Buying Used Cars: Overcoming the Ignorance Factor

“When buying a used car, punch the buttons on the radio. If all the stations are rock ‘n’ roll, there’s a good chance the transmission is shot.” – Larry Lujack

Prices of recently purchased new cars fall like a stone. Drive a new car off the lot, and you have just lost at least 10% of the sales price, and maybe 15%.

For new-car buyers, the resale value of the car is less than the money they owe on the car. Only after year three does the rate of depreciation slow enough to allow the borrower to catch up with the resale value of his car. But then, in year four, he buys another new car. He never really gets ahead. This is why I will not buy a new car.

I won’t borrow money to buy a car. I don’t borrow money to pay for any depreciating asset. So I limit myself to used cars, and normally used cars that are at least five years old.

Reducing Your Ignorance, Cheaply

If you can reduce your risk by obtaining better information on the make and model of a used car, and if you are in a position to walk away from the deal, you will save a lot of money.

1. There are two wonderful free Web sites, Kelley Blue Book (www.kbb.com) and Edmunds (www.edmunds.com). Here is where you regain your advantage as a buyer. You can find out what is a reasonable price for any make, year, or model in one of five levels of condition. You can even put in the mileage.

2. You can consult Consumer Reports to find the reliability factor for most cars. It’s in the book that they put out annually. Your local library has it. Or you can subscribe for $3.95 for one month to the online version (www.consumerreports.org). Cancel after one month if you like.

CR also runs a “Used cars to avoid” list. That one, you must consult. Another list: “Used cars: best and worst.” Read it.

3. Another way to reduce the likelihood of buying a lemon is to buy a particular brand of used car only at a car lot where that brand is sold new. The used car on the lot was a trade-in from someone who presumably bought a new one. He was satisfied with the older car, so he bought the same brand.

4. Buy a CARFAX report on any car that you really are ready to buy (www.carfax.com). It will reveal if the car was ever involved in an accident. If the car was ever in an accident, don’t buy it for anything but a super-low price to use as a run-around-town car.

Getting the Best Deal From a Dealership

I suggest that you go to this Web site: www.carbuyingtips.com/used.htm. If you do what this long, detailed, and really hard-nosed article tells you to do, no used-car salesman will have an advantage over you.

To that article, I would add the following rules:

1. Don’t buy the car without going home, running a CARFAX check, and thinking carefully about buying.

2. Be sure you have a top price in mind that is lower than the dealer’s asking price.

3. When you return to negotiate, have in your possession a filled-in check for your top price, including tax and license. When you sit down with the salesman, hand him the check. He can take it or leave it. Don’t ever negotiate with a pro. Put the burden to decide on him. A signed check does this. Because nobody buys cars without debt, your check in his hand will unnerve him. This is good.

4. If he doesn’t accept it, come back when he isn’t there, go to another salesman, look at the same car, and go back to his office. Write out a new check right in front of him, with the same top price. He may take it.

5. Shop during daylight hours. You can more easily see any defects in the car’s exterior.

6. Shop in the morning. Negotiate the first round before noon. Then come back in the afternoon if you like. Deal with the same salesman.

If the morning’s salesman doesn’t capitulate, come back in the evening and try to find another salesman. Make a beeline for the youngest guy on the floor. Don’t let an old, experienced salesman intercept you.

Don’t tell him that you made an offer earlier. Have him walk around with you. Then, lo and behold, you just happen to find the car you’d like to buy. Go back to his office. Write the check in front of him. Don’t use the original check. He may catch on that you have been there before.

7. There is another strategy to get the price down. It’s a good one when you have a particular car in mind. Don’t come back to buy it for 30 days. Any used car that is on a lot for more than 30 days is a loser for the dealer. So the salesman has an incentive to sell it.

8. There is an ultimate fallback strategy for any negotiation, once you have decided to buy any item. It is a good strategy when you really don’t know what an item is worth in the open market. The better the salesman is as a negotiator, the better this strategy works for you. Rarely does anyone use it.

Tell the salesman that you have a top price in mind. You absolutely will not go higher. In fact, if you don’t get that price, you will walk out of the dealership and go to another. The salesman must believe you for my strategy to work. You must be willing to do what you say.

Tell the salesman to write down his absolutely lowest price — including all add-ons (taxes, license, whatever) — on a piece of paper. You will write down your top price. You will then exchange the papers. If your top price is above his lowest price, you will split the difference: 50-50. If, for example, your top price is $7,000 and his lowest price is $6,000, you will pay him $6,500.

If he accepts your challenge, do the exchange of papers. He can go back and talk to his manager or perform any other ritual song and dance — but his manager will know that it’s all or nothing. “Take this offer or lose any sale whatsoever.”

9. A salesman has a monthly quota to meet. If he has met his quota by the end of the month, he is less pressured to deal. At the first of the month, he is under more pressure.

So go shopping in the first week of the month. Then wait for a month to buy the vehicle you want. Have three or four in mind. Don’t feel pressured to buy. There will be other cars.

10. Sell your existing car in the local newspaper. Don’t try to trade it in to the dealer. If you do, it will confuse the issue — and a salesman makes more money when the issue is confused. Better yet: Keep the car as a reserve. This will reduce the future pressure for you to “buy now.” You want the pressure on the seller to “sell now.”

11. The more valuable your time, the less time you should invest in shopping for a used car. But take your teenage son or daughter along with you. Make it a teaching experience. If your children don’t get into the habit of going into debt for cars, this will help them immensely in later years.