I mentioned yesterday morning that I had a) two cars coming off lease at the same time; b) I’ve been doing lots of shopping at various dealers; c) car financing was pretty attractive. This post expands on that discussion.

Allow me to share what I have learned over the past few weeks. I feared car buying was going to be an ordeal, but I discovered it didn’t have to be. To avoid this fate, you must: Do your homework, understand the negotiation process, and be moderately flexible. 

These are my 10 steps to better auto shopping:

 

1) Set Up Your Online Shopping Identify:

Get a Google Voice account (its free) then get a LeeMail account (its free). These are the only numbers/addresses you use until you decide which car you are getting from which dealer.

Both of these can be easily set to specifically block any emailer or caller — meaning you never hear from them again.

Trust me on this: If you don’t set up both of these up front, you will be harangued by car dealers for the rest of your natural lives (and possibly beyond).

 

2) Do your homework: Before you ever step foot on a dealer’s lot, you need to figure out a few things:

a) What kind of transport? Are you looking for a minivan, convertible, truck, coupe, SUV, etc.
b) The range of competitive vehicles for that car type
c) Your actual budget (including your “bottom line” monthly price)
d) Buy or Lease? (see #3)

Here is an example: One of our cars must be an AWD 4 door, 5 passenger. We made a flexible list that included: Acura RDX/MDX/ZDX, Audi A6/A7, BMW 535x, BMW X5, Infiniti FX35, Infiniti G, Infiniti M37x, Lexus RX350, Mercedes E350, Range Rover Evoque, Volvo XC90, VW Toureg. All had 4 doors, were available in AWD. Prices ranged from mid $30s on the low end to over $70k fully optioned.

 

3) Buy or lease? Most people should own, not lease cars. Its better not to pay for just the most expensive years of a depreciating asset.

The exception is if you can lease with pre-tax dollars — if you own (or are senior enough in) a company, than a lease may be a great deal. But without that tax advantage, the numbers favor owning.

 

4) Know Your Price Range and Approximate Cost of Cars: All of the cars I mentioned have extensive websites where you can build and price vehicles. You end up with MSRP.

With overall rates so cheap, the cost of financing a car for purchase is as low as its ever been. That reduces a key cost of auto shopping.

If you lease, you want to do Sign & Drive. If the car is stolen or totaled, the down payments are also lost — so it pays to roll as much as you can into your monthly fee.

 

5) Understand Factors Which Impact Pricing: The cost of any given car is a function of its retail price (MSRP), specific programs dealers are running, financing, what is hot or not, and other factors.

Seasonal contrarians take note: Convertibles tend to be more negotiable in December/January/February (they are just sitting on lots) the same is true with AWD trucks in June/July/August.

New/Old Models: When models change, there are deals to be had. A brand new model means there are not a lot of used ones to be sold — and many dealers make more from their used cars than they do from their new ones. For example, this month, Lexus’ new RX350 SUV had really good lease deals (2013 RX350 AWD $429mo/27mos. $3,779 due at signing) — because they want some used ones to sell in 2015.

Also look at cars that are being replaced: Acura’s MDX is being upgraded, so is Infiniti’s G37AWD sedan. The deals: 2013 MDX 6 Speed auto $439 per month for 36 months,$2499 total due at signing; Infiniti G37 Sedan AWD with Premium Package: $299/month Lease for 24 months, $2,699 initial payment. Their sale prices were also significantly discounted.

The hot sellers — Audi A7 — is pretty much full boat. And the leases were even worse. (Pass).

Then there are the klunkers: The overpriced, slow-selling BMW 5 series Gran Turismo is rumored to be cancelled soon; if that happens, they will go on mad sale. A similar BMW 3 series GT  — the shape works much better on the smaller car — arrives this summer. Watch for deals then.

 

6) Be aware of the sales routine: If you followed steps 1-5, you know the approximate cost of the car, plus the options you want, and how that prices it.

There seem to be three prices: 1. MSRP; 2. A reasonable percentage off of it; 3. Rock bottom price.

My experience has been that 10-12% below MSRP is very doable without wasting too much time. You can probably get to 15% or even more off of MSRP — but its a very time consuming game. My time has value, and I have better things to do with my weekends. The longer you go back and forth with them, the more you can get off.

Why do they start at full MSRP?  The first price is going to be kinda high — its full retail, and the only reason they do this is a surprisingly high percentage of customers accept it. So they always offer MSRP.

Some people hate haggling are embarrassed to look poor. I prefer the opposite tack — I always look at a medium nice car and sigh wistfully: “I wish I could afford that car.” Or: “My wife would never let me buy a car like that.” NEVER show off to a salesperson; instead, always make them feel your pain. (Paying for kids college? Killed in the market? Let them know!)

 

7) Understand the buying/leasing math: The purchase math is simple: Negotiated cost of car plus financing expenses.

For leases, its more complicated: What you are paying for is your usage of the car (as configured), plus finance costs. And, you have to add in what left over when you return the car — the residual. That is the purchase price if you want to buy it at the end of the lease.

The low rates help drive deals, but as I learned, the manufacturer’s offers have a huge impact. Here are two example’s of similarly priced cars that show how the deals shake out. They are instructive:

2013 Audi A6 3.0 Quattro Premium Plus (Nav) Cold Weather package
MSRP is $57k.
Purchase price = $52k
Purchase 8.88% below MSRP
Lease was $2,166 down, $787/mo 36 months
Total Lease dollars = $30,498
53% of MSRP purchase

2013 BMW Z4 3.5i Navigation Cold Weather package
MSRP is $59k.
Purchase price = $55k
Purchase 6.77% below
Lease was $1,700 down, $633/mo  36 months
Total Lease dollars = $24,488
41.5% of MSRP purchase

The Audi was a better purchase deal (~9% below MSRP) but 53% of the purchase price is way to high for a lease. The Z4 was an okay buy, but as a lease it is a good deal.

 

8) Use Online Salespersons: I asked several dealers for quotes on cars. If they ignored my request for an emailed quote and called, I held that against them. Different dealers have differing demands for specific cars. Some of the deals were very competitive .

A few years ago, we got a fantastic deal from a Greenwich CT Infiniti.

 

9) Go to Competing Dealerships: Don’t be afraid to cast a wide net. I looked at the same make cars from dealers in Parsippany, NJ to Greenwich, Connecticut to Smithtown, Long Island. The same marque in tony Manhasset (Nassau County) Long Island was not particularly pleasant or reasonably priced. In blue color Suffolk, in Smithtown, the dealers were pleasant with much better prices. Its about an hour between the two shops.

Some do the idiotic “let me speak to my manager” and leave you there for 15 minutes; others for 2 minutes, others not at all.

It totally paid off shopping far and wide.

 

10) Use a car buying service:  That was the suggestion for people who are too busy or intimidated or who simply dont want to be bothered. Readers made lots of good suggestions here as to what services they liked.

Leading suggestions: USAA, Credit Unions, and (mulitple recommendations) CostCo.

 

The bottom line is that when you walk into a dealer without sufficient prep — asymmetric information — it will be advantage dealer. Overcome that disadvantage by becoming knowledgeable. Take advantage of the embarrassment riches the internet offers to even the odds up.

 

Category: Consumer Spending, Credit

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

31 Responses to “TBP Guide to Car Leasing & Buying”

  1. Chad says:

    Good list. I would add that many dealers post their best deals for about 30% of their inventory on their internet sites. Found this multiple times in the DC area over the last month.

    Also, TrueCar.com seems to give a price slightly higher than you should really pay, but its a nice starting point for your research.

  2. Jeff says:

    (First time poster). All good suggestions on buying strategies. I don’t buy cars very often. I tend to wait until they are on their last leg, but the last time my wife and I bought our cars (about 7 years ago), we used AAA pre-negotiated prices. AAA has prenegotiated prices with most manufacturers and the usual price is a small mark up on manufacturer’s invoice price to the dealer. Not all dealers in a given area accept the deal, but their is usually at least one close by. Once they agree to the pre-negotiated price, you can use that as leverage with a dealer closer to yoy (if need be). I did this for my Honda Pilot and a Jeep Liberty. However, the Odyssey my wife bought did not have a pre-negotiated price because the car was so popular, so I guess it has limited application

  3. j3ff says:

    you can’t have a car as small as the infiniti g and as large as the bmw x5 in your list without including the x3. it’s roughly as big as the 1st generation x5, much more accomodating for 5 than the infiniti and quite nice. my 2012 x3 3.5 gets about 21-22mpg with a heavy foot, and is clocked at 5.5sec for 0-60. if you get either bmw, do a performance center delivery at the spartanburg facility: a half day doing exercises on the tracks [with their vehicles, not your new one], and a tour of the factory. great fun.

  4. Event_horizon says:

    1) call the closest 7-12 dealerships and find out the name of the fleet manager
    2) Email fleet manager and ask for their best “out-the-door” price quote with the exact trim that you want.
    3) choose best offer of those that respond ~1/3
    4) print out manager’s email quote to take with you to purchase car
    5) get financing quote from credit union and compare with dealer financing
    5) done

  5. Iamthe50percent says:

    Good rules. I am curious though, since you included the VW Toureg in the list, why didn’t you consider the Chevrolet Equinox which seems to be a decent vehicle. Just don’t buy the under-powered 4 cylinder. Mad about the government buying stock?

  6. MidlifeNocrisis says:

    I found CarGurus.com to be interesting. They run mathmatical algorithms that analyze car listings on “millions” of cars overnight (they claim) and their website will give you instant market values (good price, fair price, market priced, overpriced) based on comps of current and previously sold car listings in your area.

    However, I did find one time where a car shown at CarGurus.com wasn’t actually still on the dealer’s lot.

    Worked good for me when looking for the exact same car, checking multiple dealers within a 100 mile radius.

  7. MidlifeNocrisis says:

    I found CarGurus.com to be interesting. They run mathmatical algorithms that analyze car listings on “millions” of cars overnight (they claim) and their website will give you instant market values (good price, fair price, market priced, overpriced) based on comps of current and previously sold car listings in your area.

    However, I did find one time where a car shown at CarGurus.com wasn’t actually still on the dealer’s lot.

    Worked good for me when looking for the exact same car, checking multiple dealers within a 100 mile radius. I was, however, looking for a used 2010 or 2011 model year.

  8. b_thunder says:

    Very useful guide. BR is branching out into consumer advice!

    Three suggestions from own prior experience (negotiated 2 cars in last 3 month for friends)
    (these won’t work for the super-hot and ultra luxury cars)

    1. Find out the dealer invoice price, rebates, special financing deals, dealer incentives from sites like edminds.com – walk into the dealership prepared

    2. The last 2-3 days of the month and especially of the quarter could be the best times to make a deal: the manufacturers often offer the dealers secret incentives for moving a certain number of cars in a month/quarter. A dealer may be offered $10-20k bonus if he sells (for instance) 100 cars. If it’s the last day of the quarter and he sold 99, he *might* give you $5k straight out of his own pocket and still come out with $10k gain, but if he misses the quota – he’s gets nothing! Nobody but dealers knows if there are special “kickbacks.” If it’s the end of the quarter, use Mr. Ritholtz’s “I wish I could afford that car” strategy and give the salesman a low-ball bid. This may or may not work… Anyway, I’m driving a car bought like that for $2.5K below the dealer’s invoice less all rebates.

    3. Search online (especially forums) for reports of dealers who list their cars online at competitive prices (not at MSRP.) There’s more and more dealers who do that. Go to your local dealer and tell them to beat the internet price. I used a comp. quote from fitzmall.com to negotiate a subaru a month ago from a local dealer for less than dealer invoice.

  9. shinola says:

    OK info. if one must have a brand new car, but…

    I pay cash for a 3-4 year old car with low miles – let someone else pay the big upfront depreciation.
    I can no longer bring myself to finance a depreciating “asset” or lease( i.e. rent). I’ve done both before & decided that I have a better use for the few thousand dollars it saves me.

    Then I can buy my preferred “toy” – a new Fender or Gibson or… and still put some dollars into the retirement account.

    To each his own as they say.

  10. larrr1 says:

    Never understood the 5 series GT, but love Audi’s these days…

  11. Pewjumper says:

    Solid tips. But I think an obvious one may have been taken for granted. Drive the car before the start of any car buying negotiation: new or used.

    Not some planned itinerary by the seller or dealership either. Drive it like you’ll use it and take as much time as you can. Try to get a feel for its capabilities and quirks in as many of your typical driving scenarios as possible. All your specs / cost / loan research info is misplaced if driving the car doesn’t match what you need and want. As I’ve learned: they all are marvelous on the phone / internet / magazines (old school). The proof is behind the wheel on the road.

    I do prefer shinola’s method. Buy used with cash. I’ve found the closer to 100,000 miles on the odometer, the more flexible the seller is about the price. Most people are afraid to even consider a car with that much mileage. But many modern cars (from mid-90s forward) are surprisingly reliable if they get regular maintenance.

    Unfortunately, my remarks are skewed and suspect by my being a “car guy.” My first car was a 1960 Pontiac Catalina passed on to me by my dad in 1973: 10 mpg max. It ultimately mutated into owning, selling, maintaining, and modifying 20+ domestic and import cars over the past 40 years.

    Not too many vehicles can exceedingly test your mechanical ability, fortitude, and also blazingly illustrate logic defeated by vehicular passion, than owning and maintaining yourself two mid-’70s Alfa Romeo Alfetta sedans each with over 100,000 miles — at the same time. But the used Audi 5000 Turbo sure came close.

  12. auric says:

    There are many good ideas here for buying a car, starting with the assumption that you already know the model you want. If you aren’t certain, then a test drive would really help. For example, I recently test drove a model that I was interested in, only to find out that the steering wheel obscures the speedometer readout (for me, at least). I won’t be buying that car.

    Unfortunately, if you want a test drive you have to deal with a salesman. Ugh.

    ____

    BR: We test drove 3 different Acuras, 2 MBs, 1 BMW, 1 Infiniti, 1 VW — and that list includes both cars we ended up with.

  13. graphrix says:

    I haven’t used it myself, however when I do go new car shopping again I will look into it… https://www.truecar.com/ I like how they can pull up all the incentive rebates that many may or may not be aware of. It eliminates at least some of the asymmetric information. More fuel into the negotiating process.

  14. nj-professor says:

    Barry……your camera buying knowledge and experience and now autos are GREAT……

    Thanks!

  15. Robert M says:

    I notice in your list of cars 4 dr 5 seating pass was a key. you then added a number of SUV’s. One you left off your list was the Subaru Outback. This years model is a substantial improvement over the small Eurocar(swear that is how the dealer described the preceding yrs). Not up on the cash and options part to say its better financial deal but it is a reliable car beyond belief.

  16. [...] This is a no brainer and the best way to take  advantage of zero rates for most families. • Buy or Lease a new car. (Ben wants you to) assuming you can afford to • Shorten the duration of your bond holdings. [...]

  17. Orange14 says:

    My only quibble with the suggestions is the that I think you overlooked the premium charged for the brand name. We have only owned Hondas for the last 24 years and have found them to be mechanically sound and great performers on the road. Why would I want to pay a 10-30% premium for an Acura? In regards to SUVs, I drive a Honda CRV and each of my daughters do as well (both went to university in the snowbelt of upstate NY). The only time I could not drive out of my neighborhood was during the Snowmageddon of 2010 when we had over 30 inches of snow in a two week period and it was just too deep to drive through. My girls never had any problems during the winters when they were in college.

    ____

    BR: Last go round, we looked at the Acura TSX wagon versus the Honda Crosstour. Same interior, better exterior for the Honda, $5,000 cheaper, plus AWD (vs FWD) — It was a no brainer.

  18. BennyProfane says:

    As I said in the other thread, stay away from hard to get models with hard to find options. Which car is sitting out in the lot in big numbers, or is well represented on the web site inventory? That’s your best deal. And, check out low mileage certified pre owned. Mine was clean as a whistle, and had an awesome warranty, with a 20% discount off of new new.

  19. stonedwino says:

    Good stuff as always BR.

    I am on the road all the time seeing customers and actually will put another 250 miles on today, heading up the Hudson Valley and back to NJ…which means I drive about 35,000 miles per year. My 2008 Audi A3 3.2L is the best car I’ve ever had ( I alwasy drive German) and now has 152,ooo miles on it. Proper and timely maintenance is key to that. Overall though I love my Quattrone and the peppy, very responsive engine & trany, which gives me the confidence to drive anywhere, anytime in any kind of weather. Audi is making some of the bets cars out there lately and I cannot recommended them highly enough. Getting the right car is much more important to me than the “right deal”, since I drive so much and my business and livelihood (and life!) depends on it.

  20. jcrane1028 says:

    I have found that the local car show, in my case Cleveland which is now going on, is an excellent place to survey the whole market. No test drives but a chance to go back and forth between vehicles without hassle and maybe pick up a new shammy cloth.

  21. gman says:

    Great post. I have had luck finding value buying the 2-3 yr old cars coming off of lease w/ full warranty in the past. Any insight from anyone were the gluts/ deals are in that space right now?

  22. Gatsby says:

    This list is…AWESOME!

  23. Ezra Abrams says:

    aside from showing off how wealthy you are, is there anything in this long redundant post that readers couldn’t have gotten from consumers reports ?
    And, you left out , that CR will give you “true” prices, so instead of being an idiot and barginign down from the msrp, you can bargain up from what the dealer actually paid.

  24. louiswi says:

    Ezra, try not to be such a knucklehead. Barry is just showing his thinking and his process and I and apparently many others found this to be a useful and enlightening approach. Nobody makes you read this stuff.

    Thanks Barry for taking the time to share.

    Didn’t any GM or Ford products make the cut?

  25. Livermore Shimervore says:

    based on fairly new news that’s nearly confirmed:

    Wife can’t drive a stick so she won’t let you buy a Posche GT3?

    Porsche to drop manual shifter in 2014 GT3 and Turbo models. PDK auto trans only.
    Hold Starbucks latte in one hand, steer 450 HP with the other.

    Also,
    Porsche to continue craptastic cener locking wheel which require insane maintanence costs.
    Porsche to unveil an all new race engine for the GT3 with 9,000 RPM.
    GT3 allocations will be priced well into the $150K territory.

  26. ben22 says:

    I’m going to be in the market for a new car by summer I’d suspect…this is very helpful

    thanks BR

  27. ravenchris says:

    New Subaru Forester Turbo coming in March. Buy two and have extra mounted set of the best Michelin snow tires in your garage for each. Get two floor jacks from Harbor Freight and electric impact wrench, change over to snow tires when you want/need to, in your own garage. Think alpha snow leopards.
    Anyway…
    CR is a good source of information and prices. Fitzmall is worth a look but they can be higher than the local dealers. 12/2012 I used CR and bought a new 2012 Camry Hybrid LE about 16% under MSRP and dealer fee.
    Before widespread internet, I would call dealerships, ask for the new car manager and tell him what I was willing to pay for a specific car. It’s still the same way like fishing, keep going until you get the keeper.
    Thanks for sharing. Google Voice and Leemail sound very useful.

  28. roggerr says:

    I think you’re missing the value of leasing for an individual regardless of tax deductibility. Basically a lease is a loan that amortizes to the residual value rather than zero. Assuming the loan interest rate and the lease IRR are roughly equal (which I have usually found to be the case – to get this number you can ask the person quoting financing for the lease money factor. Multiply this number by 2,400 and the result is the interest rate in the lease), for a comparable cost of funds to a loan, the lease effectively gives the lessee a free option at the end of the lease. If at the end of the lease the market value of the car exceeds the residual value and like the vehicle, have had now major accidents or mechanical problems, you can buy the car for the residual value and are no worse off except for some fees than if you had originally purchased the car. Alternatively, if the residual value is higher than the market value at the end of the lease, you can return the car, having effectively paid less than the amount of the cars depreciation.

  29. [...] Picture blog styles himself as a car buying and leasing expert. He’s offered his expertise in a very good explanation of how to approach a new car [...]

  30. Slap says:

    Barry,

    I bought a 2012 Audi A7 From a dealer friend in NJ and got a very good deal. Absolutely love the car! I’m sure I could get you a very good price if you want.

  31. Marc P says:

    Great list, thanks. I’ll second the idea of waiting until the end of the quarter or year. The best deal I ever got on a car was on Dec. 31. A drunk driver had totaled my parked Saab just a couple of weeks before Christmas. I walked into the dealer on the morning of a rainy, miserable Dec. 31 and the sales guy practically gave me a new car. Was he chasing a year end bonus? Christmas bills to pay? Who knows? But I was happy to help him with whatever his problem was.