Tuesday, December 26, 2006

My Car Buying Advice

A friend of mine just bought a car, and was bragging to everyone how great the deal was. He talked about the dealer's sticker price vs what he actually paid. Knowing what I know today, I didn't have the heart to tell him he could have done better or at least smarter, especially around the holidays.
Since I know he doesn't read this blog, I can tell you what I would have told him, without hurting his feelings or stealing his thunder.

My three steps to car buying:

1) Buy used. If you are reading a financial blog, you probably already know this and already own a used car, but the point still needs to be made. I have yet to hear a compelling argument for why buying a new car is better than buying a new car. Its simply a consumption decision. Save yourself the 10% minimum and let somebody else drive the car off the lot.

2)Know what you want to buy. Doing your research before hand can save you down the road. A car is not something you want to buy on impulse. Check Consumerreports.org and Lemonaidcars.com and anywhere else you can fine an unbiased review of the car you are considering. Buying a car because you liked what the sales person said, or how it looked is likely to lead to a case of buyer's remorse in the long run.

3) DON'T BUY RETAIL! This is far an away the most important point (hence the all caps and the exclamation point). When you go to a car dealership and see a used car, its likely that your dealer went to a used car auction to acquire many of the cars you see there. The dealer auctions typically have returned fleet cars and cars that have just come off lease. The dealers buy cars at this auction, mark them up, and sell them at their dealership. This is a situation where getting "insider" prices is rather easy. Most autobody shops will sell cars on the side. While they may not have a fancy showroom, or the newest of cars, the owners of these shops likely have a dealers license and have access to the auctions and access to auction histories. Getting insider prices now, is simply a matter of getting your mechanic to buy a car on your behalf.

In my case, a family friend of my fiance owns a autobody shop and sells cars on the side. He goes to the deal auction once a week as part of his business and was more than willing to do this for us (he did charge us a fee for this service). Once we had selected a car make and model, he told us what the car typically sold for at auction (part of the report he receives). We compared this to dealerships and autotrader.ca and knew we were getting a good deal. In our case, we bought a current model year car (2006 at the time) with 20K kms.
Buying buying used, through the auction, we saved 30% over buying brand new and at least 15% off retail.


At 4:51 PM, Blogger JPostal said...

Great advice. I am in the auto industry and spend a lot of my time buying and selling cars for a rental company. When I buy new cars I expect them to depreciate at a rate of AT LEAST 2% per month for the first year. This means that a $30000 vehicle will be worth no more than $22800 in one years time (if you are lucky). When I buy vehicles at auction the depreciation is MUCH less.

The majority of late model vehicles that are sold at auction are rental returns so why not skip the middle man and go straight to the rental company? Most rental companies will gladly sell their vehicles rather than sending them to auction. In most cases it is a win-win situation for the rental company and the customer...the rental company saves the auction fees and the customer avoids paying the middle man mark up. Smaller rental companies or franchised offices are more likely to deal with the public than the large, corporately owned rental shops.

Just my 2 cents.


At 2:14 PM, Anonymous MV said...

Good post.

I'm sort of interested in getting an 05-07 car (newer technology and, in some cases, included maintenance and warranty). Should I try rental companies? Don't rentals get abused a lot more?

What about private sales? Isn't it risky to buy a newer model car (0-2 years old)? Wouldn't you have to have it inspected?

At 2:53 PM, Blogger Jeadie5 said...

MV, with newer cars you do get the warranty. In my case I had 40,000 kms left on the warranty. Since a mechanic bought the car for me, he inspected the car before handing it over.

As far as wear and tear on rental cars, that is difficult to quantify. I personally rented cars a few times per year prior to buying. I cant say that I was harder on the rental than I am on my own car. I'd be surprised if people significantly change their driving style just because its a rental. The area that I would expect to be most neglected would be the interior.

At 8:08 PM, Blogger JPostal said...

Buying any used vehicle is a risk, but if you are buying a late model vehicle off of a car lot there is a very good chance that it is a an ex-rental or lease vehicle that they purchased at auction. A dealership legally has to declare this before selling you a vehicle so if you are worried about purchasing an ex-rental or lease you just have to ask. Purchasing a vehicle privately might save you some money up front, but may end up costing you in the long run because private individuals selling a car do not have to claim anything (damage, rental/lease, out of province, re-build, etc) when they sell it and you have no re-course if you find out afterwards...do your homework on the history of the vehicle before purchasing a vehicle privately.


At 2:24 PM, Anonymous Anonymous said...

I just bought a used car today. '98 corolla. I hope it lasts for awhile and it looks in really fine shape. I'm glad I don't have any monthly payments because I saved ahead of time for the purchase of the car. That always helps!

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