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New Vehicle Pricing Primer
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| Learning how cars are priced will help when the time comes to negotiate |
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| Updated |
Jun 10, 2004 22:26:45 |
| Rating |
 33 ( -6 -18.18% ) | | Author | Brian Chee |
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Description:
You walk onto a dealership lot armed with reams of information, ready for war. This time, you won't waver. You won't give in. You'll stand tough and walk away before accepting a price the salesperson insists is "as low as they can go" when you know it's only $250 off the MSRP. But you sure like that car. And besides, it's only $50 more a month, so it won't kill you, and the salesperson said that they have a waiting list and they aren't going to make that car in that color anymore…
Zing. It happens all the time, because buying a car is part financial and part emotional. The financial part is easy. You know how much you can afford. The emotional part, though, is constantly tugging at the price parameters your financial side sets. You can avoid this, however, by following a few simple guidelines:
Get an Estimated Market Price from Autobytel
The estimated market price is a national average of base model prices paid by consumers, and it's a good indicator of what people are actually paying for a vehicle. Actual prices will vary by region, dealer, and options selected.
Be Realistic
If you want to buy the latest and greatest vehicle, be prepared to pay more. Many people who purchased the Nissan 350Z upon its introduction paid hundreds more than those who waited six months, so be patient and wait out the initial rush. By doing so, prices are likely to drop and selection will improve. Study the Market Due to consumer demand, some vehicles cost more than others, and have fewer incentive offers. If it's not a gotta-have-it car, then research some lower-priced competitors. For example, you may really want the Honda Odyssey - but the Kia Sedona, Toyota Sienna or Dodge Caravan may be more reasonable alternatives to popular, low production vehicles such as the Odyssey.Plan your PurchaseIf price is your top priority, then plan your purchase accordingly. Look for vehicles that aren't selling well, and vehicles that are at the end of their production run. If you want a popular vehicle but don't want to pay premium prices, try to find one with an unpopular option package. If the dealership can't move a car, they are more likely to make a deal. Waiting until the model year change-over is also a good way to get a better deal on a new car. With 2004 vehicles arriving and a lot full of 2003s, salespeople are more likely to drop the price on the 2003s.
Know What the Dealer Gets
Don't believe a salesperson that tells you they aren't making any money on your car sale. Of course they are. Even at invoice, there are reserve pockets of profit the dealer will realize once you sign on the line and drive away. Even at invoice, the dealer normally enjoys a "holdback" at about 2 or 3% of the suggested retail. So the dealer will make money. And so they should, just as you should only ever pay a fair price for a vehicle. Your negotiating goal should be to buy a vehicle at or below the Estimated Market Price, plus extra options and other add-ons.
Don't Pay MSRP
Most dealers will negotiate below MSRP. If you know what the invoice and the Estimated Market Price is, there is no reason to accept MSRP as a final price offer, unless there is strong demand for the vehicle.
Shop Incentives
Today's new vehicle climate is heavy with incentives, some as high as $4,000. Study the offers and make a list of desirable cars with significant bonuses. Ask yourself which is better financially - cash back or a break on the finance rate. While it's not as exciting as getting a stack of cash off the purchase price, low interest rates can drop your monthly payments significantly. But be careful. Don't buy a car you really aren't too interested in because the incentive offer is so extravagant. There's a reason these vehicles are discounted, and it's because people aren't buying. After the glow of your cash back bonanza fades, you'll be left with a car you hate. Also, as rebates go up, prices are occasionally raised to offset the discount crunch. Make sure your incentive isn't already spent on the purchase price of the vehicle.
Learn the Language
Learning price terminology is critical to a successful price negotiation. The following terms are commonly used in every vehicle transaction:
Dealer Holdback
An allowance, usually between 2 and 3% of MSRP, which manufacturers provide dealers, frequently as a credit to the dealer's account. A holdback allowance may allow the dealer to pay the manufacturer less than the invoiced amount. Therefore, the vehicle could be sold to you at cost while permitting the dealer to receive a small profit. Holdback is also known as a "pack".
APR (annual percentage rate)
The annualized cost of credit expressed as a percentage in a finance agreement. In a lease, there is no annual percentage rate or equivalent rate.
Base Monthly Payment
The portion of the monthly payment that covers depreciation, any amortized amounts, and rent charges. It is calculated by adding the amount of depreciation, any other amortized amounts, and rent charges and dividing the total by the number of months in the lease. Monthly sales/use taxes and other monthly fees are added to this base monthly payment to determine the total monthly payment.
Base Price
The cost of a car without options, but including standard equipment, factory warranty, and freight. This price is printed on the window sticker.
Collateral
Property used to support a loan and subject to seizure if you default.
Destination Charge
The fee charged for shipping, freight, or delivery of the vehicle to the dealer from the manufacturer or port of entry. This charge is to be passed on to the buyer without any mark-up.
Finance Charge
The total dollar amount credit will cost.
Fees and Taxes
The total amount you will pay for taxes, licenses, registration, title, and official (governmental) fees. Because fees and taxes can change, they may be stated as estimates.
Incentives
Amounts rebated or credited, or special programs offered to encourage the lease of certain vehicles.
Invoice Price
The manufacturer's initial charge This price may not reflect the dealer's final cost due to rebates, allowances, discounts, and incentive awards the dealer may receive.
Lemon Laws
State laws that provide remedies to consumers for vehicles that repeatedly fail to meet certain standards of quality and performance. Lemon laws vary by state and may not cover leased vehicles.
Luxury Car Tax
A federal excise tax assessed on vehicles with a gross vehicle weight of less than 6,000 pounds and a value exceeding a threshold amount, which is adjusted periodically for inflation.
Manufacturer's Rebate
A program offered directly to the buyer by manufacturers to increase the sales of slow-selling models or to reduce excess inventories.
Window Sticker Price
Required by federal law, the price which appears on a label affixed to the car window showing the base price, the manufacturer's installed options with the manufacturer's suggested retail price, themanufacturer's freight or transportation charge, and the fuel economy (mileage). The label may not be removed by anyone other than the purchaser.
MSRP
Manufacturer's suggested retail price, sometimes called the sticker price.
Residual Value
The end-of-term value of the vehicle established at the beginning of the lease and used in calculating your base monthly payment. The residual value is deducted from the adjusted capitalized cost to determine the depreciation and any amortized amounts. It is an estimate that may be determined in part by using residual value guidebooks. The residual value may be higher or lower than the realized value at the scheduled end of the lease.
Title
Legal document that identifies the owner of the vehicle. The lessor or assignee, not you, holds title to the leased vehicle.
Total Monthly Payment
The base monthly payment plus monthly sales or use taxes and any other monthly charges.
Trade-In
The net value of your vehicle credited toward the purchase or lease of another vehicle. If you own the vehicle being traded-in, you sell it to the dealer or lessor. If you are leasing the vehicle being traded-in, you are turning in the vehicle (either at the scheduled end of the lease or upon early termination) to the dealer or lessor who has agreed to pay any remaining balance on your agreement. The amount credited may be positive or negative depending on the agreed-upon value of the trade-in vehicle and any remaining balance on your agreement.
Warranty
A guarantee that the vehicle will function and perform as specified. A warranty usually covers specified mechanical problems during a specified period of time or number of miles. |
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