BUYING A CAR

The ONE

Buying a Car
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We've seen the darker side of automotive pricing with the holdback and special dealer incentives. So what about those "rebates" we're always seeing in the media? Otherwise known as the Manufacturer-to-Customer Incentive, this rebate is out in the open but can still be very complicated.

In fact, customer incentives can vary by sales region, can have special circumstances such as the oft-seen low finance rate option in lieu of cash, and can even be offered to specific groups of buyers (first-time buyer/recent college grads, etc.). Thus, once again the consumer is best served by checking several sources for these incentives, and, since they are ever-changing, by ensuring that the source of information is up-to-date. The web pricing guides (such as Edmund's, CarPoint, Autosite and CarPrices) and the buying services can be a big help.

If it is a manufacturer-to-customer incentive, then why do you have to check -- don't you just automatically get it? No, in fact some of the more slimy dealerships around have been known to "steal" the incentives from the customer, via a paperwork three-card monte or a bit of leasing doublespeak. Most dealerships, though, are more than happy to dangle the incentive cash in front of the customer. After all, it isn't coming out of their pockets, and incentives are generally given to the slower movers on the lot. Thus the dealership gets a win-win: a happy customer and a sale, which may help them with their churn and earn, and/or dealer allotment.

One of the real hidden advantages of this kind of incentive is that it often gives the dealership the ability to qualify a consumer into a payment buyer slot much quicker. How is this accomplished and why is it important to the dealer? Well, farther down the line in our process, Step 12, we are going to show you why you want to split a new car purchase into three segments which are best kept separate during your car-buying process.

We'll give you here a sneak preview: the new vehicle price is to be negotiated first, any trade-in second, and the financing/leasing option third. This system provides you with the safest, most straightforward path to money savings. Since your savings are the dealership's loss, they use these incentives, particularly the low-finance option, to get you to commit to the financing end of the deal while you're still in part one, the new car pricing phase. In a word, it allows them to make the entire matter extremely complicated, causing you to lose focus on the big picture, and provides them an opportunity to take more money from you. So we think that when figuring your Foolish Value Price (FVP) you should ignore any special financing, even if you plan to use it down the road. Instead, just subtract the rebate at full cash value from the invoice price when creating your FVP.

So how is this Foolish Value Price determined? Well, gather up all your test drive worksheets, your invoice pricing info, and incentive data on each of your three vehicles. Perhaps you want to make a new sheet up on each vehicle. Hey, guess what? We have one you can print out and use. Click here for your Foolish Value Price Worksheet.

For each vehicle list the manufacturer's invoice price, then add to it all the option invoice prices that you want. Next, add up these figures to give yourself a total manufacturer's invoice price for your particular vehicle. Remember to watch out for midyear manufacturer price increases! Now subtract out any and all incentives that are available on the vehicle (Customer, Dealer, and Holdbacks). After getting a total, add in the delivery charge, giving a grand total price. This is our FVP.

Will you be able to get the vehicle for the FVP? The answer is a resounding NO!

Why? Well, for one, we haven't considered items such as taxes and dealer profits. But the power of the FVP is that it provides a baseline from which to make an informed decision with regard to which vehicle you choose, and for negotiating a final price on that vehicle. That is, it gives the best-case scenario that you can come up with as to how these three or so vehicles compare on price.

Is the vehicle with the lowest FVP the one to buy? Not necessarily. That's up to you. Maybe the most expensive of the three best suits you as a driver. Or maybe one of the three will cost significantly less from an insurance standpoint.

So see how you feel about each of your potential choices. Complete the 5 Pros and Cons of each vehicle on the Foolish Value Price Worksheet. List the price as the #1 Pro for the lowest-priced vehicle, and the #1 Con for the highest-priced vehicle. Concentrate on what you really liked and disliked on each vehicle. Your test-drive notes may be extremely helpful here.

Then step back away for a moment and meditate on the subject for ten minutes or so. Finally, bite the bullet and make a decision. Pick one.

Now recall what we discussed in Step 3 and Step 4. The best way to get a seller in the market to lower the price on Granny Smith Apples is to negotiate with other merchants of that particular make and model apple in the local market. In other words, let the sellers fight for your business, and don't allow differing apple features get in the way of a lower price once you've chosen your favorite apple.

Now you've settled on a vehicle and a baseline price. What more could a Fool need? It may seem like your ducks are in a row, but you're still missing a couple of mallards. So get those web feet paddling and move along to Step 10, where we discuss getting rid of your old car, and Step 11, where we quack at all the financing options.

Until then, be Foolish, and keep those wiper blades clean and fresh -- like duck feathers, they'll help you avoid problems in foul weather!

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