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“How to buy a car 101” should be a mandatory course taught in high schools throughout the United States. It’s incredible that modern day car buying is as aggravating, infuriating, and convoluted as it is, but that doesn’t mean every car shopper shouldn’t know the basics of how to buy a car.
Everyday we receive hundreds of emails from CarEdge members. Many of the emails are success stories about how we’ve helped with our Market Price Report, Deal School e-course, and guides. It puts a huge smile on our face to know that we are helping thousands of people navigate the car buying process more effectively and efficiently.
Just the other day we received an email from a gentleman named Clark. Clark bought a used 2017 Jeep Wrangler with 17,635 miles, and he shared his entire purchase process with us (step-by-step) from start to finish. Clark knows how to buy a car, and we thought we’d take his experience, which he documented and shared with us, as a case study that you can follow when you go to buy your next car.
To protect Clark’s privacy we’ve removed his personally identifiable information from any screenshots. Keep in mind that every resource or tool we recommend in this case study is 100% free.
Without further ado, let’s dive in.
Understand market trends
One of the things Clark did that we highly recommend all car buyers do, is he researched trends in the automotive industry before contacting any dealers. Of course you want to get a great deal when you buy your next car, but what if the supply of vehicles is incredibly short right now, and no matter how impressive your negotiating skills are, car dealers simply won’t budge? What if the inverse is true, what if you know that the industry currently has a surplus of inventory, and that dealers are desperate for you to come in and buy a car.
In which scenario do you think you’ll get a better car deal?
Don’t be intimidated by the idea that you’ll need to scour the web looking for industry insights into inventory levels … We have you covered.
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Many research organizations exist that provide weekly and monthly updates on auto industry trends. Unfortunately these resources are only marketed towards industry professionals (which makes sense). That doesn’t mean you can’t access the same information.
Each week we publish a “Market Update” on the CarEdge YouTube channel. These 10-15 minute videos walk you through the high-level trends occurring in the auto industry this week. We pull our data from a few sources:
Our recommendation would be you either watch our weekly Market Update, or you refer to the three resources linked above. Either way, you’ll have a great sense for where the retail automotive market stands week in and week out.
Clark did this, and it was the perfect first step in his car buying process.
Run a Market Price Report
Once you have an understanding of the current market conditions, we recommend you zero in on market conditions for the specific vehicle (year, make, model, and trim) that you’re considering buying in your geographic area.
Our free Market Price Report is a great resource to do this, and that’s what Clark used.
You will use the Market Price Report in a two-pronged approach. First, to help you understand market conditions for the specific vehicle you’re interested in, and second to help you negotiate the best out-the-door price possible.
When we analyzed the overall market conditions (in the step above), we learned about inventory levels for the automotive industry as a whole. Now, with the Market Price Report, we’ll look at inventory levels for the specific vehicle we’re interested in for our geographic region.
You can see there are 6 similar Jeep Wranglers in my area. The average amount of time they have been on dealer’s lots is 44 days. Either using the map, or the table, I can see there is another Wrangler within 100 miles of my location that has a higher Negotiability Score. The Negotiability Score is a calculation that takes into account days on lot and market conditions.
As a car buyer, I can now see that there aren’t that many Jeep Wranglers in my area, so negotiating a once in a lifetime car deal may not be realistic. That’s okay, this is why we analyze the Market Price Report, to set realistic expectations.
This is exactly what Clark did. From his email to me, Clark said, “I ran 24 different Jeeps through your tool. I narrowed it down to 7 that I liked. I chose to start with the one I bought because I felt like I had the most negotiating power.”
And that is exactly what the Market Price Report is intended for; to help you focus your attention on the best option in your area!
I told you, “How to buy a car 101” really should be a course they teach in all high schools across America!!
Focus on a specific vehicle
After reviewing local market conditions with the Market Price Report, you’ll want to turn your attention towards focusing in on a vehicle or two to negotiate with the car dealer. How do you choose which one to focus on? We recommend you use our Negotiability Score as an indicator for which you should focus on (the higher the score, the better). That’s what Clark did.
Clark knew the days on lot for the specific vehicle, the market conditions in his geographic area, and was ready to contact the dealer to negotiate the out-the-door price. He did something that we highly recommend as well, which is to get a copy of the CarFax before going too deep into the sales process.
We also recommend (although Clark did not do this) getting a pre-purchase inspection on any used vehicle you purchase. It’s a relatively small investment that gives you the peace of mind to know that the car you’re buying isn’t a clunker.
Once those two steps are complete you can then contact the dealer to negotiate the out-the-door price of the vehicle. From Clark, “Long story short After talking about the black book numbers and COVID situation I made an offer of $28,000 + TTL. They came back with an offer of $28,164 + $300 dollar fee for a total of $28,464. Just at what your Dad suggested. (see offer sheet attached)”
Be pre-approved for financing before you go to the car dealership
Most car salespeople are trained to ask you how you plan to pay for your purchase, cash, finance, or lease. Our advice is to say you’re open to financing through the dealership if their rates are competitive (unless of course you don’t plan to do that).
That being said, you should absolutely secure pre-approved financing from your local bank or credit union before going to the car dealership. That’s exactly what Clark did, “I was pre-approved through my credit union at 3.19% (60Mo) …”
Then Clark did what we recommend all car buyers do; he gave the dealer a chance to beat his pre-approved rate:
“I gave them (the dealer) a chance to beat that which they did at 3.05% (60Mo).”
That is a textbook example of how to negotiate with a car dealership. That is how to buy a car 101!
The car buying checklists we’ve created below are meant to help guide you during your car buying journey. If only buying a car was a simple and easy task … We all know it isn’t. Use the car buying checklist below to make sure you do your due diligence before spending tens of thousands of dollars.
We plan to add more checklists to this page over time. If you have a suggestion for a checklist, please let us know in the comments below. Since you are here, we think you may also be interested in these other free car buying resources:
Costco is one of the largest membership clubs in the world. With an estimated 100 million members worldwide, there are certainly some great perks to being a part of the wholesale club. Beyond bulk groceries and home-goods, Costco offers their members access to the Costco Auto Program to assist them with one of the most daunting tasks they face; buying a new car.
The Costco Auto Program serves hundreds of thousands of car buyers each year, and today we thought we would take some time to break down how the program works, if it’s a good value, how dealers are compensated, and more.
If you’re more interested in watching, be sure to click “play” on the video above. Without further ado, let’s dive in!
How does the Costco Auto Program work?
Let’s start by being brutally honest about what the Costco Auto Program is … It’s a lead generation service for participating car dealers. Not too dissimilar from services like TrueCar, Costco’s auto buying program has a network of participating car dealerships that pay a monthly fee to get access to leads from Costco. The program is actually not run by Costco at all, instead it is operated by Affinity Auto Programs, Inc, a company that specializes in creating buying experiences for different brands (i.e. Navy Federal Credit Union, and Costco, etc.).
In return for paying to be a part of the program, these dealers gain access to the leads that Costco is able to generate from their millions of members.
At its core, the Costco Auto Buying Program is a matchmaking service that dealers pay to get access to. Plainly, if you’re looking for the best possible car deal, you shouldn’t expect it from the Costco Auto Program.
Does the Costco Auto Program work for new and used cars?
Yes, the Costco Auto Buying Program supports both new and used vehicles. As a shopper you can use the online portal created by Affinity Auto Programs, Inc. to search for new or used inventory in your area. Once you have found something you are interested in you can then submit your lead and Costco will “handle the rest for you.”
Is the Costco Auto Program a good deal?
You get time savings and reduced headache because the prices are not negotiable, but you also are limited to the dealers that are in the program’s network. When using the Costco Auto Program there is certainly a tradeoff in selection and price.
Since vehicles in the Costco Auto Program are not negotiable, you won’t have a chance to get further discounts on a car, truck, or SUV, even if the dealer would be willing to go lower. For some, that’s a-okay, because they simply want a car buying experience that doesn’t include haggling or negotiating. However if that’s the case, I’d recommend you go to a one price car dealership in your area that is not a part of the Costco Auto Buying Program and see what price they are able to quote you. They may be able to go lower since they are not paying a monthly fee to be a part of the Costco program.
How we like to use the Costco Auto Program
Getting a price quote from a dealership via the Costco Auto Program is easy. What we recommend you do is you get the price quote from a participating dealer, then take that price to a dealer that is not in the program and tell them you’ll pay $500 less. The dealer will take your offer, and you just saved an extra $500. It’s really that simple.
Costco Auto savings are different then the Auto Buying Program
Unlike the Costco Auto Buying Program, where you must purchase your vehicle from a participating dealer, Costco Auto Savings are applicable to any Costco member regardless of where they shop.
As of the time of writing this, Costco has $1,000 savings incentives for their members at Buick, Chevrolet, GMC, and Volvo dealerships. If you are a Costco member this means that those dealerships will happily provide you with the incentive that Costco is offering. The incentive doesn’t come out of their pocket, so they will be happy to apply it to your deal, just ask.
Just because the selling price of the vehicle is not negotiable doesn’t mean you shouldn’t negotiate on ancillary products. Extended warranties, tire and wheel protection, GAP insurance, etc, etc. All of those things should still be negotiated.
Simple because the vehicle was not negotiable does not mean that the dealership will not try to make a pretty penny in the back office selling financing and insurance products. If you want to finance through the dealer or buy warranties that’s a-okay, just know that if it’s taxable, it’s negotiable.
Pros: Here’s what I like about Costco Auto Program
Ease of mind. You know what you are getting with the Costco Auto Program, and when it comes to buying a car, that usually isn’t the case.
Savings for Costco members can be applied regardless of if you use the program to buy your car or not. We love that Costco specific savings can be applied regardless of where you buy your vehicle (through their program or not). Be sure to take advantage of these savings if you’re a Costco member.
They’re honest. Costco isn’t hiding what their program is, you can read about it right on their website. I like the fact that they are open and honest about what the Costco Auto Buying Program is, and what it isn’t.
Cons: Here’s what I dislike about Costco Auto Program
Limited selection. If you are dead set on purchasing your next vehicle through the Costco Auto Program you have to understand that you may not find the exact vehicle you are looking for from one of the participating car dealerships.
Not the best price. As we discussed above, the Costco Auto Program does not guarantee you the best possible car deal.
A lot of emails from participating dealers. When you become a “lead” through the Costco Auto Program you will inevitably receive a lot of emails from participating car dealers.
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From 2013 and 2019, Nissan Motor Acceptance Corp., the financial arm of Nissan, illegally repossessed hundreds of vehicles from consumers. In a document filed by The Consumer Protection Bureau on October 13th, 2020, Nissan Motor Acceptance Corp. is said to have performed four illegal activities:
Nissan Motor Acceptance Corp. wrongfully repossessed some vehicles despite having agreements in place with consumers to prevent repossession;
Nissan Motor Acceptance Corp., through repossession agents, kept personal property that was located in consumers’ vehicles at the time of repossession and would not return that personal property until consumers paid a fee for its storage
Nissan Motor Acceptance Corp., through its service provider, deprived consumers making auto-loan payments by phone of the ability to select a payment option with a significantly lower fee than the one they were charged; and
Nissan Motor Acceptance Corp. made a deceptive statement in its agreements to extend consumers’ auto loans that appeared to limit consumers’ bankruptcy protections.
Nissan Motor Acceptance Corp. admitted no wrongdoing in their settlement agreement with the CFPB, and committed to paying up to $4M in fines to settle the allegations. It is alleged that Nissan Motor Acceptance Corp. illegally repossessed vehicles from customers who had made payments to decrease their delinquency status to less than 60 days past due. Nissan’s contract with customers stated they would not repossess vehicles if payments were less than 60 days past due.
Once in possession of the consumer’s vehicle, Nissan then would not release personal property that was within the vehicle to their customer. Nissan also limited the payment options their customers had to retrieve their illegally repossessed vehicles, forcing them to only select a payment option with high fees.
The $4M settlement with The CFPB is a “slap on the wrist” and a “cost of doing business” for Nissan Motor Acceptance Corp.
Similarly to the recent fines levied against BMW for fraudulently reporting sales figures to investors, the automotive industry never ceases to amaze us in how deceptive and unfair it can be. Tack on recent tax fraud allegations against the CEO of Reynold & Reynold, a leading auto dealer software company, and you have three cases of gross negligence and greed in the automotive industry all within the span of a few weeks.
Buying a car is a convoluted process. If you’ve ever gone through it you know that it entails a lot of online research, a handful of in-person test drives with salespeople in tow, and eventually a day long negotiation process to finally (hopefully) consummate a car deal.
Buying a car is … not as much fun as it should be. However, when you pulll back the curtain and examine how car dealerships operate, it begins to become clear why the car buying process is so dysfunctional.
Car dealerships are partners to vehicle manufacturers (automakers), commonly referred to as OEMs, which stands for original equipment manufacturers. Car dealers exist because OEMs are not equipped to sell and distribute their vehicles to the masses. OEMs focus their attention on building the best cars, trucks, and SUVs possible, and then their dealer network has to worry about actually selling their products.
OEMs make stuff. Dealers sell stuff. It’s that simple.
The union between OEMs and dealers is supposed to be a mutually beneficial and happy one. However, in practice, the relationship has soured, and many dealers have disdain towards their manufacturers. Why is this the case, and what impact does it have on you and me when we go to buy a car? We’ll answer these questions (and more) below. Let’s dive in!
How car manufacturers make money
Automakers like BMW, Mercedes-Benz, and others make their money when they wholesale a car to one of their dealers. From a manufacturer perspective, they get paid when their dealer takes delivery of their inventory. In order to sell more inventory to their dealer network, OEMs also want to support their dealer network in ultimately selling vehicles to consumers, however manufacturers don’t actually make any money when you and I buy a new BMW from the dealership for example. Instead, OEMs actually lose money when we buy their products from the dealer.
How can that be?
Manufacturers invest a lot of money into bonuses for their dealers when they hit certain volume incentives (an expense for the OEM), as well incur costs when vehicles that are under warranty end up having issues. The only reason manufacturers care about consumers buying cars is because it means they have a reason to wholesale even more cars to their dealers.
The customer for an automaker is their captive dealer network. The customer for a dealer is the driver of a vehicle (you and me). Once you understand this relationship you can begin to see why fundamentally automotive dealers and manufacturers don’t get along.
How car dealers make money
We’ve talked about this topic many times on the CarEdge blog, so we won’t do a deep dive here, however we will touch on the basics. Car dealers make most of their money in fixed operations (parts and service), as well as finance and insurance product sales. The other primary revenue driver for a car dealership is manufacturer incentives that are paid out monthly, quarterly, and annually based on performance.
At the end of the day, dealers are incentivized to sell as many cars as possible so that they can then originate as many loans as possible, sell as many extended warranties as possible, and service as many vehicles as possible.
Dealers also want as many cars on the road as possible because it then increases the number of prospective customers they have for their fixed operations (parts and service). The more vehicles in operation, the more vehicle maintenance and service the dealership has to deliver, which in turn means more parts sales and lucrative service hours charged to customers.
Simple, right?
Why car dealers and manufacturers don’t get along
So where do things sour? It’s simple. In the relationship between the OEM and dealer it is expected that the two act as equal partners with one another. In practice, the OEM has more control over the dealer than the dealer would like.
For example, dealers do not decide what inventory they receive from their manufacturer. The allocation of inventory is dictated by the manufacturer. For example, if I am a BMW dealer in Richmond, Virginia, I may get 20 new 3 series BMWs this August, or I may get 2. The manufacturer decides, not me, the dealer.
The process for how a manufacturer decides is shrouded in secrecy, and certainly a lot of very smart people are employed to come up with demand generation forecasts and models for how many vehicles need to be in certain geographic areas, but no matter how you “slice it,” OEMs are incentivized to allocate too much inventory to each dealer as a way to “pad their stats.”
What do I mean by this? It’s simple. Think back to how OEMs make money. They make their money when they wholesale a car to a dealer. If they dictate to a dealer that they are going to get 45 units of inventory this month, even though they have only sold 15 the past 2 months, who benefits from this? Certainly not the dealer, they are flooded in inventory that they then need to pay interest costs on. The OEM on the other hand just sold 45 more units, they’re one step closer to hitting their internal objective for the month!
I’ll never forget when the 2008 recession was beginning to take shape. I was working at an Acura dealership in Scottsdale, Arizona at the time. Every month I diligently tracked my inventory, and I could see the recession on the horizon. Our dealership went from selling 50 TLs a month to 15. My factory rep continued to send us 45 new TLs each month, even though we weren’t selling them.
We ended up losing a boatload of money on that inventory, and Acura couldn’t care less. As far as they were concerned, they sold their inventory, and it was my problem to deal with now.
This is the flaw of the OEM to dealer relationship. The two parties are not aligned on what is most important. If they were, buying a car wouldn’t be as terrible an experience as it currently is. We see companies like Tesla try and “disrupt” this space by offering direct to consumer sales, and they are certainly helping the industry move forward, but they’re running into their own hurdles.
Ultimately, at the end of the day, automakers and their franchised dealer networks aren’t going away anytime soon. Innovation in the automotive industry, specifically in the retail automotive industry is few and far between. Will car buying be any different in 10 years? Probably not. Will car buying be different in 50 years? I certainly hope so.
CarEdge Insights
