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I love optimizing nearly everything in my life. Sometimes it means saving money. Other times it means squeezing every bit of performance out of a server.
But let’s try optimizing something I’ve never done on this blog before: Buying a car.
Although most of this information applies best to people in the USA, there are several things I’ve learned over the years that might benefit people in other places. Car purchases are often the second largest purchase for most Americans after buying a house. Why not optimize it as much as possible?
My family is in the market for new vehicle and I’ve immersed myself in learning more about the whole process. There are plenty of legal issues in play that many buyers don’t know about and there are tons of ways to walk into a dealership fully prepared.
Without further ado, I’ll share what I’ve learned with you!
Shopping and buying are two different things. You must keep them separate. If you’re not sure on the exact model of car you want, go shopping and don’t commit to buy anything.
If you have an idea of a particular car you want, go to Google and search for 5-10 competitors to that car. It’s as easy as searching “top competitors Camry” to find other cars that compete with a Toyota Camry. Go to those dealers and take a good look at the cars to see if they have the features you want. Test drive each and see if you still like them.
The really important thing here is to separate shopping from buying.
Search for prices #
Once you narrow your search down a bit, start to compare prices between dealers for different trim levels. I love using CarEdge for this since you can examine dealer inventory across the country and see how dealer prices stack up against each other.
Also check how long the vehicle has been sitting on the lot. CarEdge offers this data and it can give you an idea of how desperate a dealer is to get rid of a particular vehicle. If the total supply of a model is really high and the vehicle has been sitting on the lot longer than 90 days, you have the ability to negotiate for that car. Cars with a very low supply or cars that just arrived to the lot will likely be priced higher and dealers are less likely to budge on price.
For used cars, this is even more important since you don’t have an MSRP to work with as you do for new cars. Comparing prices for used cars is critical.
Keep in mind that some cars are in higher demand in some areas than others, too. You might be able to drive a few hours and save quite a bit. A friend of mine drove from Texas to Colorado to buy a car and saved $3,500.
Watch out for arbitrary markups! All dealers in the US are required to display a Monroney label and this shows the manufacturer’s suggested retail price. Dealers might add an addendum sticker somewhere else that show accessories they added. Sometimes these stickers show arbitrary markups from the dealer.
Since COVID, many dealers have been stacking massive fees on top of car purchases. Some of these fees exceed $10,000, $25,000 or more! This should be a massive red flag from the start of a negotiation with any dealer. If they aren’t willing to budge from their arbitrary markups, look for another dealer. 🚩
You found the car you want #
Whether it’s new or used, take the VIN number and dig up information about the car. You can learn a lot from just a quick Google search from the VIN!
Other than that, CarEdge has some good tools for digging up data on individual cars without too much expense. CarFax is the gold standard used and it offers some fairly inexpensive options.
Some might be saying: “Isn’t this a waste for a brand new car?” No, it’s not.
I was once buying a pickup truck that was advertised as one model year, but the truck was actually a year older. The dealer even switched the paper tags attached to the keys so I wouldn’t notice. I didn’t notice this until months later when I found it buried in my paperwork. 😡
There have also been situations where stolen cars are sitting on dealer lots. 😱
Remember, this is a big investment. Spending $20 on a CarFax report as you purchase a $30,000 car should be worth it.
Take care of your financing before visiting a dealer. Local credit unions are often great for this but they’ve been under a squeeze lately with an increase in reposessions. Work with the credit union to get a good rate for the type of car you want.
Some people have had good luck financing through a dealership. However, getting financing set up ahead of time gives you the upper hand with financing negotiations. For example, when you sit down with in the finance office, you could say: “I have 5.9% through my local credit union. If you can beat that, I’ll finance with you.”
If you choose to go through financing with the dealer, here’s what I recommend:
- Do not allow the dealer to run your credit report until the last minute. If you let them run it, they know that you’ll get a hard hit on your credit report and you’re less likely to look at other dealers. You want to leave your options open. Don’t let them run your credit until you are 100% sure you’re ready to buy from them.
- Ask to see the “call sheet” and see what the bank offered the dealer for financing (the “buy rate”). It’s very likely that the dealer gets one rate from the bank and then marks it up for you. For example, the dealer might say “Oh, your rate is 8%.” Then you ask for the call sheet or the buy rate and see that they got 5.9% from the bank. You’re getting a huge markup. That’s another negotiation point.
- If the dealer says they can lower your interest rate if you buy an add-on from them, such as extended warranty, STOP IMMEDIATELY. 🚨 This is called “tied selling” and is almost always illegal in the USA. This is a good moment to stop and re-evaluate the whole transaction.
- You are not required to buy any of the add-ons that the finance manager offers you. Extended warranties, dent and ding protection, and tire/wheel protection are common items. There’s no requirement to purchase these. If you do decide to purchase one, be sure they can show you the actual amount that it will cost you. Don’t let them tell you how much it adds to your monthly payment. That allows them to hide the cost of certain add-ons.
- You are required to pay reasonable fees for tax, title, and license. Sometimes documentation fees are rolled up into this, too. Every state is a little different on how much these cost, but you can Google “tax title and license” for your state and get a good estimation.
- Demand to see the “out the door price.” If a dealer asks how much you can afford per month, don’t answer. You are interested in the full price of the car plus fees. Most states require that this comes out on a single sheet of paper with each expense clearly labeled with what you will owe for the car. If you tell a dealer “I can’t affort more than $500 per month”, then they will tinker with various parts of the deal to ensure you pay more in the long term without exceeding $500 per month. If the dealer won’t budge, keep asking them “If I was getting you a cashier’s check today, how much needs to be on the check?” They will eventually get the idea.
Dealers make the most money by far not on the lot itself, but in the finance office. Don’t get swindled there.
Get copies and read them #
You are entitled to a copy of everything that shows up in the finance office. Don’t get up from the chair until you have a copy of everything and you’ve examined each page.
Dealers commonly adjust numbers or conveniently leave out “We Owe” sheets (see the next section) in the finance office. Sometimes it’s an honest mistake. Sometimes it’s not.
The dreaded “We Owe” #
If a dealer doesn’t have something in stock that they promised you, such as an accessory or add-on, ensure it lands on the “We Owe” sheet in your paperwork.
There should be page somewhere in your sale paperwork that shows anything that the dealer owes you. In many states, this sheet must be in your paperwork even if it’s blank or zeroed out!
If a dealer promised you something and it didn’t land on the “We Owe” sheet, stop immediately and ask for that to be corrected right then.
Any time you trade in a vehicle, make it a different transaction. Allowing a dealer to add your trade-in with the current deal for purchase allows them to hide money for themselves in the deal.
First, get multiple offers from various sites that buy cars all day long. I recommend Carvana, Driveway, and Vroom. They will give you an immediate estimate online with a little bit of information. The CarEdge site I mentioned earlier also has some tools that allow you to look up your car in the Black Book, which is what dealers use to appraise cars.
Next, when you go to the dealer and they ask if you’re trading in a car, tell them you haven’t decided yet. Your best bet is to act as if you want them to talk you into it. Either way, keep the trade-in as a separate transaction.
When it comes time to talk about your trade-in, you should already have an out the door price on your car purchase. Scroll up if you’re not sure about this. 😉
Let the dealer know you have some other offers on your trade and let them know you’ll do the trade there if they can beat the offers. If they offer to beat the other deals, that’s awesome! That’s less work for you!
If they can’t, don’t worry. You can handle the trade-in separately with those other companies.
Buying online #
Finally, you can buy a car almost entirely online these days. Carvana, Driveway, and Vroom offer a fully online experience, but traditional dealers often have salespeople focused on internet deals.
This is a good way to sort out dealers who want to work with you and those that don’t. Let dealers know that:
- You know what vehicle you want.
- You’re comparing the offers from multiple dealers.
- You’re looking to purchase within the next few weeks.
- You want an out the door price on the vehicle so you know how much to get on the cashier’s check.
If they’re willing to deal with you via email or phone, that’s great! If not, there’s plenty of other dealers out there.
Further learning #
I’ve learned a lot from several YouTube channels over the years. Here are my favorites:
- Car Questions Answered: Brandon runs a small used car dealership in North Carolina and gives lots of insights on what is happening the used and new car markets. He has lots of good advice on when to buy a car and which cars are the ones to avoid at certain times. If you ever wanted to go behind the scenes to see how a small used car dealership works, his channel is great.
- Deshone The Auto Advisor: Deshone has lots of helpful short videos. He does offer a membership program that comes with a fee, but his short videos cover a ton of car buying and leasing recommendations. If you’re interested in leasing a car, be sure to watch some of his leasing videos.
- CarEdge: CarEdge offers tons of services to help with car buying including 1:1 coaching once you have a deal sheet from a dealer. However, they also have tons of videos that explain how to buy a car effectively. They do role playing for finance managers and salespeople that highlight certain areas where buyers usually lose. Their role play videos are highly recommended.
- Lucky Lopez: Lucky has tons of insight from a dealer perspective and he follows lots of trends around pricing, supply, and reposessions. Most of his content might be too much for car buyers, but it’s good information to know.
- Chevy Dude: The Chevy Dude used to work for multiple dealers but now it running his own. He shares lots of sales tricks and secrets that help you prepare for making your next deal on a car – new or used.
Did I miss something? #
Let me know if I missed something and I’ll come back and edit this post! Just contact me via any of the methods below in the author block. ️⬇️