If you read my articles on inspecting and buying used cars, this will tie in perfectly to sealing a best deal for you. If you haven’t already, head over to the Car Related section of the blog.
Identifying the best possible car
Even before you ever go to see the vehicle in-person, make best use of the internet to survey the entire market, gauge the listed prices, lookup fair market values and call up shops to get a full quote (including Tax, Title and Fees breakdown).
Most dealerships post HIGHLY misleading numbers online advertising that as a “discounted” or “best price”. They expect you to come in thinking the price is “good” and then unload a bunch of crap on you such as “VIN etching” for “anti-theft protection”, nitrogen in tires (as if the air we breath doesn’t already contain 78% nitrogen) and window tint amongst other BS.
Stay in touch ONLY via email initially to receive everything electronically. You do not want to give out your real information out quickly like your ZIP code, primary email, address or phone number. This gives a lot of power to the dealer if they you’re coming from really far away – they know you really want the car.
Here’s my methodology:
Car listings online
Browse all listing sites online to find the car you’re looking for. I primarily use: CARFAX, Cargurus, Autotrader, Cars.com and kbb.com to find cars. I very heavily rely on CARFAX as I get a free report of the car if its listed on the site.
You’ll notice the same car across these various sites but always try to find the carfax for the VIN (vehicle identification number) of a particular car.
At any given time, you’re bound to find tens or hundreds of cars depending on their popularity and number of sales. For this case, I’m going to take a very specific car which I know isn’t sold as much in the market to begin with: a Lexus GS 350 .
Lexus sells less than 5000 of these cars in the US / year and most are leased – I know this because I researched the car, it’s models and performance in the US market. The low numbers aren’t indicative of a bad car, it’s just that they’re really expensive brand new at $56,000+ for a decently spec’d 2016 model, and people prefer getting BMWs and Audi’s instead.
I lookup the consumer reports on the car and find that they’re solid – no issues or major recalls – so I proceed to the next step. That is determining a far market value and expected depreciation.
Determine value of the car
Usedfirst.com is a great source to see the depreciation chart and identify the best price-value.
Note, this site doesn’t give a true representation of value because it doesn’t factor in the trim of the car, add-on features, condition or mileage. For the I use Kelly Blue Book.
You can enter the mileage, Options and see how much the price fluctuates. This will help you get a more accurate price based on actual transactions that took place in or near the zipcode you used. Since I live in Houston, 2016 Lexus GS350s have historically sold for these prices.
Now also realize, there’s three categories: dealer, certified pre-owned (CPO) and Private Party. Buying a CPO car may have value to some but it personally doesn’t mean anything to me unless the free maintenance and warranty they provide will help me save money.
The range you see is a good idea of what the car is truly worth BEFORE tax/title/fees etc. Know this, depending on what the carfax says, a car could’ve been traded in or bought at an auction. If the car was bought at auction, it was bought at wholesale price which is typically less that the lower number you see in Private Parity. If the car was traded in, it will probably be in between the private parity range (assuming the car is in good condition).
Dealerships will show you NADA data which will put the value of the cars higher than they should be but that is complete BS. NADA is for dealers by dealers and the numbers are artificially higher. Don’t use NADA, always use KBB and Carfax used car values.
Do not expect the dealer to sell you a car for the lowest private party price because they need to make a profit to run their business – which I understand. Generally a good dealer will aim to make $2500-$3500 profit on a car and there’s nothing you can do about it. However, if you know the dealer is overpricing their car by over $6000, they’re the real crooks – and I hate those type of shops.
My goal is always to be between the lowest and median price if the car is in good condition, has BOTH car keys and ALL floor-mats/ spare tire/ jack/ manuals.
Once you’ve identified a car that meets all your requirements and compromises, you’re ready for the next step – negotiating on the price.
Determine the type of Dealership
Nowadays more and more dealerships are becoming these 1Price showrooms – the price you see is the price you pay – no haggling. They say its the best price but it really is just the best price for them. Don’t bother wasting your time there unless the car is fairly priced and passes all your thorough inspections.
Additionally, avoid dealerships that add BS charges which may include but are not limited to:
- Nitrogen in tires
- Window VIN etching
- GPS tracking
- Window Tint
- Service they did on the car
- Cost of new parts to fix the car
Understand the Bill of Sale/Drive out price
Under no circumstance are you to sign any document the dealership gives you unless you know 100% you are buying the car. With that being said, when you take a look at the invoice, always ask the dealership to break down all charges.
For the state of Texas and city of Houston, here’s what the government charges:
- Sales Tax: 6.25% price of car (only)
- State Inspection: $25.50 (fixed)
- Title Registration: ~$100-200 (depending on the car – will include road/bridge)
- E-tag: $2.50 (fixed)
BS charges a dealer will apply:
- VIT: Vehicle Inventory Tax (tax the dealer pays to the govt for inventory sitting on their lot)
- Dealer fees: “documentation” fees for them filing paperwork
- Accessories: just strike it off
These are just a few. I personally strike out everything except the dealership fees (that’s straight profit to them). Many times dealerships will show higher numbers in the Sales Tax, state inspection, e-tag ($5-$10) and mix Registration and Dealer fees together) – all tactics to hide the numbers and boost the overall drive out price.
They will also show you a sheet which will include finance terms – you’re better off finding a credit union and getting a pre-approved loan – but never let them know. Always give them an indication you can either buy it cash or finance – and aren’t still sure.
Their focus is to finance with them and they will throw numbers at you faster than your brain can process – doing anything to detract from the total number and focus on what you can pay every month.
Your goal is to give them a firm number with a budge of $500 at most. So if the dealer gave a drive out of $30,688 and my budget is $28,500, I’ll start at $28,250 and at most go to $28,500.
If the seller doesn’t agree, thank them and leave. Do not call/email them and let them get in touch with you – one who breaks first looses.
If they agree on the price and want you to sign – citing this is the best price for today only and just for you – know that you’ve gotten what you wanted but it still doesn’t hurt to let them know, you want to think over it and discuss with a relative/spouse/etc.. and will come back the next day. This works best when you do the negotiating closer to closing times.
Ask the dealership to give you a copy – which they most likely should. Next step? Take that bill as ammo in your next negotiation. If one dealership agreed to a price, you can use that against another as a last resort. Say if you found another car that you really liked and they’re firm at $29,000 – you can show them the $28,500 invoice and tell them you’ll make the purchase if they agree. If they do – your work has paid off and you can proceed to do final inspections, review and go ahead with the purchase.
It never hurts to walk out the door – even if they say there are other parties interested. The beauty is that there will always be another car.
Ways to rationalize your lower price
If the car has fewer service records than it should – it may indicate that the car wasn’t properly serviced and that it could lead to potential problems. This rarely holds up but it doesn’t hurt to add in.
If the car has very little warranty or no warranty left – it’s value will be lower than one that has a longer warranty (factory).
Multiple owners – this can be cited as a reason in a way that if you were to resell the car and there were already three previous owners, it’ll hurt the value you can get out of it.
No spare key – research how much it costs to get a duplicate key made that the car manufacturer’s dealership (so Lexus in this case) and subtract that amount. They will tell you thats how they received the car but you will not have it. Tell them its not your problem but it will be if the only key stops working/lost.
No Mats/manual/standard equipment – these things cost money and add value to the car even if not to its performance.
Dings/major scratches/damage/prior accident history – assess the level of severity and if it makes sense to own, they deduct an according number. Stay away from cars that were part of rental fleets, had major or frame damage or were wrecked/flooded.
There are more aspects to this but I’ve listed out everything that came to my mind. If you think I’ve missed out something, comment below and I’ll add it in. Happy shopping!