Over the past few months, my wife and I have been in the market for a new car to replace our 2004 Honda Odyssey which now has a little over 140k miles. To make a long story short, we ended up with a shiny, new 2012 Odyssey and are now looking to sell our old one.
I’ve detailed in the past our strategy for buying a new car, so I won’t go into that in too much detail here. But I do want to make a few observations about the process.
In general terms, we solicited bids from afar (this time around, we used the Costco price as a starting point) and then wound up making a deal with our local dealer. Throughout the process, I was struck by the tactics used to make a deal look better than it really is.
Perhaps the biggest tool that dealers will use in their attempt to win your business while padding their bottom line is the so-called “doc” (documentation) fee. This is typically presented separate from the “base” price, down near the tax, title, and license fees.
Note: For the purposes of this post, I’m ignoring the games that can be played with financing and extended warranties because we paid cash and ignored their advances on the warranty.
The danger of the doc fee is that it sounds official enough that you might not realize that it’s really just another piece of the price. A hefty doc fee can allow a dealer to offer you a price that is well below invoice while still making a healthy profit.
Look at it this way… Would you rather pay $300 below invoice, but with a $499 doc fee, or $100 over invoice with no doc fee? The latter is cheaper even though the price (without fees) is marginally higher.
There are, of course, other fees that come into play when buying a new car. Some of these are visible, like the “designation charge” you’ll often see on the window sticker. Others are invisible, like the “dealer holdback” that the manufacturer will pay to the dealer after the sale.
When comparing across dealers, you need to be sure you’re comparing apples-to-apples, so be sure to look at the entire price. What you’re looking for is either the total base price (itemized to include all dealers fees and add-ons, but ignoring tax, title, and license) or the “out-the-door” price, which includes the TTL (again, ask for an itemized list).
Armed with that information, you can make an informed comparison of what you’re really being offered, and re-shop the best price back to the other dealers to give them a chance to beat it before you pull the trigger.
I highly recommend http://www.truecar.com While I haven’t used it myself, I will next time I buy a car. It tells you the dealer’s cost, the average national cost and the average cost of the car in your area so you know when you are getting a good deal or not. You also get information on destination charges, etc.
It’s a game-changer for buying cars (I believe they have information on used cars, too). Check it out — the New York Times ran an article on this a couple of months ago I think.
great post. I may need to buy a new car soon and think I may go to a few dealers this weekend to ask for the “out the door price.” thanks for the good tips.
I recently ordered a new car. 2012 Chevy Sonic. I realize I am not in a very strong position to negotiate since I ordered the car to my specification, but I’m getting exactly the car I want with exactly the options I want and for that reason, I think I can drive it for most of a decade and then pass it on to a younger family member when they are ready to start driving.
Steve – when you trade in a car (or used children’s clothes like I did yesterday), your sales taxes are reduced by the amount of your trade in (an extra 7% here on trading in the car versus selling yourself).
What sales tax advantages?
Yes, can you explain why you didnt look for slightly-used cars, and why you did not trade in your old car for the sales tax advantages?
Don’t forget about buying used! You can often buy slightly used vehicles at deeply discounted prices. If you are going to buy new, go in on the last day of the month. My husband used to sell cars and on the last day “anything goes” because they are trying to meet quotas.
Excellent points. I especially like the tip to take your best deal back to the others to try to beat it.
Once we were shopping for a car & the salesman actually got down on the floor, squattting to talk a few inches from our faces. He said, “Would you take this car if it was totally free?” He kept asking us that until we said yes. Then he went back to his chair to resume his pitch. It was the most bizarre thing we’d ever seen at a car dealer.
I tried to negotiate on “out the door price” but then the seemingly lowest bidder added it back on when we showed up. I hate car dealers.
OTOH all the dealers (who were even willing to give me a price by phone or email, vs “come and and we’ll talk about it” baloney) of a particular brand seem to charge the same documentation and delivery fees around here.
When we were shopping for a car a few years ago, to avoid all the BS that dealers frequently tried to sneak by you we always spoke in term of “off the lot” prices, so we would say we’re willing to pay “X” off the lot. I honestly don’t care about how the dealer tries to break down the price, all I want is the number at the end that I’m writing down on the check. When I was insistent on that term it really simplified things.