific circumstances. You are advised to discuss your specific requirements with an independent financial adviser. Per FTC guidelines, this website may be compensated by companies mentioned through advertising, affiliate programs or otherwise. All posts are © 2005-2012, Free Money Finance.

Stats