Buying a Car: Part One

I am nearly finished with my book about Family Finances. One of my recent chapters explores purchasing automobiles. Here is one of three parts from that chapter.

Reality Check
Let’s face it, if you are not a good negotiator, buying a car is like rough-housing with your big brother. You don’t have much of a chance. They know everything you know and a lot more. There are all sorts of ways they can take advantage of your ignorance. That does not mean that all dealers are crooks, but if your dealer does happen to be a scam artist, at least you should know how to recognize it. To begin with, I would like to discuss the shopping experience with you.

General Practices
Regardless of whether you expect to buy a new car or a used one, here are a few things you should consider.

• Try to approach the transaction from a logical perspective rather than an emotional one. If you fall in love with a stereo or with leather seats, you may end up buying a lot more car than you need; and, that is Flushing precious dollars down the drain.

• Sales tax on a vehicle is usually determined based on where you take possession. Call your local city and state agencies to determine what the sales tax will be if you elect to have a vehicle delivered to your home or at your workplace. This can be higher or lower than what it will be if you take possession at the dealership. A two-percent savings on a $25,000 vehicle is $500. That is certainly worth a half-hour or so of your time.

• Many urban areas require regular emission tests or similar requirements. But, if you have a second home in some other out-lying area with less severe requirements, you may be better off to get the vehicle from a dealer in that area and take possession there and get license plates there. Thereafter you may be able to avoid the time, expense and aggravation of those emission procedures. They might also have lower taxes and lower dealer overhead which could mean a lower price for you.

• If you determine that you will take possession at a dealership, it can easily be worth your time to call around to find out which nearby dealers are in areas that have lower sales taxes, especially if you live in a large community that has lots of dealerships. For example, I live in the Metro-Denver area. Boulder and Lakewood have high sales taxes, but Greeley and Brighton are much lower. Would you drive an hour away to a cross-town dealership to save $500 in sales taxes? You can bet I would.

• If you expect to obtain financing, get your FICO Credit Score from at least one credit bureau. The cost is under $20 and it does not affect you credit rating (Actually there is a more accurate credit report for buying cars, called Auto Enhanced Credit score, but the public cannot currently get copies of those) Then contact your own bank or credit union and an on-line bank such as MyAutoLoan.com to find out what rate they will charge you for a loan based on that score. Also inquire about any and all closing and financing costs they might charge. This will help you get the very best interest rates. That interest savings can mean several hundred dollars EVERY YEAR until you pay off your car.

• I recommend you sell your car yourself or donate it before going to the dealership because dealers make their greatest profit from their trade-in programs. I do not see a need to Flush all of that money away. However I realize that some people find the entire selling process to be so unpleasant they would rather take a loss than jump through the necessary hoops of taking calls, meeting strangers, etc. Other times we don’t want to stick a private party with that old lemon we have been driving, so the dealer offers an acceptable way out.

• If you insist on trading in a vehicle, do some research to discover its wholesale value. You can get a good idea at kbb.com. Don’t forget to factor in the mileage and extras, such as air-conditioning. If you do complete a transaction, it will be a lot easier to keep the numbers clear if you think in terms of trading your vehicle at wholesale for their vehicle at wholesale, and then add a “reasonable” profit ($1,000) for the dealer on the one he is selling.

• The transaction is more likely to go your way if the dealer is more motivated than you are. So, one of the worst things you can tell them is, “My old car died, and I have to get something right away.” Therefore, if you do not have a vehicle that you can drive for a couple weeks, while you shop, try to borrow a car from a friend so that you do not put unnecessary pressure on yourself.

• When the salesman probes for some basic information, let him know you are serious about buying; but, make it clear that you do not have to buy today. They know that people like that usually buy within a couple weeks and do not ordinarily come back. This motivates the salesman and dealership to lower their price as much as necessary, rather than let you slip away.

Stay tuned. Dealer tricks coming up.

comments welcomed

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Outsmart the Auto Dealers

I am writing a book about family finances and I am putting the finishing touches on the chapter about buying automobiles. Here are a couple of the thoughts that did not get into the book, but you might like them anyway. I will share some of the other juicy stuff a little later.

• If you would like to use the dealers’ own tricks against them, here are a couple ideas for you. First get your financing lined up with your bank or credit union. Then, when you get to the dealership tell them that you want a very good deal, and that you would be happy to consider using their financing. This makes them think you are a sucker. They will be willing to give you a low price because they think they are going to fleece you with the loan details, and there are plenty of them (more on that at a later time). Then hammer out the price in writing before you get to the financing department. Once there you find out what their financing is and if it not better than yours they lose the chance to fleece you, but you still have a great price.

• One time I took my son, Justin, to a dealership when he was about 10-years old and before we got there I taught him about the Bait and Switch scam that dealers like. If you are not familiar with the term it applies when a merchant runs an ad saying something like: New pickups only $13,000. When you get to the dealer they don’t have any, for various convenient reasons, and they try to sell something else. Well anyway, I told Justin we would turn the tables and use the Bait and Switch idea on them. When we got there we went out to the lot and found an Explorer that I liked only I didn’t want the dealer to know it was the one I wanted. So I picked out an Explorer next to the one I liked and which was about $1,000 cheaper. We negotiated back and forth for about an hour (since they moved in very small numbers, I did too) and when they came back with their 3rd or 4th “final number” I said, “Okay, that is acceptable if we just substitute the more expensive vehicle next to it for the one we have been talking about”. By this time, the manager was tired of messing around and he wanted to make a deal so he took the deal just to get rid of me. I did not feel sorry for him because we both knew he was still making a nice profit.

* Another time, I told the salesman that I am different from other buyers because my first offer is my best offer and I lower my price the longer they drag out the process and consume my precious time. He took my offer to the sales manager and sure enough, he came back with a counter offer. I played around with the numbers a bit and made a new offer of $100 less than my original one. He was surprised and proclaimed, "but, that is lower than what you offered before," I reminded him that I already told him that my first offer was my best offer, because I value my time." I went on to say, "if you come back with another counter offer, I will lower my price even more." A few minutes later it was over. They didn't want to lose more money. They took my deal.

Your comments are welcomed.

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Conveniences

This blog is about Family Finances. Sometimes the simple things say it best. Hear it in Heather's own words.

by Heather Rhode

An interesting thought occurred to me yesterday. I went to Safeway to pick a few things up. They had cereal on sale and soup, and I had a coupon for both. I also picked up some spaghetti sauce and noodles, also on sale. So for two boxes of name brand cereal, three cans of Progresso Soup, a can of spaghetti sauce and a package of noodles, I paid $4.29 with tax.

Abbie was with me and asked if we could go get a Happy Meal. I said okay, she has been good and hasn't had a Happy Meal in awhile. That bill came up to $4.98 with tax. It was a small Sprite, French fries and 4 piece nuggets with a crappy toy.

I came home and took a picture of what you get for $5.00. Thought you would get a kick out of it.

Just How Much Do Our Pets Cost Us?

In some of my recent articles we discussed the actual cost of having children. My very conservative estimate came in well below estimates of other so-called experts, but I still observed that it takes somewhere around $86,000 to raise a child to age 18. As a follow-up to that exercise I have also studied how much it takes to care for our pets. All of this was inspired by a new book I am writing about Family Finances. Here is some of what I learned about raising our 4-legged friends, largely taken directly from my book:

Few folks give sufficient consideration to the overall cost of raising a pet. I am not trying to tell you whether you should own a pet or not. Obviously, that choice is yours. I am merely trying to shed light on the actual cost of such a relationship so that you can decide how much of a role that these little dependants should play in your own financial lives.

The first thing we must consider is, what does it take to properly care for a dog or cat. If we cannot afford to do it right, we really shouldn’t do it at all. Unfortunately, there are literally hundreds of thousands of pets that suffer through unpleasant lives because their owners don’t really take care of them properly. For our purposes we shall assume that at a minimum, it is necessary to feed your pet and give it all of the shots and medications it needs and avoid exposing it to extreme or dangerous weather conditions. If you have more resources, you can upgrade the food quality and take your pet to get professional grooming from time to time or even enroll them in doggie day-care if you would like. But, for now we will focus on the most common practices.



First, there is the acquisition of the lovable critter. Some of us take in a stray cat or accept a puppy from the kids down the block or from somebody advertising on Craig’s List, but that approach is fraught with risk. Ordinarily, you would not know why a cat is roaming the neighborhood. It could be sick or carrying disease or hate children. That mutt puppy might look particularly cute, but it is difficult to know if it is going to be prone to aggression or have hip problems or other diseases.

If you get a professionally bred dog or cat, you have a better chance of knowing what traits your pet may have, but all of that early knowledge and expertise is likely to be accompanied by a stout purchase price. Some such dogs sell for two-thousand dollars or more.

Another option is to “rescue” a pet from one of the many shelters. The administrators usually know some details about the particular animal. The pets are usually spayed or neutered and have had their shots. It is also common for them to be checked and treated for customary diseases. There is usually over a quarter of a million pets available via this procedure at any given time. (If you want to check some of them out, simply go to www.PetFinders.com.) Whenever they give over a pet for adoption the shelters try to recoup their investment, so expect to pay several hundred dollars for any new family members acquired in this manner.
Once you bring the new friend home you have some additional start-up fees. Those add up to several hundred dollars and include customary items such as food, collar, bowl, leash, grooming tools, flea control, treats, vaccines, spot remover, sleeping bed, crate and so forth. A study by a group known as Pet Education says the minimum first-year cost is $511 and they set the maximum at $6,600 which includes a higher purchase price for the critter plus upgrading fencing, fancy grooming and advanced training.

As time goes by, there are still ongoing expenses. According to the same study the low end of the range is $287 per year and the higher priced pets require around $2,485 per year in recurring costs. If we assume your doggie will live for 14 years, you have a total expense of $6,000 to $38,000 over the life of your pet.
Since many families will have two or more pets at a time and acquire new ones whenever the old ones pass away, a family can have eight such pets over several decades, and that can easily add up to $50,000 or a whole bunch more.
There are other ways that pets chew into the family budget. For example, if you hire somebody to walk your dog or clean up the yard, you will need your checkbook. Or if your dog happens to be a digger or likes to chew on furniture, or your cat pees in the carpet you have other losses. And we must not overlook the likelihood that your pet will take ill from time to time. Some of us will spend a fortune to prolong or improve our pets’ lives in such cases. Or, if your dog gets out of the yard and gets into a fight with some other dog, you have to deal with all of the medical and possible legal matters. In our home, we even have a recurring pet expense for pets we don’t even own. My wife buys Christmas presents (treats) for our kids’ dogs.

As was the case in the previous studies about the cost of raising children, I think the “experts” tend to puff the cost quite a bit. But even if we cut their estimates, the total cost of raising an “average” dog is somewhere around $4,000 and a cat is a little less than that.

There is no doubt that many pet owners will gladly live with those problems and expenses in exchange for the many blessings the animals offer; but, at least now you will know what kind of financial commitment you are making the next time you get the urge to buy a puppy or kitty.

Feel free to bark back or give a meow of your own.

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