The Car Buying Process - California State University ...hfcat002/CarWebinarSlides.pdf · property...

The Car Buying Process: Don’t Get Taken for a Ride

Presented By: Gregorio Alcantar M.S. ‘06

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4 Steps to the Car Buying Process

BUDGETING

NEGOTIATING

PICKING A CAR

MAINTENANCE

BUDGETING

• Before you start shopping for a car, determine how much you can afford to spend.

• Usually begins by reviewing your budget • Budget - a plan on where your money is going

Car Payment $$

Guidelines

● You should not have a car payment

that can take up more than 20% of

your discretionary income after

paying your regular expenses

● $2000 discretionary income = $400

car payment

BUDGETING How much can you afford? (Be real!)

• Research is important because it gives you bargaining power

• Pick a good car (i.e. reliable) - NOT shiny, or with bells and whistles

• Review reliable sites for information

KBB.com

PICKING A CAR Research

PICKING A CAR

How much car do you need? • Type: Compact, Sedan, Sport,

Truck, 2-door, 4-door • Will you drive it much (e.g., living

close to campus-walk) • Car Features: Apple’s Carplay,

heated seats, Power Windows

Identify your Needs vs. Wants • Prioritize (you may need to

trade off some of the wants for a lower price

• Select 3 or 4 choices that meet your needs and research the features of each car

• Make a pros and cons list • Compare your choices and weigh which one is the best option for you. • Any car you evaluate MUST fit within your budget (STORY about guy

who couldn’t sleep)

Lease vs. New vs. Used

LEASE NEW USED

• Agreement w/ dealer to use property (the car) for specified time and mo. payment

• Don’t own car, only renting • Car available for purchase at

end of lease term (at expected value at end of lease term)

• People can afford to lease expensive cars than they would be able to finance

• Advantage: No down payment, no trade-in to worry, new car for few years, BUT you own NOTHING and pay penalties for excess mileage, wear and tear

• More expensive

• Loses value when driven off lot

• Less maintenance and thus save a lot on repairs

• OWN vehicle

• No smog checks for 7 years

• Can save you money

• Likely to need more repairs

• Bought at actual value current for car

• Keeps Warranty (if within 3 years/36000 miles

**Don’t assume you have to buy a used car - if right new car, right price, and keep for a long time -

save hundreds in long run

PICKING A CAR

• TEST DRIVE the car of your choice to see if the car lives up to your standards • Is it comfortable? • Does it drive smoothly? • How fast does it stop?

• Don’t window shop - try it on!

• Take your time - don’t be in a hurry when shopping for this purchase!

• Tip: It helps to leave your wallet

in the car (bring license only)

PICKING A CAR

• Not Enough Cross-Shopping • SETTLING for What is on the Lot • Skipping the Test Drive • Buying More Car than you Need

Common Mistakes when Picking a Car

• Decide what price you think is fair before you make an offer for a car.

• Kelley Blue Book publishes a pricing guide for all models and all years.

• By looking up the model and year of the car you are considering, you can find an estimated fair price for it.

NEGOTIATING Determine a Fair Price

Preapproval is the process of getting a new or used car

loan pre-arranged through your bank or credit union.

NEGOTIATING

• Buying Unnecessary Add-Ons • (e.g. alarm, sound system, floor mats,

seat covers, nav) • Focusing on the Monthly Payment • Saying up front that you want to pay

Cash • Being Clueless about Financing • Negotiating Down from the Sticker

Price • Fumbling on the Trade-In

NEGOTIATING Common Mistakes when Negotiating

• The sticker price on a car, or

manufacturer’s suggested retail price

(MSRP) is the price shown on the tag

in the car’s window.

• A fair price for a new car usually lies

somewhere between the sticker price

and the price the dealer paid for it

(the invoice price).

NEGOTIATING Determine a Fair Price

• According to the Automobile Association of America (AAA), the dealer’s

invoice is approximately 90% of sticker for compact and subcompact vehicles,

84-87% of sticker for luxury vehicles.

• A fair price is likely to be 3-6% over the invoice price.

MSRP

STICKER PRICE

NEGOTIATING

MSRP: Manufacturer Suggested Retail Price Sticker Price: Price shown on the window Dealer Invoice: The price the dealership pays Fair Price : The price you want to pay 3-6% under Sticker Price

**Sticker Price = 100%+taxes You pay = 94-97% Dealer paid = 90%

NEGOTIATING Terms

NEGOTIATING Negotiating the Price

• Statements like, “This is the only car I want,” or “This is just what I

am looking for,” weakens your bargaining position.

• Don’t reveal emotions

• Make your initial offer lower than your top price, and then be

prepared to negotiate

• A car-buying service allows you to choose the vehicle features you

want, and the service will locate it, negotiate the price, and

arrange for the delivery (for a fee).

Don’t want to Negotiate, go through other means

to purchase car

Also… try to ask for some freebies!

NEGOTIATING

Financial Institutions

• Banks, credit unions and

even insurance companies

offer car loans for 36, 48,

60, or 72 months

• Longer terms mean lower

monthly payments, but

higher total interest paid

because you are using the

money for a longer period

of time

Car Dealers • Most new car dealers offer financing

• On particular models during particular

times of the year they may offer better terms than others

• GMAC (General Motors Acceptance Corporation) is an example of a finance company that makes loans on cars through dealerships

• Most other manufacturers offer similar programs

• You would make your payments to the finance company, not to the dealer

NEGOTIATING Financing Your Car

a.k.a. TOTAL COST OF OWNERSHIP (TCO)

• The owner’s manual will tell you what

services your car needs and how often.

• Typically, you change the oil every few

thousand miles, have a major engine tune-

up every 20,000 to 30,000 miles, and

perform other maintenance at scheduled

intervals.

MAINTENANCE

• You should plan for unscheduled repairs, like flat tires, broken belts, and

leaky hoses that can be costly.

Maintenance and Repairs

Fuel

• The cost of gasoline depends on the fuel efficiency of your car’s engine and

number of miles that you drive.

• Larger vehicles and more powerful engines require more fuel.

Cost of Operating a Car MAINTENANCE

Depreciation

• A decline in the value of property due to normal wear and tear.

• As a car ages, the number of miles driven increases, the physical condition begins to deteriorate, and mechanical difficulties arise.

• Also, styles and consumer tastes change over time.

• All these factors usually cause cars to lose market value.

• Not all cars depreciate– very old vehicles in excellent condition or with

high resale value

• Depreciation is the single greatest cost of owning a car- the cost of

gasoline is second.

• A car will retain more of its value over time if it is well-maintained and

has fewer miles on it at the time of sale.

Cost of Operating a Car MAINTENANCE

• You must pay title fees and sales taxes only at the time you buy the car. (e.g. $25,000 at 9% sales tax = $27250 (2250)

• However, you must pay a tag fee each year and pay for emissions testing in some states every few years.

• All states charge a fee to register a car title- the legal document that establishes ownership.

• A car title lists the legal owner (usually the lending institution) and the registered owner (you)

Registration, Title & Sales Tax MAINTENANCE

1. Reliability - It does not break down often; will last at

least 10 years

2. A Car You Love - you enjoy getting the car and driving it

3. Resale Value - after 7 years, car still worth at least ½ of

its drive off price

4. Insurance - affordable (new more expensive than used)

7 Signs You Bought a Good Car

5. Fuel Efficiency - must I say more

6. The Down Payment - you placed a large down payment (saves on interest)

7. Interest Rate - a low and affordable interest rate means hundreds of dollars

in saving over the car loan

The Key to Car Purchasing Success...

...is to know what you need, have done

the research, and don’t budge but be reasonable at the negotiating table

★ Sethi, R. (2009). I will teach you to be rich. New York: Workman Publishing.

★ Gamm, S. (2013). More money, please: The financial secrets you never

learned in school. New York: Penguin Group.

★ de Paula, M. 10 common car buying mistakes. Retrieved from

http://editorial.autos.msn.com/listarticle.aspx?cp-documentid=1171403

Resources

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