With David Muhlbaum, Online Editor at Kiplinger Washington Editors
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Online Tools Empower Consumer Research On Car Buying
Kiplinger’s resident car expert David Muhlbaum sat down to chat with Steve about the ever-changing nature of the car business, how on-and-offline research can help you understand manufacturers’ incentives and dealerships’ sales strategies and thus empower your negotiations with them, the pros and cons of leasing vs. owning cars, financing options, and more. Steve begins by observing that, unlike many industries, the Internet has not deeply disrupted the new car buying process. You still have to go to a dealership and haggle face-to-face with a salesman and hope you’re getting the best possible deal without ever knowing for sure. David agrees that the closing aspect of new car sales hasn’t changed much and concedes that the face-to-face part of the process isn’t easy for buyers, but he argues that the internet has transformed the research phase of the consumer’s quest for the right car at the right price. It’s done so by providing a previously unheard of amount of information, not just about the different cars that buyers are trying to decide between, but also about various prices advertised by dealerships across the country and the numerous incentives that might be available. Knowledge is power, David reminds us, and research is the first step you should take if you’re in the market for a new car.
Finding Estimated Car Prices And Manufacturers’ Incentives And Discounts
As far as particular sites that consumers can use to get valuable information about vehicles, Edmunds.com, Kelley Blue Book, TrueCar, and carjojo.com are all recommended for the unique data they can reveal. Carjojo, David mentions, has a useful feature that presents available incentives. These sites allow you to configure an ideal car based on all the features you want and then search for a price for that particular package. This can give you a ballpark idea of the price range for a car you’re interested in. There’s a disconnect, however, between these prices—which don’t refer to actual cars but to a modeled set of features and a hypothetical price—and the ones you’ll likely find when you call up or visit dealerships. The reason for this is that the set of features you’re looking for probably don’t correlate exactly to the vehicles which most dealerships will have on their lots. Dealerships tend to order far more cars with the most popular option configurations, which are less likely to be discounted because they sell just fine without them. The real negotiations and financing arrangements can only begin when you are talking about a real car with a VIN number.
Discounts Get Deeper In Last Quarter Of The Year
Steve points out that car sales are softening while car makers are trying to protect their market share and, consequentially, manufacturer discounts are projected to steepen from Labor Day to New Year’s as they try to clear out space for the next year’s models. David agrees but qualifies this a bit by saying that car makers don’t want to “cannibalize themselves” by discounting too deeply. One important thing to understand is that manufacturer incentives often vary by region. Sites like Edmunds.com and others may have current information about regional incentives, but sometimes you’re best served by querying car makers directly. It should be no surprise that dealerships don’t always tell their customers about all the incentives, so you need to do your own research, David implores.
Leasing Versus Buying A New Car: Pros And Cons
The conversation turns to leasing cars versus buying them. David says that leasing has continued to become more popular in recent years and now accounts for about a third of new car transactions. This is partly due to a rise in the number of people who want more expensive cars but can’t justify or cover the high monthly cost of buying. For people who always have a monthly car payment and are continually rolling over loans every year, leasing is probably a better option. Those who are content owning a car for 10 years appreciate not having to make a car payment. Conventional wisdom has it that leases offer more car for a lower price, but the key difference is that leasing builds no equity and, at the end of the lease, you typically have nothing to show for it, ownership-wise. Another crucial consideration is the number of miles you’re allowed with a leased car, which varies by lease, but the expense of going over that amount can get expensive fast. Car manufacturers typically offer a range of different leases with different features and will adjust the lease price by lowering or raising the upfront costs, the monthly costs, and the mileage. David recommends that people shopping around for a lease create a spreadsheet in which they can calculate and compare the price per mile of the various cars they’re interested in.
Car Financing Options: Opportunities And Pitfalls
Financing is another area where car makers exert a lot of influence by offering comparatively plum terms to buyers. That said, buyers shouldn’t assume that they’ll get the best possible financing through their dealership. David advises consumers to shop around at local banks and credit unions before signing off on a dealership loan. Dealerships, David reminds us, are not merely trying to sell you a car, they’re also trying to sell you financing, as well as add-ons for your car, and a lifelong relationship that covers servicing your car and future car purchases. That said, sometimes the dealership really does have the best financing out there. Steve surmises that when dealership financing is backstopped by manufacturers, the terms are probably competitive, but when they’re borrowing money themselves from banks to extend financing to customers, the opposite is probably true.
In Steve’s view, the length of a car loan or lease can become problematic at the “deep end”, i.e., 60 months or more. David concurs, adding that it makes a pretty big difference when you own that car at the end of 60 months. These lengthy loan and lease terms essentially allow people to buy more car than they could otherwise afford. When a loan demands a deeper stretch on the borrower and ends up costing a lot more in interest thanks to its long duration, it begs the question whether this is a very intelligent move from a personal finance standpoint.
Car Buying Negotiation As Service
Steve and David wrap up their conversation by landing on the topic of companies that will negotiate with dealerships on your behalf to get the best deal for you. For people who don’t trust their own bargaining skills, this can seem like a smart alternative. Carbargains.org is one such company, and they charge $250 for performing this service. Others like TrueCar will go so far as to offer you a price on the car and then will work with the dealer to get “roughly” that price. David points out that TrueCar is getting money from the dealership for the lead (you), and that you are paying them upfront for a service that perhaps you could have managed on your own.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: David Mulhbaum is Kiplinger’s resident car expert. Since spring is here, I thought it would be a good time to help you sharpen your skills to get the best deal on a car. Hey, David. Welcome to the show.
David Muhlbaum: Hi. Great to be here.
Steve Pomeranz: You know, the Internet has disrupted a lot of industries, but it hasn’t really affected the new-car buying process. Do you still have to haggle with the salesman to get your best deal?
David Muhlbaum: Yes. If you really want to get the best price, you have to get down there and sit on the other side of the desk, or at least work the phone pretty hard.
Steve Pomeranz: Yeah.
David Muhlbaum: Most dealers are still going to want you, at the end of the day, to show your face.
Steve Pomeranz: I guess the question is how do you stop the madness? How do you go in prepared so if you’re going to have to haggle, if you’re going to have to negotiate, you can do so from a position of strength? What do you do first?
David Muhlbaum: Well, while the Internet really has not disrupted the actual closing of a new-car deal, it has made shopping for new cars much more consumer friendly, if you will. It’s put more power in the hands of the consumer because you can find out so much information about not just the car but the various incentives that might be available to you so that you can negotiate the best price. Knowledge is power, and research is your first step.
Steve Pomeranz: So, there are sites like Edmunds.com and Kelley Blue Book and another one you’ve listed here, TrueCar, that lets you configure your…
David Muhlbaum: Carjojo is another one I encourage people to check out. It’s a relatively new entry here, but I find their listing of the available incentives quite helpful.
Steve Pomeranz: C-A-R-J-O-J-O?
David Muhlbaum: Yes.
Steve Pomeranz: Carjojo. Cool. All right. They let you configure a vehicle exactly as you’d want it, and then you can get the price. Then, what do you recommend? You look at different prices and you go in with an average price? I guess you’re really not trying to get the lowest price, per se, definitely not the highest. How do you price the car when you’re going in? What do you think?
David Muhlbaum: Well, it’s tremendously difficult in part because the sites vary to some extent in whether they’re promising you what the price would be on a car like this or an actual car. You’re only negotiating about an actual car when a car has a VIN assigned to it, vehicle identification number.
Steve Pomeranz: Yeah.
David Muhlbaum: You can get a sense of what the prices are. You can get in some cases from sites like TrueCar roughly what you will pay or what you could pay, but in terms of finding that actual car, you’ve got to get down to the actual VIN number of the car and go check out with the individual dealerships.
Steve Pomeranz: Yeah, so that’s important to know. You go in there, you have got kind of general knowledge, which is good. It’s a good place to start from, but it ain’t the car. You have to get exactly right down to all those numbers contained by that VIN number.
David Muhlbaum: In part because when you’re configuring a car online, you’re imagining as if you were ordering it, but the reality is that dealers … most of the times, people are buying from dealer inventory, and that exact configuration, the way you did it online, may be hard to come by. It’s more likely that dealers have purchased for their inventory a certain series of options that they know sell well.
Steve Pomeranz: Right. Got you. I like this one too. Pinpoint where the industry’s sweet spots are. For example, you say that crossovers accounted for more than half of the vehicles sold. So, if you’ve got a line of cars that’s hot, they’re going to basically not give you very good deals on those cars, so you want to look in other areas, right?
David Muhlbaum: Yeah. I mean, at the end of the day, you want to buy the car that you want, but cars that are fashionable do affect the amount of discounts. It remains the case that the strongest discounts are currently for the relatively slow-selling sedans, and the weakest discounts are for hot-sellers. It’s classic supply and demand, and people seem to want crossovers, which is basically, at this point, just kind of a car with more ground clearance. That’s supply, demand. People want them. They sell better. The discounts aren’t as big.
Steve Pomeranz: You also mentioned that car sales are leveling off and projected to slow down. Car makers are going to try to protect their market share, so you’re counseling people to look for prices to soften. Especially from Labor Day to New Year’s weekend as they try to clear the decks for the new models, that may be a good time to buy.
David Muhlbaum: Yes, and we’re living in interesting times right now for car pricing in terms of what kind of incentives the manufacturers are offering because, as you’d mentioned, they are trying to maintain market share and yet not essentially cannibalize themselves by discounting too heavily.
Steve Pomeranz: Mm-hmm (affirmative).
David Muhlbaum: So, the level of incentives offered is constantly variable. The other thing to note is that it is regional, so I can’t tell you nationally what kind of deals are available to you. You have to go to the sites we discussed, like Edmunds, sometimes the manufacturers themselves, and see what is available in your area. You have to know to ask. The dealership is not always going to tell you about it. It’s up to you to find out what those incentives are.
Steve Pomeranz: That’s shocking. That’s absolutely shocking that the dealer’s not going to tell you about the incentives. My guest is David Muhlbaum. He’s Kiplinger’s resident car expert, and that’s what we’re talking about today. Instead of buying, what about leasing a car? I mean, I’ve always leased my own cars. I find that to be right for me. What are the criteria to lease versus buy?
David Muhlbaum: Well, you know, leasing has been growing in popularity. It’s roughly a third of new-car deals, the new-car transactions now are leases. This is in part because people want more expensive cars, but then they look at what the payment would be on that expensive car. They can’t swing it, so they go with a lease.
Steve Pomeranz: Yeah.
David Muhlbaum: Now, leasing, it’s not for everyone, but it can be for many people. Basically, if you’re in a situation where you always have a car payment, if you’re essentially rolling from one loan to the next, you’re probably not doing it right and you should be considering leasing. If, however, you are the kind of person who owns a car for 10 years and loves the feeling of not having a car payment, well then, leasing is not for you.
Steve Pomeranz: Absolutely.
David Muhlbaum: It is clearly a way…the old maxim has been this is a way to get more car for less payment.
Steve Pomeranz: Mm-hmm (affirmative).
David Muhlbaum: On the other hand, at the end of the deal, you don’t have a car anymore.
Steve Pomeranz: Yeah.
David Muhlbaum: Right, but for many people that works. People who like to … They’re not certain exactly about what car they’d want, or they like the feel of a new car and they don’t want warranty worries, hey, it works.
Steve Pomeranz: Also, you have to consider your mileage that you drive. That’s pretty important because they come with a 10, 12,000, even 15,000 mileage caps per year. If you go over, you have to pay a certain amount per mile that you actually go over when you turn the car back in. So, if you tend to drive long distances, a lease could be out of the question.
David Muhlbaum: Yes. Basically, the car manufacturers, when they’re setting up leasing deals, they can move the price point in various ways. One is by cutting the mileage. One is by lowering the cost. One is the upfront cost, and one is by lowering the monthly payments. In addition to the residual value, leasing gets very complicated very quickly, but yes, you do want to pay attention to the miles. What I encourage people to do when they’re shopping for a lease is to literally make a spreadsheet so that you can work out the cost per mile of the various cars you’re looking at.
Steve Pomeranz: Right. Okay.
David Muhlbaum: Don’t forget, even in the lease deal, you have to negotiate the price of the car. Don’t just grab onto a monthly payment and say, “Okay.” You have to look at what the total cost of the car is. It’s the core to the deal.
Steve Pomeranz: What about financing these days? I haven’t financed a car in a long time. How is the market for that?
David Muhlbaum: Again, this is a situation where the manufacturer is a big player here because they are. One of the ways they can move cars is by offering an advantageous finance deal. Now, at the same time, you shouldn’t consider just what’s offered to you at the dealership as the only way to go. You should look for your own financing that might be available to you from, say, a credit union. Good place to start.
Steve Pomeranz: Mm-hmm (affirmative).
David Muhlbaum: Remember this. The car dealer is selling you several things. They want to sell you a car, they want to sell you financing, they want to sell you stuff to put on your car, and they want to sell you a lifetime arrangement of service and future purchases.
Steve Pomeranz: Right, right.
David Muhlbaum: That second one, the car financing, is something they’re offering for sale. They may be able to mark it up.
Steve Pomeranz: Yeah.
David Muhlbaum: On the other hand, the rate they’re offering may be better than what you can get outside.
Steve Pomeranz: Yeah.
David Muhlbaum: Again, come prepared. Know what you can get at your own bank.
Steve Pomeranz: Well, I think if the manufacturer is offering the interest rate deal, you’re probably in good shape. If the dealer is using standard banks and then marking that up, you’re probably not going to be quite as competitive, that’s for sure. Also, I’m concerned about taking out a loan that’s too long. Like, a 60-month loan on a car seems to have some issues associated with it, right?
David Muhlbaum: Yeah. I mean, this gets back to some part the leasing versus buying thing. Are you holding the car long enough that you’re holding the car till when you’re not …when there’s no more note on it? Are you free and clear? Because that’s its own reward. I mean, cars last a long time. Cars can certainly outrun a 60-month loan with proper care, but can you think ahead to where you’re going to be at that situation?
Steve Pomeranz: Mm-hmm (affirmative).
David Muhlbaum: Again, the temptation of the longer loan is to buy a more expensive car. From a basic personal finance thing, then you’re just taking on a lot of interest cost to pay for something that you maybe shouldn’t have been stretching for in the first place.
Steve Pomeranz: Yeah. That’s where you got to be careful. We only have about a minute left. I noticed in your article you talked about companies that will do the haggling and the negotiating for you. Some charge a fee, like CarBargains.org, charges a $250 fee for doing that. You also mentioned Carjojo in this as well. Tell us really quickly what’s that’s about.
David Muhlbaum: Well, essentially, if you don’t think you have the stomach for negotiating, you can get someone to do it for you. Now, to some extent, some of the larger offerings like what TrueCar offers, they’re essentially offering you an upfront price, and saying, “Well, this is roughly what you’ll get.” But remember that, in that situation, those services like TrueCar are getting money back from the dealer for generating the lead. When you buy it, when you essentially pay upfront for a private service to negotiating for you, they are negotiating for you.
Steve Pomeranz: Yeah.
David Muhlbaum: You pay some money upfront to essentially have the stomach to do the deal.
Steve Pomeranz: Yeah. Interesting. I think that’s actually a good way for those that are introverted and just can’t stand the fact of spending an afternoon in the dealership and fighting the brave fight. My guest, David Muhlbaum, Kiplinger’s resident car expert. You can find David at Kiplinger.com. His last name is spelled M-U-H-L-B-A-U-M. David, thank you so much for joining us.
David Muhlbaum: A pleasure.
