I bought a new car recently. By a theory I don’t subscribe to, it’s actually an investment. Calling a Uber everywhere I go or renting from Hertz all year round would be much more expensive. So this theory says the return from this investment is very high.
Many people don’t like the car buying process. So much so businesses offer to help make it easier. Costco, AAA, AARP, Consumer Reports, and credit unions all offer car buying services. Supposedly they offer a negotiated price but they never show you what that negotiated price is before you give out your personal information, which they send to select dealerships. They are really a lead generation program for the dealerships. The participating dealerships pay a fee to Costco, AAA, AARP and what not for leads.
You get a price from the car buying program. For all we know the price you get may not be any different than the price the dealerships normally hand out to anyone else. They just call it a negotiated price to make you feel you are getting a good deal. If you just take that price, it’s very easy but the price may be much higher than you can get on your own if only you know where to shop.
TrueCar is the company behind many car buying programs. For the car I just bought, with the same options, TrueCar shows its average price for my area is $28,069. That’s $3,700 off MSRP, $1,500 under the invoice. Good price? No. I paid $2,000 less.
I didn’t have to bargain hard or endure the back-and-forth game in the showroom either. I also didn’t have a trade-in on which the dealership could make a profit. After I sent out my initial inquiries to the dealerships in the area, I received these quotes, sorted from low to high, rounded to the nearest $100:
- $5,200 under MSRP
- $4,800 under MSRP
- $4,300 under MSRP
- $3,800 under MSRP
- $3,700 under MSRP
- $2,400 under MSRP
- $1,000 under MSRP
Those were just the first quotes. If I didn’t do anything else and just took the lowest first quote, it would already beat the TrueCar average price by $1,500. When dealership number 2 sent a follow up, I told them their price was higher than the competition. They came back with a second quote at $5,500 under MSRP, with the condition that I buy the car before the end of the month. Meanwhile, dealership #1 advertised they would beat any competitor’s price by $300. So I just took dealership #2’s revised quote to them. They took off $300 and that was it. I paid $5,800 under MSRP, or $3,600 under the invoice.
All the quotes were sent by email and text. At the dealership, everything went as previously agreed. We just did the paperwork. There was no “talking to my manager” or any bait-and-switch. The new car sales people I dealt with offered great customer service. They were responsive by email and text day and night, even on days they were supposed to be off.
I think the game of playing tricks is over, at least at some dealerships. From the lowest first quote to the final price, I only improved the price by $600. But if I only requested quotes from dealerships #3 through #7, I probably wouldn’t have paid nearly as low. Where you shop has become more important than how you shop.
Instead of trying to squeeze a big profit for each sale, some dealerships offer a great price and go for a higher volume. When they hit the volume target, they get a large bonus from the manufacturer. The bonus will make up for the low margin on the individual sales. This episode 129 Cars of This American Life tells a great story about the frenzy at a dealership in its pursuit to hit the goal of selling 129 cars in that month. It starts all over again the following month.
The dealership I ended up with advertises themselves as the #1 volume dealer in the state. I read in an Internet forum some people flew in from 400 miles away to buy their car at this dealership because the low price made the air fare and the 400-mile drive back worth it. When you buy a new car, Google #1 volume dealer in your state for the make of the car you want. Get a quote there and have other dealership match or beat it.
Speaking of Internet forums, now almost every car model has an Internet forum for it. In addition to sharing information about problems and repairs, people often share their quotes and purchase prices in the forum. I learned in the forum that the manufacturer offers a $500 loyalty coupon for owners of the same make. You only have to call the 800 number and give them the VIN. Because the $500 coupon comes from the manufacturer, you can use it as cash against the lowest price offered by any dealership. Because we are replacing a car with the same make, just by visiting the Internet forum I saved another $500.
If you dread buying a new car, dread no more. It’s much easier than before if you shop at the right place. Engaging a third party hoping to make it easy can cost you $2,000 when it’s already very easy at the right place.
