The internet has disrupted many industries, but it has left the new-car-buying process largely intact. At the end of the day, it’s still likely to be you and the dealer dickering over details such as paint coatings and floor mats. But that doesn’t mean you can’t use the internet to get a better deal.
Do your research. Right, and eat your veggies, too. But here’s where the internet has really paid dividends: Not only does each manufacturer provide oodles of information on their models, but sites such as Edmunds.com, Kelley Blue Book and TrueCar let you configure a vehicle exactly as you want it and price it that way.
Pinpoint where the industry sweet spots are. For the first time last year, crossovers accounted for more than half of the vehicles sold. That means the best new-car deals are for compact and midsize sedans, and carmakers are trying to move them with generous incentives, particularly low-rate financing. At the same time, total vehicle sales are leveling off and are projected to slow down, says Tim Fleming of Kelley Blue Book. As carmakers try to protect their market share, look for prices to soften. And generally, from Labor Day until New Year’s weekend, as the new-model-year vehicles roll in and dealers try to clear out last year’s models, the deals get sweeter and sweeter.
Line up financing. Dealers have access to low-rate loans from manufacturers and may be able to offer rates that a bank or credit union can’t beat. But you’ll be in the driver’s seat during negotiations if you have financing to fall back on. Keep the loan term as short as you can, says Ronald Montoya, of Edmunds. Going long (say, more than 60 months) to keep the payments down can significantly raise the total interest you pay and increase the time you’ll be “underwater” on the loan (owing more money than the car is worth).
Consider leasing. If you must have new-car flash but don’t want to be shackled to a big loan, consider leasing. Leasing can make sense if you trade in often enough that you always have a car payment. Leases on luxury cars, large SUVs and pickups have been especially popular because their residual values—what the vehicles are projected to be worth at the end of the lease—have been optimistically high. So the monthly payments are more affordable than they would be if you were to finance the same vehicle.
Prepare to negotiate. Your online research will clue you in to what others are paying for the car you want, and you could shoot for an average of those transactions—your target price—as a fair price you could pay without regret. If you want a spectacular deal, you’ll have to spend more time. “It’s going to take calling dealerships and asking them for a price quote,” says Montoya. After you’ve done your best to haggle via e-mail and phone and it’s time to go to the showroom, a few truisms of negotiating still hold true: Consider bringing a helper (my wife is the bad cop to my good cop), and don’t go when you’re hungry or pressed for time.
Or let someone else do it. TrueCar (which powers Consumer Reports and USAA’s services, among others) and Costco’s Auto Program offer prenegotiated discounts—off of MSRP. That will get you a fair price, with added hand-holding. But you will probably get a better deal if you pay a pro to do the work of calling dealerships and making them compete for your business. Carbargains.org, which charges $250, has been doing this for decades. Also take a look at Carjojo.com, which tracks inventory, price and behavior data on new models to help you negotiate a good price. Or you can hire its negotiators to seek dealer bids for $199.
Mind the extras. Your next stop after agreeing on a price is the F&I (finance and insurance) office. At this point, it’s wise to note that dealers sell a lot more than vehicles. Besides a loan, you’ll be offered myriad extended warranties and add-ons. Part of the appeal is that you can roll these extras into the monthly payment, but don’t automatically agree to the asking price for these items (chances are good you can find them for less elsewhere). If you really want something, negotiate.
You can follow David Muhlbaum’s automotive musings on twitter at www.twitter.com/daveydog.
In his former role as Senior Online Editor, David edited and wrote a wide range of content for Kiplinger.com. With more than 20 years of experience with Kiplinger, David worked on numerous Kiplinger publications, including The Kiplinger Letter and Kiplinger’s Personal Finance magazine. He co-hosted Your Money's Worth, Kiplinger's podcast and helped develop the Economic Forecasts feature.