Shop 'til You Drop

Introduction

Shopping for a car should include online searches and dealer visits -- and looking for the best deals on financing and insurance, too.

After you've determined how much car you can afford, it's time to start shopping. Many people begin their research online, then visit a dealer. There they might learn about rebates and dealer incentives. A new trend is to use an intermediary to do the searching for you. This chapter will explain all of the options available to the buyer, as well as how to shop for financing and insurance.

What you can expect to learn from this chapter:

Researching vehicles online
Manufacturer sites, independent sites, government sites -- you can find tons of information on the Internet.

There's a wealth of information available on the Internet on every imaginable vehicle, some of it straightforward and some of it opinion. All of it can help you make an informed decision on which vehicle will suit you best.

Manufacturer's Web site
Start with the manufacturer's Web site. A simple Web search will point you right at it and there you'll find the basics about the new vehicle you're considering, from specifications to options to interior and exterior color choices. You'll also find the manufacturer's suggested list price, as well as any special manufacturer financing, lease deals or rebates available.

Independent car Web sites
From there, surf over to some of the free Web sites that break down the invoice costs of the vehicles, so you can zero in on what price you should be shooting for. Some of the best sites are Edmunds, which includes its estimates of "true market value," the Kelley Blue Book, or IntelliChoice. At these sites, you can also get reviews of many vehicles. Many of these same sites can also help you research a used car purchase, as well as check out what's a fair trade-in or direct sale value for your current car.

Government Web sites
Another site that any savvy shopper should check -- both for new and used vehicles -- is the National Highway and Transportation Safety Administration database on crash test results, at which you can research a wide variety of models dating back to 1991. The Insurance Institute for Highway Safety also lists its own crash test results, which in some cases are more stringent than what the federal government requires.

New-car shopping on the Web
Nearly 70 percent of car buyers begin their shopping on the Web. We'll tell you what you can learn from each kind of site.

The biggest shift in the automobile industry over the past five years hasn't been America's love affair with the SUV or, more recently, the arrival of fuel-sipping hybrid gas-electric vehicles. It isn't even the tons of rebate cash and low-interest financing that often accompanies new car offers.

It's the Internet.
In addition to providing consumers with mountains of information about all aspects of the car-buying experience, the Web is becoming a marketplace where buyers and dealers are reaching agreement on pricing and all but sealing the deal. By one industry estimate, 70 percent of all potential buyers use the Internet to research and shop for new vehicles.
Web sales are also growing in the used-car market. More used vehicles were sold via eBaymotors than at any single dealership in 2004. Sites such as cars.com and AutoTrader offer hundreds of thousands of used vehicles online.
Aside from allowing busy consumers to check in with more dealers in a much shorter amount of time, Internet shopping appears to cut down much of the haggling factor -- the part of new-car shopping that people, especially women, say they hate the most.

Basically, online shoppers will encounter three types of sites:

Manufacturer sites: These are good places for general information about options, colors, rebates and manufacturer-linked financing deals. These sites will have suggested retail prices -- the number that you see on the car's window sticker -- and many will even have a search engine that will locate a dealer that has the car with the specific options you want. What manufacturer sites cannot do is tell you how much you can really buy that car for. They sell product to dealers and are prohibited by law and contract from enforcing any set prices or selling directly to consumers.

Third-party sites: These are sites such as cars.com, Edmunds and others that provide editorial information -- reviews, news and tips -- and then direct buyers to dealers that may have the vehicle they're looking for. When an e-mail inquiry from one of these sites -- or in the case of cars.com, a call through the site's toll-free phone number -- arrives at the dealership, it identifies the buyer as someone who has already done the research and, one hopes, will be treated a little more respectfully than someone who just walked in off the street.

Dealer sites: These are just what they seem: sites set up by dealer groups or individual stores to capture Internet buyers. Some dealers link their sites to the fleet or Internet department, while others funnel all e-mails on a rotation basis to the sales people on the showroom floor.

But it's usually difficult or impossible to get a firm price quote on a specific vehicle on the first inquiry. Dealers jealously guard against handing out real deal numbers until they know the person they're dealing with is serious and isn't just fishing. But by the second or third exchange of e-mails, a buyer should expect to arrive at a firm quote. Buyers familiar with doing a deal through online negotiations report that the first price offered by a dealer usually is within a couple hundred dollars of a dealer's absolute best price, whereas someone who starts out on the showroom floor may have to negotiate down thousands of dollars from the manufacturer's suggested retail (factory sticker) price.

No-show in the showroom?
By the way, it is possible to buy a car without ever setting foot in a dealership.

Most dealers can arrange financing through the Internet and will deliver the car to your home or office, although few buyers at this point go that route. There's the matter of trade-ins, where values cannot be set without a dealer first inspecting the car you're bringing to the deal.

Moreover, buying a car sight unseen goes against a consumer's instincts. The Internet can make the whole process easier, but at some point before they commit, most consumers want to see the car, drive it and see who's going to stand behind it after the deal is done.

Nonetheless, shopping on the Web is a great alternative to blowing several days trudging from one showroom to the next.

Using the Internet in the Car-Buying Process
New-car buyers
Internet 67%
Search engine or portal 89%
At least one independent site 77%
Decision impacted by online research 79%

Value of rebates & incentives
Knowing what rebates and dealer incentives are available will help you make your selection. Here's where to find that information.
Getting the dealer invoice price on a car is not the task it used to be, but then again, it's not as important as it used to be in trying to get the best deal. It's just not enough information.
Rebates from the manufacturers seem to be attached to almost every new car on the market, except for a few really hot sellers. While there are national rebates -- they're usually the ones you see in magazine ads and on television -- there may also be regional rebates that manufacturers use to boost sales in one particular part of the country. Then there are customer-specific rebates, such as loyalty rewards -- money out there to keep you from switching from Chevy to Toyota, for example -- and cash for first-time buyers, military personnel and college students.
The weekly industry newspaper, Automotive News, lists the current manufacturer programs, and many public libraries maintain a subscription. Online sources such as AutoBytel, Autoweb, CarsDirect, Edmunds, Kelley Blue Book, cars.com and InvoiceDealers also offer rebate information.
In addition to rebates, there's the money manufacturers offer to dealers to encourage them to surpass sales goals -- incentives that aren't publicized like rebates.
Most auto manufacturers pay dealers 2 percent to 3 percent of the invoice price as a "holdback" that reduces the dealer's final cost. The manufacturer may also offer dealers price incentives that reduce the dealer's cost. If you ignore these payments, you start the negotiating process at a disadvantage.
Sometimes a few dollars invested in the process can pay off handsomely. Consumer Reports New Car Price Service is $12 well spent when you're shopping for new cars. The report lists the invoice price, holdbacks and any rebates or dealer incentives available. Take a look at a sample report on its Web site. A slightly more expensive alternative ($26.95) is a package offered by Fighting Chance that adds some market-related considerations and negotiating tips. Once you've determined the dealer's true cost, you can negotiate a price that allows them a profit without taking you to the cleaners.

Using an intermediary
Is there an advantage to using a broker or an auto-buying service? We explain what services they offer and whether they're worth the fees.
You want to buy a car but you hate all the stuff that comes along with it -- the mind games, the haggling, and the posturing. Not to worry, there are other ways to go about negotiating a great price on an automobile besides prostrating yourself for the old family car but this might cost you more money. The auto broker has to get paid someway. They come in and negociate the deal for you but you could easily negociate the same deal for yourself without paying them.
One option for car shoppers is to pay an auto broker to do the haggling for you. Although this isn't really a new service, brokers are gaining popularity in some parts of the country. Here's how it works: You call the broker and provide the specifics on the car you're looking for and the price you want to pay. The broker will then find the car and order it for you.

How is the broker paid?
Look for a broker who charges a flat fee for his service, and don't feel you have to use one in your geographic area. Many are Web-based and help clients virtually anywhere. Fees usually start about $200 and go up to $1,000, depending on the car you're buying. Used cars usually carry a slightly higher fee because it takes more research and time to find the right vehicle.
Avoid those who call themselves brokers but in reality are agents of a dealership or may even work directly for a dealership. Some have a standing arrangement with several auto dealers through which they can get cars at a set percentage over the inventory cost in return for a certain volume of business. Once you pay the dealer, he then pays a commission fee to the broker for delivering the sale. There's nothing illegal about this in most states but you need to be aware these "brokers" are not necessarily working for your best interests.
If you consider working with a broker, ask for something in writing that explains how they're being compensated and by whom. You should be aware that broker licensing and regulation varies from state to state, so be sure to check the broker's history before doing business. While the number of brokers continues to grow, their impact on the industry is still minimal, accounting for fewer than 5 percent of all sales -- probably because most people like to see the car before they buy.
Going with an auto buying service, can make good sense if you know exactly what you want, are strapped for time, aren't very good at negotiating or just don't want the hassle. These services usually have an agreement with a dealer or dealers in the area and can get you discounts off the car's list price. You won't save an awful lot -- actually in most cases you can get the same or better deal by just going to the dealer and offering to buy the car for $500 to $1,000 off list price.

Several things you should first check into if you use a broker:
1. Is the broker licensed to sell cars in your state?
2. Are fees based on a flat fee rather than a percentage of the final price?
3. Is the broker being paid or compensated in any way by a dealer, manufacturer or dealer association?
4. Are previous customers happy or unsatisfied? Check for online forums or ask for testimonials.
5. What is their relationship with the dealers or manufacturers and what experience do they have?

Used-car shopping on the Web
The Web has made it much easier to learn the history of a used car. Plus, we offer a list of questions to ask any used-car seller.
It's always possible to get burned when shopping for a used car. One popular scam involves piecing together one car from several wrecked cars and then passing it off as a clean used car.
But the Internet and services like Carfax.com have made it easier to check out a car's ownership history and whether it has been in any accidents. Unless you want to lay your money down and roll the dice, never buy a used car without getting a report using the vehicle identification number (VIN). If a seller refuses to give you the VIN, run away from that deal. Or if the VIN report says the car is blue and the vehicle you're looking at is white, be very suspicious of stories about changing the color. Look inside door jambs and nooks in the trunk and wheel wells for signs of the original color. The seller may have switched VIN plates to pass off a lemon-law buyback or salvage vehicle.

Negotiate the best deal
Here are some other strategic negotiating questions that will help auto buyers learn more about autos being sold in private sales. This list was compiled from "The Insider's Guide to Buying a New or Used Car" by Burke Leon and Stephanie Leon.

Questions to ask
1. Why are you selling the car? (You may or may not get a real answer, but you won't get anything if you don't ask.)
2. Are you the original owner?
3. What is wrong with the car? (Never ask what condition the car is in. Everybody always says "excellent.")
4. Is the price negotiable? (Almost everyone will say yes, especially to someone he perceives as a serious buyer.)
5. What is the bottom-line price?
6. How is the body condition? Has the car been in any accidents? Is there any rust?
7. How new are the tires? Do you still have the receipts and warranty?
8. How long has the car been on the market? (The longer it has been for sale, the more likely the price is negotiable.)
9. Has the car had any recent repairs? Do you still have the service records?
10. (Ask again) What price do you need for the car? Would you consider $___ below that price?
11. Do you own the car outright, or is there still money owed on it? (This is a key question. If there is money owed on the car, it may be difficult to get the lien removed.)
12. Are you in a hurry to sell the car? (If he has to sell the car fast, he may accept less money.)
13. Have you had a mechanic look at your car since you put it on the market? Is it a problem if I have my mechanic look it over? (Ask if the seller will take the car to your mechanic, and if he will pay for the inspection if you buy the car.)
14. How good is the paint?
15. What is the Kelley Blue Book retail and wholesale for the car? (Even if you know, ask.)
16. When was the last tune-up? If the seller says it has been 'awhile,' (i.e., either he doesn't know or it's never been done) ask: Will you pay for a tune-up? If not, will you pay half the cost of a tune-up?

Line up your financing
If you've already got your financing in place, you'll be in a better negotiating position with the dealer. Here's a look at all of your financing options.

There are several places to borrow the money:
Brick-and-mortar banks and credit unions. You can get an auto loan from a bank, credit union or another financial institution. You can have these loans approved before you ever hit the showroom. The easiest and fastest way is to set up your financing at the dealership.
Home equity loan. You'll get a good interest rate and the payments will be tax deductible (see tax advisor for details). But be sure such a loan won't leave you in any danger of losing your house. After all, it's just a car.
Family help. If financing is a stretch, your family may loan you money or co-sign for a loan. If they do, make sure all parties are fully aware of every detail of the loan and the possibilities should circumstances change or things go wrong.
Rates and terms
Keep in mind that interest rates on new cars are lower than on used vehicles. And, in general, new cars can be financed over longer terms than used ones. This equation can make a new car cheaper -- on a monthly basis -- than a used one in many cases.

Decision time: buy or lease?
Our calculators can help you determine whether you should lease or buy that car.

Check insurance costs first
Your car insurance premium shouldn't be a shock to you, so check out these Web sites to get rate quotes before you get your car.
The biggest sticker shock you encounter when car shopping might not be the label on the vehicle's window. It could be the insurance bill for your new wheels.

An increase in value in the car you're driving, combined with increased theft risk and other factors, could send your insurance bill skyward. What's more, a less-than-stellar credit rating could hike your rates . Before sealing the deal, check out national premium averages, talk to your agent about the vehicles you're considering and compare it against other quotes in your area. You can also go online to a number of sites and check insurance rates. You may find that you can save with another company.
Here are some sites that offer auto insurance quotes as well as other insurance lines:
1. InsWeb: This publicly traded company provides instant quotes from more than 40 highly rated carriers.
2. NetQuote: Started in 1989, NetQuote provides a maximum of five quotes from a pool of 5,000 participating agents and 100 insurance companies. Selected carriers then quote you directly via e-mail, fax or phone.
3. QuickQuote: Founded in 1995 and purchased four years later by Dutch-owned ING, QuickQuote offers comparable instant quotes from highly rated carriers.
4. Insurance.com: Acquired in 2003 by auto marketplace ComparisonMarket, Insurance.com provides quotes from a select group of insurance carriers and strategic partners.
5. Insure.com: Insure.com, Inc,. is a wholly owned subsidiary of Quotesmith.com Inc. Founded in 1984, Quotesmith is a publicly traded company that offers instant quotes from more than 300 insurers.
6. iLeads: Founded in 1996 and partially owned by First American Financial, iLeads offers insurance quotes to consumers and sells consumer leads to insurance agents.

Did you know…
that more than a quarter (27%) of consumers interviewed in the J.D. Power and Associates 2005 National Auto Insurance Study stated they shopped for auto insurance in the past year and, of those, 33 percent used the Internet to get a rate quote.