Buying a new car is easily one of the worst and most unpleasant customer service/buying experiences most people will endure in their lives. The only thing comparable is buying a house, and even then its significantly less frustrating, time consuming, and stressful. When thinking about why things are this way its easy to see, car companies are stuck in the past in nearly every facet of their existence, with the exception of universal iPod compatibility. From dealing with the unions that build the cars to the monopolistic dealers hoarding and price fixing vehicles regionally, right down to the salesman whose living wage is paid from making as much money off any customer he can, its no wonder car pricing is as absurd as it is.
First off I'm no authority on buying a car so take what I'm about to say with a big grain of salt. Really all I'm doing here is letting my future self know what went down, and what I learned, and hopefully help my friends and faithful readers save some time and money when buying a car.
Laura and I started this adventure years ago, we've bounced around ideas for selling my car, her car, no car, her parents car, any car, whatever to replace our aging vehicles. We drive all over the damn midwest/country and we deserve, and need a reliable car. With the death of my grandfather we were, in a couple of roundabout ways, given an opportunity to sell two cars to help pay for one new one. So we began our hunt. After being a tinkering homeowner for awhile we've found that we would definitely benefit from something with the storage capacity and occasional towing capability of a SUV but like any environmentally minded millennial I want a car that sips fuel, not one that guzzles it, enter the crossovers and wagons. I'm also pretty conservative when it comes to a car's appearance so boxy and asymmetrical monstrosities are out. I've also got this (probably wrong) idea that the more gadgets that a car has on it, the more opportunities there are for something to stop working. Cars nowadays are part modern computer, part 1800's technology, and neither have a great reputation for longevity. As for electric cars, and hybrids I'm only sort of sold on them. For example, I know how good my cell phone battery works when I've reached the end of my two year contract. I've heard these car batteries are different and better, but I'm still rightfully nervous. Hybrids I think are great segways to something better like hydrogen fuel cells. Sadly for us young folk, our grandparents built so many gas stations and probably established a gasoline lobby, and tradition, some of these new non-gasoline technologies are going to take ages to get put in place. And for a guy living in the country, I'm still waiting 4G cell reception, and choices and high speed internet acces, I'll never see a next generation fuel here.
The dedicated hunt began recently, noticing cars on the road we liked, driving through dealer lots, and test driving some cars we definitely didn't want. It was after the latter part that I decided to look up some things about car buying. For example, what does an expert home budgeter say a car payment should be (no more than 20% of your take home pay), and how much can we afford? Laura's brother Scott is a big Excel nerd and has an awesome home budgeting calculator that we used. It had been a few pay increases since we really updated it so were overdue anyway. So we set out to do the most important part of car buying.
We found out exactly how much of a car we could afford. Turns out, it wasn't much, crossover SUVs can have a small base price but getting leather seats significantly increases the cost. After considering how much money our two car sales were worth, as well as factoring some extra money in the bank we found out that we could in fact afford a brand new car. Whew. Remember the cash for clunkers program? That program has temporarily inflated the price of used cars and now getting a used car with less than 40k miles costs damn close to buying a new one.
After test driving five cars that we were interested in, we settled on a Subaru Outback Limited. It has tons of storage, lots of zip, a roof rack is standard, and leather seats for the messy future kids and their bodily fluids, to top it off the gas milage was the best of the cars we drove. Now comes the hardest, most stressful, archaic part, the part of car shopping not a single soul I've ever met will ever admit to truly enjoying. Actually buying a car.
This part I did a literal shit-ton of research on, and frankly I was more nervous about buying a car after that than before. So here is how a typical car buying process works. Somewhere around 1945 all sorts of men came back from WW2 with boatloads of cash, and decided to create suburbs and the shitty way we buy cars today. During the war the assembly lines were still churning out cars, but with a few hundred thousand men overseas and the great depression still fresh in peoples minds, people weren't buying many cars. So these war heros came home and bought a house, a car, and had a lot of babies. This was a time when you could probably barter with just about anyone selling any sort of salable good, a car dealership was no exception, and when supply far exceeds demand, you can haggle a bit and get a better price. Fast forward to 2013, everyone knows that
no one should pay the price listed on the sticker. Ever.
A typical person walks in, takes a test drive or two, and the salesman, who needs people to buy cars from him because thats how he feeds his family, has his interest in up-selling this person anywhere he can(this suddenly becomes a battle of good vs. evil). The salesman is probably good with words, and is better with numbers, especially if he is a career salesman. The buyer says, wow I really like this car, the salesman says, of course you do! Lets go see how much this shiny new car would cost you, just for fun. Before the buyer realizes it, he is in the midst of haggling on a price, and they aren't driving the sale any more, they are just the passenger. They might have an idea of what they could pay monthly but they probably don't know for sure, and the car salesman appears like he is always the good guy because he has to ask his manager if you can have the car for the price you're want, which at this point is basically anything smaller than the sticker price. I've heard stories where this process alone can take up to 4 hours or more. During this process buyers are always staring at a sheet of paper with a big number, and some percentages probably, and some smaller numbers. In the end, the buyer without any sort of goal set for talking the salesman down to, settles on something smaller than the big number, and agree to finance the car with a small number that seems to fit their budget. Now that they've spent the last couple of hours coming to an agreement, their just for fun talk is now a full on agreement, and they have a car with their name on it. In fact they even managed to get the salesman to give them a little more than the appraiser offered them for their used car! What a deal!
What probably happened was the dealer made some good money, the salesman did too, and the dealer will continue to make money off the financing end, for 3-6 years, and if they can, will be able to sell the used car for almost twice what they bought it for. Everyone has to make money in this process, and
the uninformed buyer is the one who offers the most potential for moneymaking.
But this is 2013, there has to be a better way! If this was an infomercial, up until now everything would have been black and white, this next part is in color, and everyone is smiling, (hopefully). So what everyone needs to know is that there are THREE prices for a car, The MSRP which basically means nothing, this is also known as the sticker price, there is the invoice price, which in theory is what the dealer paid to get the car to sell to you, and somewhere in the middle almost always is the fair price for a customer.
A savy car buyer should almost always be able to get a car for at or below the invoice. The main reason is often times a dealer can get incentives from the manufacturer for moving cars, basically a dealer buys it for the invoice price and then gets a rebate or some extra cash from the manufacturer after a certain period of time from when the car is sold. This is not always the case, especially with popular cars that are selling quickly, for example right now the Mazda CX-5 (sexy on the outside, sexy on the inside, not a thrill to drive).
How does a buyer achieve this? With the power of the internet. There are a few fantastic sites any car buyer should be familiar with. Edmunds is one, Cars Direct, and true car.
An informed buyer is the most effective buyer. It's these buyers that can set goals, and walk away from a negotiation thats not going anywhere in order to achieve an equally fair price for both the buyer and seller.
So after Laura and I learned about our car, we found that with our down payment we could afford the monthly payments on the perfect car, we learned how much we should and shouldn't pay. At this point I actually got excited. Turns out that car dealers set up a lobby a few years back and made it illegal to buy a car direct from the manufacturer online, forcing people to buy from licensed dealers only, sort of like the three tier system for alcohol. Nowadays a buyer can harness the power of the internet, we were able to obtain quotes from several dealers for our perfect car. There are a couple of tools to do this, different dealer's websites are the most work if you're shopping around, Edmunds has a free quote tool, among others is carwoo.com. This is how I thought it would be fun, first the name WOO! second the site keeps the buyer completely anonymous until you decide to reveal yourself. Unfortunately dealers have the great reputation for bugging you both via, calls, E-mails, and snail mail once they have your info, so I thought, hey anonymity is great! Plus! If you're only after one particular car it's completely free. Sold.
After talking to my banker he told me a bit of extremely useful information. He helped a client buy a car for 3k cheaper just because he moved his shopping to Indianapolis. How did this work? Bigger cities have more competition and thus incentive to sell for a better price to get the buyer back in for service or financing money. Makes complete sense to me, we were thinking the opposite. Since we live 2 hours away from a bigger city I thought I would get a quote from our local dealer that we test drove the car with, they had some good benefits with buying from them and it would save us a train ride (at which I am currently typing from) into the city. Plus I was going to try to leverage my online offers against his.
After setting up an account and selecting our perfect car on CarWoo, I sent a request for a quote to our local dealer to hook me up, and here is where I made my mistake, I told them we had already test driven a car with them that weekend. Why was this a mistake (and further, why is shopping online better) from my understanding, a car salesman gets paid on commission (good vs evil) and there is another guy selling cars that no one sees, the internet sales manager, this guy might get paid on commission, but probably gets a salary and bonuses based on volume. The margins that the internet sales manager is shooting for is about $500-$1000 profit. This is a pretty crappy margin for a salesman if he gets even 30% (which would be crazy high). The internet sales manager passed me onto our salesman to work with me. The first price he offered me was stupid high, about $200 below the sticker, the informed buyer in me laughed knowing that this was a BS number. But at this point I got my first offers on CarWoo, I had 3 within 8 hours, and 5 offers within 48 hours. Two of the three were below invoice, and according to true car, an excellent buying price.
The best offer was also one of the least desirable because he didn't have the car (it was in wisconsin) and it wasn't a color we liked a ton. So we threw this very low price back at the salesman and told him to get serious. We had another offer on carwoo that was a couple of hundred more, but it was the color we wanted and he had it on his lot. I knew I wouldn't ruin a deal with him by asking for a small option that was easy to install, and pretty cheap. He quoted me the price bump it would be with it installed. Lucky for us a few hours later he said that he spoke with someone else, and said he would throw it into the current offer. Our local salesman meanwhile gave me a very good and prudent warning about hidden fees associated with these "Chicago Dealers" So I asked our chicago man to give me the exact price we would expect to pay with all of the fees. He did promptly(all of this was anonymous through carwoo). Laura and I sat down that night and did some rough math and gave our local salesman a more or less final offer. The price was a couple of hundred more than what we were going to pay in Chicago, but with the price of two train tickets or gas, and figuring some extra for the benefits of the local dealer, we thought this was fair. He accepted this new low price, if we would come in build the perfect car with him the next day and wait for Subaru to ship it to us (6 weeks). At this point I thought sweet! We have a deal locally, the small extra option in Chicago wasn't going to be a deal breaker here and we wouldn't have to head north and kill a saturday travelling. After our salesman thoughtfully taught us about hidden fees
I asked him to break down the exact price for me so that I could compare with our Chicago man. Well low and behold my snake of a salesman revealed his hidden fee! $700+ extra! The slimeball added a fee that is always figured right into the sticker price. MOTHER****ER! This blew away all the benefits of buying local, even figuring the extra bit of tax we would pay up north. I called him and told him he lost our sale, and he said, "Good luck getting the car you want" and "I've got to sell a car at a good price to keep the doors open for people who want to invest their money locally". Dickhead. This saint must always shop at all the mom and pop shops at christmas and has never stepped foot in a walmart, nor clicked around on amazon nor ebay.
So here we are on a train, headed to Chicago ready to deal with the second most scary person in the dealership, the finance manager. Luckily we did our math, wrote down some numbers and know that until we shake hands with everyone and sign all the lines we know we can walk away at any time. More in a bit.
Sunday:
Here is where I sit. Laura and I are proud owners of a brand spanking new Subaru Outback, the exact one we had agreed on for the exact price we were quoted, and to top it off with a fantastic financing rate. Heres what happened:
First off, we got off the train and took the metra not the red line so we ended up about 4 miles away from where we wanted to be, not 4 blocks, that was a bugger. After the most pleasant and chatty cab driver ever dropped us off, we got to see our nice new car. Our first step was to take it for a test drive, this seems like an obvious step but its important to make sure the car still feels comfortable inside and out. Next we filled out a credit application, Subaru was offering in January 0.9% financing on new outbacks. Laura and I have good credit, but were still very nervous about qualifying for this.
Doing your math ahead of time gives you an exact figure of how much you will pay monthly, this can then be figured into your total budget and you have another place to walk away from a sale going sour. Sometimes you can negotiate your finance rate but its much harder since its mostly based off your credit score. The difference of paying 0.9% in interest and between 4% and 6% would have been an additional almost $2000 onto the the price of the vehicle. With taxes and fees that would put us almost overbudget. Scary. We used a tool on Bankrate.com that looks at what percent car loans are going for in the zip code you are buying from, assuming your credit is decent you should not have a much larger interest rate from whats reported there. Fortunately we qualified for the sweet deal from Subaru and will only pay about $300 in interest over the life of the loan, less than one additional payment.
The finance guy is the dealer's last line of moneymaking, I've heard stories of all sorts of stuff they try to upsell you on to get the dealer a bit more cash out of you. The two most common ones I heard of are also two of the easiest to pass up, a clear coat protection on the outside of your car, which if you think about it, the factory puts a clear coat on before your car leaves, and if that fails, you're covered under warranty. If you're really going to get one, get it in about three years when your warranty expires. The next is a stain protection for your seats, great idea if you have kids, but paying $200 for it is silly when you can get the same scotch guard you might use for your couches and stuff at home for like $10. The third is the extended warranty, we passed it up. I didn't read up on Subaru's in particular but experience with my cars in the past shows me that nothing major happens until the car is 7-8 years old, which is longer than the extended warranty would last, the same people who blindly give into them from Best Buy will buy them here, good for peace of mind, bad for the budget.
Our man only tried to sell us on the extended warranty, which at the time sounded like a good idea, but I was also caught up in the moment. When we said no, he gave us a price break, and we said no again, when he was about to stretch out our loan tearm to 5 years to make it work and I told him we weren't interested in making payments for that long, he said ok, and that was the end of it.
Since this was our first new car purchase the next part was the most impressive. Our salesman sat down with us and told us how nearly every single feature of the car worked and then showed us inside the car how some of the other things worked. Then he walked us through setting up Laura's phone for the bluetooth connection and everything tested great. After he wished us farewell we drove into some crappy Chicago traffic to head home, where we were very happy to be riding together instead of driving separately. Train tickets ended up being totally worth any extra cost over gas.
So how was the experience? I would say absolutely great. Start to finish everything went incredibly smooth, my only regret is working with the local salesman (It should have been the internet sales guy). But even then, I wasn't facing him and his tactics, nor did I waste time sitting in a tiny yet open cube. Buying/negotiating a car online is such a different experience, you have time to think, there is no stress, (unless you're counting my breakdown of nerves with trusting the "chicago dealers", a bait and switch, and hidden fees, thanks for telling me to relax Scott!), and
you can leverage other dealer offers against each other. Would I recommend, CarWoo.com? Absolutely, obviously since the dealer sold us the car he was making money, and we felt we got a very good and fair price. I think both parties thought it was fair and I would easily recommend working with Evan at Evanston Subaru (in Skokie) again.
If you think you'll ever be buying a car from a dealer there are some powerful and incredibly useful tools online for anyone to use. My recommendation, no, my command is for everyone is take your time to do your math, find out EXACTLY what you can afford (this is much easier once you have a car picked out). If you have a price that you can't exceed including taxes, fees, and if you're financing, interest you'll be better off. If you test drive a car and love it, go home and do your homework, don't jump into pricing with a dealer unprepared, because catching someone off guard is the easiest way to get someone to spend more. A dealer loses significant negotiating power when someone has a price they can't or won't go over. Next, find out exactly how much your car is worth, truecar.com and edmunds.com are both great sites for this figure.
You might have noticed the bold lines throughout this blog, if you basically follow these steps there is no reason anyone should have a car buying experience different than ours. Oh, and never forget,
until you sign all the paperwork, you can walk away from ANY deal.
