The 10 Costliest Car-Buying Traps : Autos: Do a little homework and you can avoid the most common pitfalls in shopping for new wheels.
1. Not knowing the dealer’s price
2. Getting pushed into a lease
3. Negotiating car price and financing in one package
4. Shopping in the showroom
5. Falling in love
6. Flunking the insurance test
7. Buying off the lot
8. Loading up on options
9. Buying the extended warranty
10. Forgetting the mechanical check
Americans in near-record numbers are expected to visit auto showrooms this car-buying season to replace aging vehicles that have limped through the recession.
J.D. Power Associates, the automotive research firm, estimates that more than 15.5 million cars will change hands this year. That would make 1994 second in car sales to 1986, when 16 million cars were sold.
If you’re among the recovery-charged car-buying masses, the good news and bad news can be compressed into one simple sentence: Buying a car hasn’t changed much over the years.
Aside from a few dealerships--mostly those selling Saturns--where haggling over prices is out, getting a good deal on a car still boils down to the ancient art of negotiation. If you’re a good bargainer, you can save thousands of dollars, but if you fall into one of several car-buying traps, you will pay dearly.
Here are 10 of the most costly pitfalls:
1. Not knowing the dealer’s price
The starting point of any price negotiation should be what the car actually cost the dealership. Generally, that cost bears no relation to the sticker price on the window.
How do you learn the dealer’s price? There are essentially two sources: The Kelly Blue Book or a service, such as Consumer Reports’ New Car Price Service.
The advantage of the Blue Book is that it is comprehensive and can usually be found in any public library. You can check the invoice prices of several cars all at once--and all for free. The Consumer Reports service, on the other hand, costs roughly $10 a car. (The price drops if you order reports on several cars.)
What this service has that the Blue Book doesn’t are tips on dealing with the dealers and information on factory rebates. These rebates, which can range from a few hundred dollars to several thousand, in effect lower the dealer’s cost below his invoice price. The Consumer Reports package also includes information about the costs and advisability of various factory options and option packages. The service can be reached at (800) 933-5555.
A number of organizations, such as auto clubs and credit unions, offer similar services, but they may be available only to members.
2. Getting pushed into a lease
A lease can be great if you’re the right type of driver--someone who drives only late-model cars, doesn’t drive a lot and is good at math. If you drive cars until they expire, drive more than 15,000 miles a year and don’t have a present-value calculator--or a clue as to how one works--leasing could cost you a fortune.
Nonetheless, leases are popular. They accounted for roughly 25% of the new-car turnover in 1993. Customers are lured into them by the promise of low monthly payments, but many buyers don’t realize that there are several other balls in the air--among them financing costs, mileage limits, wear and tear on the car, the lease term, the “residual” (the amount you’d pay to buy the car at the end of the lease) and the down payment, usually called a “capital reduction.”
And leasing companies often require you to buy high-coverage auto insurance, which can add hundreds of dollars to the annual cost of the car. (See Trap No. 6.)
Keeping your eye on all these variables can be difficult if you’re not exceptionally well-prepared when you walk into the dealership. And unless you’re planning to lease when you walk in, you’re unlikely to be prepared.
If you plan to buy, don’t get sidetracked into a lease. If you plan to lease, brush up on your algebra. You’ll need it.
3. Negotiating car price and financing in one package
Unless you’ve got a lot of cash, you’re going to need to finance the car, either through the dealer or a financial institution.
Shopping for auto loan rates can be as easy as checking the newspaper, but many people fail to do it before they car-shop.
The end result is they get snookered. How? “You want a lower price? Sure,” the dealer says. “I’ll give you this $8,000 car for $7,000, with 12% financing over five years.”
A great deal? Not really. Assuming you’re a good credit risk, market auto loan rates are currently in the 8% range. That higher dealer interest rate would eat up any “savings” on the sale price.
In this case, the dealer’s deal would cost you about $156 a month, or $9,360 over the five years, not including tax or license fees. What if you say, “I’ll take the $7,000 price, but I’ll get my financing elsewhere?” At an 8% rate, you’d pay $142 a month, or $8,520 over the life of the loan.
This isn’t to say that dealers always offer bad financing rates. On the contrary, sometimes you can get a great deal with dealer financing, but you should first negotiate the car’s price. Then negotiate the financing separately. Wrapping them together can obscure the price of one or the other, and that can cost you.
4. Shopping in the showroom
You need a new car. You want it to be red. But the model? Not so sure. So you decide to visit a few dealerships and shop--just as you would for electronics or shoes.
Big mistake, says Harry Snyder, co-director of Consumers Union’s San Francisco office.
A car is the average consumer’s second-biggest lifetime purchase, following only a house, he notes, and the transaction therefore warrants preparation.
Luckily, there’s plenty of material to help you prepare. Consumer Reports’ April car-buying issue or its annual Car Buying Guide, both available in public libraries, can get you started. And as long as you’re in the library, consult the newspaper files or on-line services for articles reporting J.D. Power’s customer satisfaction ratings for various makes and models.
All this reading has two points.
First, it helps you determine which cars have good track records, reasonable repair and maintenance costs and hold up well in a crash. Second, your research can help clarify what kind of car you really need.
Is it a family car? A pleasure vehicle? How will it serve your driving needs and patterns? That shiny two-door sedan may look great in the showroom and on the freeway, but it would be a curse with a passenger and a child seat--or when it was your turn to ferry around the Little League team.
Buyer remorse tends to hit in the weeks following delivery, says Larry Peterson, president of Consumer Automotive Resource Services in Eugene, Ore. By then, your new car is a used car, worth thousands of dollars less than what you paid for it.
Choose a few likely models first. Then head to the showroom for a test drive.
5. Falling in love
A good salesperson can see the twinkle in your eye when you’re enchanted by a particular car, says Peterson. And that twinkle will cost you; a clever vendor will work on your emotions.
“You’d look great in this car,” the dealer will say. “A lot of successful people buy this car. It’s a sign that you’ve made it. A symbol of your success. Sure, it costs more, but most valuable things do.” And off you float into Freeway Dreamland, where other drivers enviously eye your personalized plates as you pass.
Snap out of it! You don’t need a V-6 engine in bumper-to-bumper traffic. And any woman who dates you for your car will dump you just as quickly when she finds out what the car payments are doing to your bank balance.
Bring along a reasonable friend--one who is good at pulling you back to reality--on your car-buying excursions, suggests Consumers Union’s Snyder. Failing that, simply go for a cup of coffee before you buy,says Peterson. You may see the car differently if you step away for a moment.
6. Flunking the insurance test
Do you know how much more it will cost to insure a Chevrolet Camaro than a similarly priced Ford Taurus? Depending on your age and driving record, the answer may astound you, says Morey Stettner, author of “BuyerBeware: An Industry Insider Shows You How to Win the Insurance Game.”
The actual cost will depend on your age, driving record and ZIP Code. But to get an idea, consider Sarah, a 35-year-old teacher who lives in Santa Monica. A standard policy with State Farm Insurance will cost her $1,624 annually on a new Taurus, compared to $2,668 for the Camaro--a whopping $1,044 difference. If you are young and have a checkered--or limited--driving history or poor grades in school, the difference could be substantially more.
And if you are leasing, your leasing company may require you to carry more insurance, with lower deductibles, than most states’ insurance laws--or most moderate-income drivers--would require. The company doesn’t want to take the chance that you’ll get in an accident and not have the money to pay for repairs.
Obviously, the boosted coverage will cost more; the difference will vary widely with the type of car, your address and driving record. However, it’s safe to say you could spend $200 to $1,000 more on insurance each year if you lease rather than buy.
7. Buying off the lot
Car dealers like it when you buy cars off the lot, for the simple reason that it reduces their inventory, which cuts their costs. And, of course, an immediate sale means an immediate commission, which is enough to warm any salesperson’s heart.
But for the buyer, buying off the lot can be problematic for the simplest of reasons: It’s unlikely that the exact car you want is there, in the right color and with just the right options.When you buy off the lot, you usually get some things you don’t want, and the car might be missing other options you do want. You can have the missing options added at the dealership, but beware: The warranty may not cover a dealer-added option.
And of course, you’ve got to pay for all the options--even if they weren’t what you had in mind.
Dealers often say they’ll give you a great deal if you buy a car off the lot, and some do. But if the car comes loaded with a lot of unwanted options, that good deal still may cost hundreds of dollars more than the car you wanted.
If you know what you want and it’s not there, keep shopping--or order it. You may have to wait a while, but console yourself with the knowledge that you can buy something nice with the savings.
8. Loading up on options
Have you stopped to figure out exactly what you’d like on your car and how much you can afford to pay for it? That’s a surprisingly important question, considering that the cost of a car can rise as much as 50% when it’s loaded rather than stripped.
Some options--automatic transmission, for example, or three-point seat restraints--are worth having for reasons of safety, resale value and insurance costs, says Snyder.
But upgraded sound systems, special seats, alloy wheels, tinted glass and special coatings on the paint or seats usually don’t pay off. If they mean a lot to you, go ahead and buy them. But realize that you’re paying merely for your enjoyment.
Peterson suggests making a list of the options you want and things you’d buy if the price were right--and then sticking to the list.
9. Buying the extended warranty
The car you buy ought to come with a good factory warranty guaranteeing that if anything goes wrong during the first year or two, the manufacturer will fix it for free, says Snyder.
Extended warranties, which cost $200 a year or more, are frequently a waste of money, Snyder says. They generally force you to get service at a particular location. They often become invalid if you fail to maintain regular maintenance. And if the company that provided the warranty disappears or goes bankrupt, there are few, if any, ways to enforce the contract.
10. Forgetting the mechanical check
If you’re buying new, you don’t need a mechanical check because you’ve got a warranty. But many people who buy used cars make the mistake of trusting the seller’s assurances that the car is in good condition, says Peterson.
One woman recently bought a $5,000 pickup that drove like a dream at the dealership. The next morning, when the truck was cold, the gear shift wouldn’t budge, Peterson says. The pickup had been “doctored” for sale--something a good mechanic would have detected in a flash. The buyer hadn’t checked.
Another serious problem with used cars is odometer tampering. That’s when somebody turns back the mileage meter to indicate the car has been driven, say, 40,000 miles when the real mileage is approaching 100,000. Those miles are the difference between buying a used car and a relic.
Odometer tampering can be hard to detect, but a good mechanic can give you an opinion as to whether the mileage reading appears to be accurate. You have to ask, however; it’s not a standard part of a mechanical check.
The Cyberspace Showroom
For the techno-able, on-line computer services are a good source of information about car shopping. Here is some of what’s available.
CompuServe
AutoQuot-R offers a new- and used-car database that includes almost any vehicle sold in the United States. For $16, you can order a report showing dealer cost, option prices and suggested retail price. Same-day fax service is available for an added charge.
To use: Log on and type go autoquot at the prompt.
For more information, call AutoQuot-R at (800) 992-7404.
Prodigy
AutoNet offers up-to-date dealer cost and specifications on almost any car for $4 per report. The information you request is downloaded into your personal computer, with the fee charged to your Prodigy account.
To use: Log on and jump autonet.
For more information, you can message the service off the AutoNet menu.
AutoVantage provides a comparable service. Memberships are available for $49 a year; non-members can order a report for $11. AutoVantage accepts Visa and MasterCard only and will not bill your Prodigy account.
To use: Log on and jump automobile, select the new vehicle option in the upper right corner of the screen, then move your cursor down to the AutoVantage selection button.
For more information, call AutoVantage at (800) 843-7777.
Delphi
AutoVantage is also available on-line here.
To use: Log on and type shopping at the main menu. When you get to the shopping menu, type auto.
America Online
AutoVantage is also available on-line here.
To use: Log on and type keyword AutoVantage.
Call these numbers for information on the listed on-line services: CompuServe: (800) 848-8990 or (800) 848-8199; Prodigy: (800) PRODIGY; Delphi: (800) 695-4005; America Online: (800) 827-6364.
Researched by ADAM S. BAUMAN / Los Angeles Times
