How To Buy A New Car

By:schopra | Date:7/26/12 9:23:57 AM
Category: Default

I want to disclose up front that I am part of the automotive fraternity and I am venturing into writing about how to buy a New Car.
When it comes to buying a new car/truck there is a lot of confusion in buyer’s mind and a big trust deficit which has led to lot of misconception and popular myths, rather than defending them I will simply give here in a commonsense processes which enables you to get the new car or truck of your choice at the best price available in the market place.
STEP 1: Answer these questions and formulate what car or truck you want to buy.
  1. What is the purpose of buying the new car/truck?
  2. How many miles you will be driving per annum or per month.
  3. Who will be the principal driver and also if there will be any occasional driver.
  4. What will be the passenger load on week days and weekends?
  5. What is your budget including Insurance, gasoline expense, maintenance cost and monthly payments.
  6. Do you have a current car or a truck which you will be trading in?
If you have answered the above questions and made notes you can now start your research by going to different manufacturer portals on the net and narrow down to 2 to 3 vehicles of your choice. Eventually you need to short list your choice to 1 particular vehicle or “PIN PIONT A CAR OR A TRUCK’’

Work out your total cost of driving or operating a new car / truck If you already have a vehicle and have kept proper log then you a should have working no as to how much you are spending per month on your vehicle.
Let’s examine the total cost of driving&
  • Deprecation or your monthly payment.
  • Insurance cost (estimated)
  • Gasoline cost
  • Monthly maintenance cost
If you are already an owner of a car then you should have answers to the above queries and if you are first time buyer then take some time to calculate the total operating cost. I personally believe that one should go thru a proper budgeting exercise regardless of the fact that you currently own a car or are a first time buyer.
MONTHLY DEPRECATION: is the cost the new car/ truck minus resale value divided by total months in use. Example > lets say car you buying is $20000 all in and you will drive it for 5 years and its estimated value after the term is $5000 therefore $20000 minus $5000 = $15000 divided by 60 months = $250 is your monthly cost of deprecation. I have put in an explanation of deprecation in order for your in depth understanding. To keep it simple work out a monthly payment which includes interest cost and deprecation and if you are buying cash then you need to work out the deprecation in order to arrive at a true total cost of driving.
INSURANCE COST: In order to arrive at a correct number you will have to pin point a vehicle and shop around for the best rate you can do this on the internet because the insurance cost depends on lot of variables for the purpose of this exercise we will simply estimate an average insurance cost
GASOLINE EXPENSE: Depends on how many KM you will be driving per annum and the car/ truck you have selected again you can go on the manufacture web site and get the information
Maintenance Cost: Depending on the vehicle you have selected you will have to research by calling the dealers service department or the manufacturer to get an estimate because a lot depends on the location and driving habits you can also call CAA if you are a member to get an estimate
Sum total of the above cost or expense is equal to total operating cost of the vehicle. For Example;
  1. Monthly payment let’s say = $ 500 including principal and interest cost
  2. Insurance cost =$ 150 estimated for this exercise.
  3. Gasoline expense= $ 150 estimated for this exercise.
  4. Maintenance cost = $50 estimated for this exercise.
Total cost of driving = $850 Now to arrive at the net monthly cost you need to estimate the future resale value of the car /truck you are buying at the end of the term or the estimated driving cycle. Lets say you want to keep the car/truck for 5 years then you need to estimate /research its end value [you can do this by looking at the same car/ truck 5 years old currently selling in the market place] e.g. if you are looking at the new 2012 dodge caravan then check out as to how much a 5 yr old that is used 2007 dodge caravan is selling for in the market place. Staying with our example lets say 2007 dodge caravan is selling for $7000 then divide that figure by 60 months to arrive at the monthly resale allowance = $ 116 deduct this amount from $850 to arrive at the net driving cost =$734. Question is can you afford this.
To keep it simple I will assume that you have pin pointed “A” car, truck or a SUV of your choice. Now you need to short list dealers preferably in your neighborhood either where you live or work and do your research on these dealers re their reputation etc You can start buy visiting the dealerships service department and meeting with service manager, get a tour of the facility and generally ask common sense question to ascertain the quality of service you will get after buying the vehicle.

Once you are satisfied regarding the dealer you want to deal with you proceed further and select the sales rep. for the show and tell and finalizing the deal.
I will share with you following simple yet very effective calculation you can do before arriving at the dealership which will save you BIG.
  1. Research the retail price of your car/truck [Trade in] Go to major used car portals and search for similar car with approximately same mileage and condition, it easy in today day and age.
  2. Make sure you are comparing apples to apple. You will find many listings with retail pricing displayed.
  3. Take an average of few vehicles displayed which are comparable to yours. You have now arrived at average retail price of your car.
Let’s say average retail for discussion purpose is $12000. Now in order to get this price you will need to recondition your vehicle, certify the vehicle, professional clean up and incur cost to advertise etc therefore you need to deduct them from the retail price.
Example: $12000 minus $700 (estimated cost for reconditioning etc for the purpose of this example) = $11300
When you sell privately you loose out on the Tax savings you get by trading the car at the dealer. Therefore you have to further deduct 13% HST amount Example: $11300 Divided by 1.13 = $10000
Based on above calculation $10000 can be a good target price for your car/truck of course you can try to get more but realistically if you get $10000 you are getting close to retail
Let’s start with retail popularly known as MSRP currently there are regular factory rebates direct to customers and are in some cases substantial. e.g. MSRP of a new car $ 30000 factory rebate $ 7000 net MSRP= $ 23000.
Now let’s talk about dealer mark–up Due to heavy factory rebates manufacturer have cut the dealer mark up drastically at the best 5% to 9% depending on the make and model. In our example the MSRP was $30000 if mark-up is 7% of MSRP then the dealer margin will be $2100.
Now we can easily calculate the Dealer cost which is MSRP 30000 minus $7000 (factory rebate) minus $2100(dealer mark) up = dealer cost $20900.
Once we have clear under standing of these two elements of sensitive pricing issue. There is no more mysteries and hopefully you can now negotiate with confidence and you will be able to make a well informed decision. ONE MORE THING I MUST ADD YOU SHOULD ALSO CHECK THE NEWSPAPER AND OTHER SOURCES REGARDING THE DEALS BEING OFFERED TO GET VERY CLEAR IDEA OF THE PRICING.

We should now be ready make the new car/truck purchase. As discussed earlier go to the dealership you have short listed go back to salesperson you had met in your earlier visit and patiently go thru with process.

Because of your extensive research and logical approach you will not have the buyer anxiety and nervousness and I can assure you will come out of dealership making a great deal. Stay calm and close the deal at your target price.


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