Smart Car Dealing: Buy, Sell, and Get a Free Car Upgrade

Dave's new(er) car!

After our homes, the largest single purchase most of us make is our car.  This can be a wise and financially savvy purchase but too often that is not the case.  In fact, I’d venture that rarely is it the case.

What gives me such confidence?  Well, the sheer numbers of new cars on the roadways.  Buying a new car for most people is just a bad idea.  There’s a reason behind the joke that most accidents happen on the show room floor.  That’s because most folks sign up for payments on a car whose value plummets the second it drives off the lot.

So if you want to learn to take advantage of these market patterns, then stick around and let’s see if we can’t learn a couple tips to help us make better decisions and perhaps learn how to score free, or at least significantly discounted, car upgrades for life.

 

Why buying a new car is a bad idea
New cars are expensive.  Even the cheap and scaled down models can run more than 10 grand.  This is more money than most can afford to pay out of pocket.  So new cars, almost always are financed.

This is bad math from the start.  You buy an asset that will drop in value at least 10% the second the ink dries on your contract and you’re agreeing to pay more than your negotiated price in the way of interest.  You’re getting burned on both ends.

And don’t for a second think that you are actually getting a good deal.  I recently heard a great podcast on NPR’s Planet Money about the car buying experience.  I highly recommend this episode to get the full context and message but here are my key takeaways.

  • Car manufacturers control only to whom they can grant an original dealership
  • State regulations make it nearly impossible for manufacturers to close poorly managed dealers
  • Regulations further enforce a dealer’s territory thereby creating a defacto monopoly
  • Dealers are incented to NOT reshape the buying experience

As a result, per the podcast, consumers rate car dealers amongst the most untrustworthy professionals in the business market.

Doesn’t sound like the best environment for striking a fair deal for your financial future.

Here are other important reasons buying a new car is often a bad idea:

  • Depreciation – we’ve referenced this already but it bears repeating.  New cars are aggressive in their depreciation.  A 10 percent loss in value the first minute of ownership is not uncommon.   A full half of the purchase price might be lost in the first 3 – 4 years of ownership.
  • The Deal – you’ll never get the best possible deal from a dealership.  Car dealers make lots of money and they don’t do that by letting you get over on them in the negotiation.   Plus the deal making process is a farcical charade.  It’s a cheesy good cop bad cop routine with the sales man supposedly negotiating on your behalf with the sales manager.  Meanwhile, they both know the bottom line they can allow while preserving their commissions.
  • The New Car Emotion – think about the announcer on The Price is Right when he declares the price as “a Brand New Car!”.  Buying and owning a new car is about our emotions so much more than our need for transportation.  The dealer knows this and deep down, you do too.  Failing to manage this emotion will set you up for a long term car note.
  • Hidden Costs – beyond the cost of the car and interest charges, you’ll also pay more in insurance, taxes, and registration and fees on a new car.  The hits keep on coming.
  • Overkill – a new car is more than you need.  At 15,000 annual miles and 200,000 miles in a car’s useful life means a new car equals 13+ years of inventory.  Name a single product for which you’d so willingly carry so much inventory.  Here’s a brilliantly illuminating article on this topic.

 

How to shop for a quality used car

The key to finding the right used car is to find the car that is right for you.  What do you really want or need in the vehicle?

  •   Budget – set realistic expectations by knowing your budget.  It will save your time and prevent a costly compromise.  My favorite two guidelines only pay cash and no more than a month’s pay.
  • Select the right style – your specific needs will help narrow your search.  Do you need room for baby seats and gear, seating for 4 (near) adults, or capacity to haul work or sport gear?
  • Annual Driving – understand how many miles your drive in an average year.  Knowing how much you drive will help you target a model year or range of years best suited to your needs.  Quick key, the less you drive the older car you can make do.
  • Choose Models – continue to narrow your search by ruling out models you don’t want.  For example, perhaps you do want a small SUV-like vehicle but find the PT Cruiser a little too cheesy for your tastes.  Rule it out while staying true to the type of car you do need.
  • Consider Features – power windows, anti-lock brakes, cloth seats, etc.  Determine the creature comforts that are must have vs. those that are optional.
  • Aesthetics – I draw a distinction between features and aesthetics, and for good reason.  AC is a feature while specific color is an aesthetic.  I’ll happily settle for my 4th favorite color before yielding on a serviceable AC.  Besides, we once owned an aqua green station wagon that ran well and had AC.  I can’t imagine a worse aesthetic but all our other priorities were checked off.

At this point you should have a couple cars in mind, prioritized of course, along with a prioritized list of features and then colors.  It’s ok to have an early favorite so long as you understand the process is still only beginning.
The next step is to research the market.  Check multiple car sites and their listings to get a feel for the market. 

After a few days you’ll gain an understanding for which model years or features cause some cars to rise or fall in value?  For example, I own a ’98 Jeep Wrangler.  It has a 4.0 liter 6 cylinder engine which prices higher than its 4 cylinder counterparts.  Knowing these types of pricing factors will allow you to properly focus your search.

Continuing this market study will fine tune your search and allow you to update your priorities, and before long you’ll be able to spot a ‘deal’.

In parallel with learning the market for the car you want, you should also be evaluating the market for your current car.  This will give you a realistic value and price point to assist in your sell or trade efforts.

 

When to Sell Your Car

If you’ve done the research above, you probably have some indication as to the drivers in the car market.  Here’s a brief rundown of items to keep in mind when determining the right time to sell your car in order to get the maximum price.

  • Mileage Milestones – 100,000 is a significant milestone in a car’s mileage.  Depending on make and model, most cars will experience a dip in value as it nears and passes this mark.  If you’re balancing the utility derived vs. the sales value, consider moving the case before cross 80,000 miles.  150,000 is another similar milestone.
  • Model Updates – We all know that manufactures update their cars every year.  Some updates are subtle and some are full redesigns.  You’ll want to consider moving a car before it starts to “look old”.  This is somewhat subjective so use your new market knowledge to guide your hand.
  • Car Features vs. Time of Year – Does your car’s heater not work?  How about the AC or do you have a sunroof or even a convertible?  Choose a season appropriate time to sale.
  • Routine Maintenance – what kinds of routine maintenance is in your 5,000 mile future?  You may want to sell in advance of these expenses or choose to hold the car through those costs.
  • Sell by Owner? – If you’re planning to sell your car yourself then why not put it on the market today?  Think about this.  If you’ve already made a buy decision then your current car is the anchor holding you back.  If you’re not yet ready to buy but maybe getting close.  Then list your car and be patient for the best price.  This tactic puts you in more control of the exchange.

 

How to Sell Your Car

You’ve made the decision to sell your car.  Now you need to execute the plan.  Take these steps to ensure you get top dollar for your car.

  • Know the market – same as above.  Knowing what your car is worth is the best way to actually get the most out of it.
  • Private Sell or Trade – Odds are overwhelming that you’ll get a better net deal if you sell your car as a private seller.  (The opposite is also true, you can score the better deal by buying from a private seller).  During a trade in the dealer has two levers to work – your trade and the purchase price.  If you make hay on one side you’ll give it on the other.  The dealer doesn’t care which side they make their money so long as they hit their targets.
  • Numbers Game – list your car for a little more than your target price (target price, not your lowest price).  If you want $6000 for the car, the list it at say $6500.  You’ll have room to negotiate and may make a little more.  You’re the car dealer in this exchange but you can be savvy without being jerky.
  • Clean it up – Have your car looking its best.  Wash, wax, detail, vacuum, etc.  Look into minor repairs like dings outside or knobs or vents inside.  Also consider new floor mats if the old ones are worn.
  • Advertise – draft a listing and get the word out.  After you clean the car, stop in a park for a few photos.  Use the best and most sleek in your add.  Your listing should then be simple and direct – make, model, year, features, and price.  Compare to other ads and personalize your favorites.
  • Marketing – Post your ads for maximum exposure – Edmunds, AutoTrader, Autobytel, Cars.com, CraigsList, Local Newspapers, bulletin boards, and For Sale signs in the window are all cost effective options.  Choose more than one for the best effect.

 

So What Was That About Getting Free Car Upgrades For Life?

The idea of free car upgrades for life is more of a mindset than hard fast mathematical function.  The reality is that if we treat our cars as financial assets which we routinely broker rather than single large investments sprinkled through our adult lives, we’ll enjoy a lower net cost of ownership.  And with this flexibility we can seize upon opportunities to enhance our experience.

Consider the principles we’ve stepped through so far.

  • Used is often better than New
  • Prioritized shopping – needs ahead of wants
  • Market awareness
  • When to sell for max value
  • How to sell for max price

Now, what if we could string these together with a little bit of added entrepreneurial spirit?  What could that look like?

Let’s step through a couple illustrations to see.

 

Here’s a pair of 1995 Toyota Corolla’s with similar features.  However, they sport a price differential of nearly $1000, or 25%.  Price shopping and being willing to sell at the right times could allow you to profit or at least sell at a price very close to your purchase price.

Corolla Compare

This principle holds through up the spectrum.  Here’s a pair of 2005 Ford Taurus’ with a $1300 price differential.

Taurus Compare

 

Here’s a pair of 2008 Ford Explorers with a $3000 price differential.  It’s clear that the higher the price range, the greater the profit opportunity.

Explorer Compare

 

Finally, here’s a car I’d love to own, a 2010 Acura TL weighing in with a $3000 price differential.

 Acura TL Compare

 

Admittedly these were quick finds, but they were also quick finds.  I imagine a more detailed search across multiple platforms would yield more pronounced savings.  Making a cash offer to a distressed seller could be a gold mine.

Let me further the point with a personal example.  The car I currently drive is a 2008 Ford Taurus.  With a little effort, we were able to buy the car at wholesale back in 2009.  It had very high mileage and we scored a good deal.  Three plus years later, the car is worth only a few hundred dollars less than what we paid, about $200 per year less.

From this example alone, you can see that I could have sold it for an immediate profit, sold later for a smaller profit or break even, or sell even later with minimal capital erosion.

These opportunities are available to anyone willing to put in a little work so imagine if you exchanged your primary car twice a year and profited $1500 per transaction?

An initial investment of $5000 would parley into a $20,000 (your purchase price) vehicle in only 5 years.  That represents growth to your net worth for a little leg work and flexibility. 

Now imagine your neighbor or brother-in-law who purchased a brand new $20,000 car when your experiment started.  He might be able to turn it for $5000 which puts him back to where you started while you’re debating your next upgrade.

A minor word of caution, these are examples so you’ll need to do your diligence in shopping and marketing but I find them to be reasonable and attainable.  You may also want to check the specific dealer requirements in your state as most have restrictions on the number of cars an individual may sell before being considered an actual car dealer. 

Category: Personal Finance

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