An Example of How to Save a Bundle on a New Car

I've previously detailed my process for saving a fortune on a new car (and for those of you wondering, here's why I buy new cars). I've used this system to purchase three cars (four now) in the past 10 years, but had never shared the specifics on FMF. Well, a recent new car purchase opportunity came up and I thought I'd detail the process for you.

Background

When we moved to Oklahoma last fall, our intention was to give my wife's car (2005 Toyota Corolla with 68,000 miles) to our son and buy my wife a new car. But we got down here and a few things happened:

1. We found out that car-damaging hail is not that uncommon here, making us think the last thing we wanted was a new car.

2. My son had to start the licensing process all over again here. And he went for several months while we moved without driving, so it's almost like starting over.

3. We got busy with moving in, getting the kids settled, church activities, school activities, work activities, etc. We're busy!

Hence we decided we'd just stick with her car and mine (2011 Toyota Highlander with 70,000 miles) and see how things went.

Accident

In the middle of April my wife was sitting at a red light waiting to turn left (my daughter was in the car too.) They were rear-ended by a teenage girl. I'm not sure how fast she was going, but it wasn't too fast (like 55 mph) or too slow (like 15 mph.) It was fast enough to give them a good "pop" but not so fast as to be devastating. It looked like a simple fender bender to me.

My wife called me at work to ask what to do. I told her to call the police and our insurance agent as well as get photos of the accident.

No one was hurt and the accident didn't look that bad. My wife drove the car home and put it in the garage. The back fender obviously needed replaced and part of the back quarter panels on each side were bent so they had to change as well. The girl's insurance company advised my wife not to drive the car because even though the airbags did not deploy, they were somehow impacted and the insurance company was concerned that they wouldn't work if my wife was in another accident.

By the way, when my wife called the girl's insurance company, whoever she talked to said there had been a claim on the insurance just a few days earlier, making us think this was her second accident in a short period of time.

The next week the insurance company came out to look at the car and pronounced it totaled. They said there was so much damage underneath the car that it was completely unusable (or, more likely, not worth the cost to repair).

I was at a conference in Colorado Springs when I got the news. I got on my phone to search what Kelly Blue Book (KBB) listed as the value of the car, sure we were going to be in a fight with the insurance company over it (after all, why wouldn't they go low?). KBB gave two numbers for our car once I plugged in specs, mileage, etc. It said the car was worth $6,800 if we used it as a dealer trade in or $8,000 if we sold it on our own. I sent this info to my wife. She said she was on the phone with the insurance company and they were going to give us $8,200. We were pleased/relieved, but now we had to find a new car. (BTW, they gave us a rental car for two weeks while we found a new car.)

Car Shopping

We decided that my wife would pick out the car and I'd negotiate the price. So she set to work looking at options.

We had previously considered the Nissan Altima, Honda Accord, and Toyota Camry, but my wife felt these cars were too big for her. She's 5' 4" and 105 pounds -- very small -- and even our Subaru Forester from past years felt big to her. So she looked at the Toyota Corolla, Honda Civic, and one of the Hyundai cars (Elantra or Accent.)

It didn't take long for her to decide on the Toyota Corolla. She had liked the car she had and we have had very good performance/reliability with our Toyotas. So she wanted to stick with the Corolla. After looking at the various options, here's exactly what she wanted:

• Trim: 2014 Corolla LE Plus
• Options: Driver Convenience Package (including moon roof)
• Colors: Exterior – Red; Interior: Ash fabric
• Accessories: Mudguards, carpet floor mats, and carpet trunk mat

Price Negotiation

While my wife was deciding on which car she wanted, I went online and found contact forms to nine dealers -- five in Oklahoma City, two in Tulsa, and two in north of Dallas. Once she knew the car she wanted for sure, I sent all the dealerships except the one my wife was dealing with (which claimed they would beat any price -- I love that!) the following email:

I'm in the market for a new car, know exactly what I want, and would like someone to email me so I can give details. Thanks!

When they responded, here's how I replied:

I would like to get a quote on the following vehicle:

• Trim: 2014 Corolla LE Plus
• Options: Driver Convenience Package (including moon roof)
• Colors: Exterior – Red; Interior: Ash fabric
• Accessories: Mudguards, carpet floor mats, and carpet trunk mat

Please also include any extras your dealership offers like free oil changes, tire rotation, etc.

I am aware of MSRP and invoice prices and would appreciate a competitive bid as I will be comparing quotes from other dealerships. The bid should include any and all costs associated with buying the car.

I do not have a trade-in and I will be paying in cash.

Thank you.

The feedback came back pretty quick (within a few hours) that there wasn't an LE Plus to be found with the combination we wanted, but there were LE Premiums (the next step up). This came from three dealers almost simultaneously, so I believe it was true, not just an attempt at an upsell. Since we were willing to go up a notch, I told them that bidding on the Premium was ok.

I then went to Edmunds to get their True Market Value® Pricing. Here's what they say about it:

Need a little confidence to go eyeball-to-eyeball with the salesman? Edmunds' True Market Value pricing will get you there. It's what other shoppers are paying in your area, including options, the car's color and any available incentives. Our TMV figures are based on the actual sales of other cars of its kind in your region and then adjusted for further accuracy using calculations designed by the mathematicians at Edmunds.com. There's no more need to guess at figures between the invoice price and sticker price; TMV narrows it down to a specific, realistic amount you can use when negotiating for a car.

Here are their results for the car we wanted:

Invoice Prices

• Base Price $17,963
• Driver Convenience Package $1,343
• Power Tilt/Slide Moonroof $757
• Carpet Floor/Trunk Mat Set $140
• Mudguards $80
• Destination Fee $810
• Total $21,093

MSRP

• Base Price $19,400
• Driver Convenience Package $1,510
• Power Tilt/Slide Moonroof $850
• Carpet Floor/Trunk Mat Set $225
• Mudguards $129
• Destination Fee $810
• Total $22,924

True Market Value®

• Base Price $18,252
• Driver Convenience Package $1,421
• Power Tilt/Slide Moonroof $800
• Carpet Floor/Trunk Mat Set $212
• Mudguards $121
• Destination Fee $810
• Total $21,689

The dealership responses came in quickly. Some were high (near MSRP around $23,000) while others were aggressive from the start (one offered $20,252 out of the gate).

An interesting one was from the dealership my wife had dealt with in person. Once we knew what we wanted, she told him to email me to work on the price.

Since he had told her they would beat any price offered, I expected him to be aggressive. Here is the initial email back and forth:

Him: Hey FMF! This is Jeff from ********* Toyota! Mrs. FMF gave me your email address and asked me to get into contact with you! How are you doing today??

Me: I'm doing well, how about you?

I had a question about the quote you sent Mrs. FMF. You gave the following prices:

Base price: $22,275
Options: $2,634
Total: $24,909

Plus Doc and transfer fees.

The biggest issue is your base price. Others are quoting $2,634 for the options, but I have $20,275 (FMF note: this covers (closely) what's listed as "base price" and "destination fee" above) as the base price from more than one other dealer (yes, for an LE Premium). Are you sure you didn't mis-type the base price amount?

FYI, from there, they discounted the total cost further, but we can deal with that later.

Thanks,

FMF

Him: I am doing great, thank you for asking but I'm very sorry, FMF. Yes I did mis-type that price and the following math with the wrong number. My apology. You are exactly correct on the price. What price are you wanting if you don't mind me asking?

Me: Currently the best price is just a couple hundred dollars above $20,000 (for everything.) This is only a "first round" price -- I am yet to ask people if they can do better. I have another that's near $20,500 as well.

If you can send me your offer, I'll add you to the list of ones to keep in touch with.

Thanks!

Him: Being the person and the dealership that Mrs. FMF and yourself have been hands on dealing with we want to earn your business. That being said what can we earn your business at right now tonight??

Me: Right now, you need to make an offer that gets you into the competition. Give me your best price and I'll let you know how you compare.

We will not be buying anything until everyone has the chance to offer their best price at which time we'll be ready to move quickly. We have cash and can make a purchase once we get the price set.

Him: Can we earn your business at $20,058 out the door?

While I was emailing him, most of the other bidders dropped out (when I told them they needed to be below $20,000 to be competitive.) So I emailed Jeff again, told him we were ready to proceed, and asked what the next steps were. This was a Friday evening.

I then went to watch a movie and when I checked email, I had an offer for $19,553 from the one other guy technically in the race (I hadn't heard from him in a day, so I assumed he was out.) I emailed Jeff again, said I hadn't heard from him, and noted that in the meantime we received a better offer. I asked him if he could beat $19,553.

Jeff responded quickly and said he'd talk to his manager. He then came back with an offer of $19,500. I emailed the other guy and asked if he could do better. He said he'd have to hold firm at $19,553. I told him thanks for the effort but we had a lower offer.

We accepted the $19,500 offer from Jeff (the dealer my wife had been working with and that said they'd beat any price) and made arrangements to drop off the deposit. The next day we stopped by, put down a $500 deposit (with our American Express Fidelity card) and were told we'd have the car in 3-4 days.

Purchasing

Here's how the financials shook out (from the dealer's financial sheet):

• Base price (MSRP): $20,275
• Options: $2,634
• Total MSRP: $22,909
• Discount: $3,218
• Rebate: $500
• Adjusted price: $19,191
• Doc fee: $299
• Balance $19,490

We saved $10 because we didn't need financing. :)

Our rental car expired that Tuesday (we made the deposit on Saturday) but the insurance company extended it to Wednesday because the car was supposed to be available then. But it wasn't, so we spent a day with one car (harder than it sounds), then went to pick up the new one on Thursday, May 15.

You would think that it would be easy from there. We have the money, they have the car. There's no paperwork. All the negotiation is over. Shouldn't I be able to hand them a check and get out of there in 10 minutes?

Nope. We sat around for half an hour waiting for "the paperwork" to be completed (not sure why it wasn't done prior to us getting there -- they knew exactly when we were showing up). At least some of the time was spent by the salesman showing my wife how to use her car, so it wasn't all wasted time.

The "funny" part was when we got into the office of the finance manager. After his salesperson had spent the last two weeks telling us how great/reliable Toyotas were, the office manager now spent five minutes telling us how they break down, how the repairs are often not covered, and so forth. He painted a nightmare picture that had even me doubting if we'd bought the right car. What was his purpose in doing this? He wanted to sell us an extended warranty.

We declined and told him we wanted to move on. He did, but I could tell he wasn't happy with us.

An hour after we arrived, my wife had her new car.

And that's our latest adventure. I was happy to get the car for so much below both the fair market value and the invoice numbers. It just goes to show that there are a lot of hidden rebates, incentives, and the like that are unseen by consumers. One tried and true way you can ferret them out is by getting competing dealerships to bid against each other. It's worked for me and if you apply the same process, it can work for you as well.

Comments

[Michelle]

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

[Steve]

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...

[DD]

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

[Sarah]

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!

[Tato]

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.

[Joe]

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.

[JeffinWesternWa]

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!

[Old Limey]

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.

[Sam]

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!

[jclimber]

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.

[JACK]

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?

[FMF]

Jclimber -

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

[FMF]

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.

[Bill]

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.