Let's Make A Deal
IT'S THAT TIME of the year again: the September showroom shuffle. Auto dealers are shifting into high gear to sell off their 2003 inventory and make room for the new 2004 models. That means there are bargains to be had.
But only the savviest buyers will score the best deals. For example, did you know that manufacturers are offering dealers unadvertised cash incentives on certain vehicles? If you negotiate aggressively, you should be able to get at least part of that savings passed onto you, says Philip Reed, consumer-advice editor at Edmunds.com. Most people focus only on the cash rebates manufacturers offer directly to consumers.
To get the best deal, you'll need to do some homework — before you step foot onto the car lot.
Model Year
Walk into a showroom in September, and you have an important decision to make: Do you want to spend less for this year's model or dig a little deeper into your pocket and buy next year's model? There are a couple of schools of thought on the matter.
On the one hand, you could get a great deal on a 2003 model. Manufacturers are offering cash rebates, dealer incentives and low interest rates on financing in an effort to unload these cars and make room for the shiny new models. Dealers want to get these cars off of their lots, and are willing to negotiate aggressively. And if the 2004 model is a total redesign, you could end up getting a screaming bargain on a 2003, says Edmunds.com's Reed.
Keep in mind that some deals are better than others. Since a 2003 model will lose its value, or depreciate, faster than a 2004 model, you should make sure that rebates and other incentives counterbalance that. For that reason alone, it may be a smarter move to buy the more expensive 2004 vehicle. Why? Over, say, five years it may actually cost you less to own that vehicle. Just subtract the cost of the car from the amount industry sources estimate it will sell for when you're ready to trade it in. In most cases, the steepest drop in value occurs after the first year. So that 2003 is going to be worth a lot less than the 2004 as soon as you drive it off the car lot, warns Rob Gentile, manager of Consumer Reports's new- and used-car price service.
Depreciation
Depreciation should also play a major role in any decision of car make and model. What many people don't realize is that it's often cheaper to own a foreign luxury car for five years than to settle on an American sedan. That's because German and Japanese models typically hold their value better than American cars, says Reed.
Using Edmunds.com's True Cost to Own calculator, we found that you could buy a 2003 Honda Civic two door coupe at an invoice price of $12,445. After five years it would depreciate $6,103 and be worth $6,342. Had you bought a more expensive 2003 Pontiac Sunfire, two-door coupe, with a listed invoice of $16,595, it is estimated to depreciate $12,321. So after five years it would be worth only $4,274. "The difference in depreciation is rather staggering," says Edmunds.com's Reed. "It pays to know this upfront."
To find out how much the car you're considering buying might depreciate over the next five years, click on Edmunds.com's True Cost to Own Calculator, or IntelliChoice's five-year Ownership Costs report.
| Tokens of Depreciation | ||||||
| Lowest % Loss of TMV | ||||||
| Year | Make | Model | Style | True Market Value (TMV)* |
5-Year Depreciation |
% Loss of TMV** |
| 2003 | Mercedes-Benz | CLK-Class | CLK430 2dr Cabriolet (4.3L 8cyl 5A) | $62,538 | $27,274 | 43.61% |
| 2003 | Porsche | 911 | GT2 Rwd 2dr Coupe (3.6L 6cyl Turbo 6M) | $186,015 | $81,613 | 43.87% |
| 2003 | Toyota | Tundra | 4dr Access Cab SR5 4WD SB (4.7L 8cyl 4A) | $25,589 | $12,022 | 46.98% |
| 2003 | Honda | Civic | EX 2dr Coupe (1.7L 4cyl 5M) |
$15,620 | $7,357 | 47.10% |
| 2003 | Toyota | Land Cruiser | 4WD 4dr SUV (4.7L 8cyl 5A) |
$52,344 | $24,700 | 47.19% |
| Highest % Loss of TMV | ||||||
| Year | Make | Model | Style | True Market Value (TMV)* |
5-Year Depreciation |
% Loss of TMV** |
| 2003 | Kia | Spectra | 4dr Sedan (1.8L 4cyl 5M) |
$9,866 | $9,692 | 98.24% |
| 2003 | Chevrolet | S-10 | 2dr Regular Cab 2WD SB (2.2L 4cyl 5M) | $13,054 | $12,958 | 99.26% |
| 2003 | Ford | Ranger | 2dr Regular Cab XL 2WD Styleside SB (2.3L 4cyl 5M) | $12,068 | $12,159 | 100.75% |
| 2003 | GMC | Sonoma | 2dr Regular Cab SL 2WD SB (2.2L 4cyl 5M) | $12,916 | $13,034 | 100.91% |
| 2003 | Chevrolet | Cavalier | 2dr Coupe (2.2L 4cyl 5M) |
$11,351 | $11,457 | 100.93% |
| |
* True Market Value is MSRP minus rebates and incentives. ** These values take incentives into account. |
Source: Edmunds.com | |
Even if you have your heart set on a new car, you might want to consider buying one that is slightly used. Especially this year. Thanks to 0% financing deals and other manufacturer incentives, more people than ever are buying new cars. That's pushing prices of used cars down, says Consumer Reports' Gentile. And if you thought dealers were willing to negotiate on 2003 models, you should see how flexible they are with used vehicles.
As we mentioned earlier, a car depreciates most during its first year. So if you buy it used, you'll likely retain more of your initial investment when it's time to sell. This is a particularly good idea for people who like a new toy in their driveway every couple of years. You could even buy it after the first year and sell it before the next major drop off in depreciation, which usually occurs around year three or four, says Edmunds.com's Reed.
Forget the MSRP
Once you've settled on the perfect car, you'll need to negotiate a price. Be warned. Negotiations no longer start at a dealer's MSRP. Thanks to unadvertised manufacturer-to-dealer incentives and dealer holdbacks (a cash bonus for selling a certain number of vehicles), dealers are acquiring cars for less than they let on. "The invoice price is not the bottom line anymore," says Consumer Reports' Gentile. That means salespeople have wiggle room to cut prices.
How much room is there to negotiate? Ford, for example, is offering $1,883 (including a dealer incentive and dealer holdback) to any salesperson who can unload a 2004 Lincoln Town Car Cartier by the end of the month.
Here's the bump in the road: There's nothing requiring your salesperson to share that $1,883 with you. So you should broach the subject carefully. As a rule thumb, it's safe to assume that 70% of it could get passed on to you — but there are no guarantees.
The good news is that it's easier than ever to find out precisely how much cash manufacturers are offering their dealers. You can look it up on Edmunds.com, IntelliChoice, or you can purchase an Auto Price Report from Consumer Reports for $12. (Each additional report sells for $10.) Since deals come and go quickly, you can order a new report from Consumer Reports within 30 days at no extra cost.
Keeping Your Deal
The next potential hurdle: financing. "All your hard work in negotiations could be lost if the [financing] contract isn't set up correctly," warns Edmunds.com's Reed. So prepare yourself for yet another round of haggling once you enter the dealership's finance and insurance (F&I) office. If you thought the guy tailing you on the lot was aggressive, you haven't seen anything yet.
The F&I manager is typically the dealership's best salesperson, and will try to sell you everything from pin-striping and rust-proofing to extended warranties and vehicle-identification-number (VIN) etching. All of which are a waste of money. Pin-striping, for example, could cost you $275, says Reed. Yet it takes the dealership just 10 minutes to apply. Having it done elsewhere will cost you a lot less.
Even more troubling, the F&I manager could try to sell you a loan with a much higher interest rate than you're qualified for. So it's important that you know your credit score before you walk into that office. Reed recommends setting up your financing before you go to buy the car. That way you can focus on how much the car will cost you, not what your monthly payment will be. You can also use that financing to bargain for a better deal. If one lender is willing to give you a 4% rate, maybe the dealer will offer you 3.5%.
Additional Tips
Buy your vehicle through a dealership's Internet department. Why? The best deals are often found online — where buyers can sometimes save $2,000 or more. The Internet department makes money based on volume, and therefore doesn't have the same incentives to squeeze every last dime out of you, says Reed. The Internet folks also assume that if you're savvy enough to conduct business online, you're also well informed and know all of the incentives that are out there.
"I hate to think of my friends and family walking onto a car lot," Reed says. "You are stuck with the first person you meet. That person may not have sold a car in two weeks and wants to get the maximum profit on it."
Another tip: Avoid weekends. Prices vary day to day on the showroom floor, and you want to negotiate your deal when things are quiet. That way, the salesperson is more eager to make a sale. The best days to strike a deal are Monday, Tuesday and Wednesday, says Reed. By Thursday, the dealership is gearing up for the weekend rush. When it's crowded, a salesperson has no incentive to give you a great deal when there's another consumer waiting in the wings to buy that new Ford Ranger.
For more on buying a new car, check out our auto section.
