Wednesday, May 26, 2010

How to deal with car dealers

I recently bought a 2010 Honda Fit Base Automatic in silver with security system installed for $16,002.36 as a base price, $17,707.07 out the door with NY sales tax and registration (sales tax $1420.21, registration fees $197 ($214 with sales tax - dealer only charged $212), title fee $50, inspection fee $10, tire tax $12.50 for 5 tires). I believe it was a good price and I wanted to share my experience with you so that you can get the best deal on your future cars!

First, I read these tips on buying new cars on Edmunds.com. It gives a good, step-by-step overview of how to navigate through the whole process, most importantly how to not get scammed by dealers. After perusing the article, I went through the following process.

- I went on www.truecar.com, which is a great website that updates true cost to dealers (how much it actually costs the dealers to sell you the car) and true market value (the average of how much everyone is paying for this car) of your new car more regularly than Edmunds. According to truecar.com, the true cost to dealers of a new 2010 Honda Fit Base Automatic without the security system installed is $15,740. A great price is less than $15,912, good price is less than $16,343, and $16,344 or more is overpriced. These figures include destination fee (what dealers pay to get cars from factories to the lot) and regional ad fees. With these figures in mind, I have an idea of how much I should be paying for the car

- Truecar.com provides a list of dealers with the lowest prices in your area, so I solicited quotes from the internet departments of the 3 cheapest dealers. To save yourself some time, make sure to solicit out-the-door price through internet transactions only - beware of dealers trying to get you to come in for a test drive with unrealistically cheap base price for the car. Once you make a trip out to the dealer for a test drive wasting many hours of your day, they will add on ridiculous fees here and there so that in the end, you end up overpaying for the car. As a result, you want to negotiate based on the total price you will be paying, all fees included. I solicited quotes from both CT and NY, because even though I lived in NYC at that time, I was about to move to CT and could get the car at either place.

- I lucked out and got a ridiculously cheap quotes from a dealer in CT: $16,967 out the door, security system installed, including CT sales tax 6% - that's $15,847 base price with security system included. Considering the fact that true cost to dealer was $15,740 and the security system is worth at least $165 or so without the installation fee, this price was too good to be true. They were probably hoping that I will make a trip to CT so that they could force on ridiculous fees when I'm stuck there, but it did not matter.

- With this ridiculous quote in hand, the next thing I did was checking out the inventory of potential car dealers in the area. Dealers do not want to keep cars on their lot, so if you are willing to take cars that dealers already have on hand, they will be more eager to sell it to you, probably at a cheaper price just to get rid of the car. We searched for dealers with a lot of Honda Fit on hand and said to them, "if you could beat this quote, I will take the car off your lot today." This got many dealers squirming for business.

- I landed at a big dealer in Queens with the cheapest out-the-door price of $17,707.07. Base price with installed security system was about $16,000 like I mentioned above, and I made sure that all the other fees were not bogus. Sales tax is easy to check and is based on the state in which you register the car (it does not matter where you buy the car - you pay sales tax based on the state of registration). Registration fee varies, but you can use the DMV dealer's registration fee calculator to see if the dealer is overcharging you for registration. Title fee and inspection fee are standard and are always listed on the DMV website. Tire tax applies at least in NYC where the government charges tax for recycling your tires.

- People usually think that buying a car with a full cash amount up front will get you a better deal, but this is untrue. Dealers either do not care or would prefer that you finance the car, so that they can sell your debt to outside banks and make more profit on the deal.

Beware of the following dealer tricks:
- Some of them will make you sign a price offer, stating that if the dealer could match your price, you automatically have to buy the car. Do not sign this form - so that should you come upon a cheaper quote from another dealer, you can easily switch without your hands tied.
- If you decide to get extra options for your car, after you have agreed on a price, dealers will try to make you switch from OEM (original equipment manufacturer) options to other non-authentic options made by some random companies. They will say the non-authentic options are basically the same, but have better features, so as to persuade you to switch, but do not fall for this trick. Obviously, OEM options are worth more and will get you a better price for your car when you trade it in later on.
- Even though you have agreed on a price, dealers will try to sell you random extras while you're signing the contract - do not agree to buy unless you have thought carefully and decided you really want these options - most of them are junk. If you feel like you might be intimidated in the dealer's office and fall for these tricks, you can try to have dealers come by your house or fax the contracts over, but I found that dealers rarely agree to do this. Remember to be strong and do not buy anything because you feel bad or pressured.

More on tricky DMV questions in the next post!

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