I last left you with the tale of Grandy, my dying car. I knew it was time to trade her in. And to do so before she died would be wise. She still had some value in her for someone who wanted to put a little money in to her. And I didn’t want to sink more money in with towing, rental, fixing, and other expenses if she did die (I share a car with my wife and don’t have a backup 2nd vehicle). That was my situation. On to the search…
New Vs. Used Cars: Which Provided the Best Value?
Should I buy new or used? This was the first thing that entered my mind. I had not purchased a car in 6 years, so I had no idea what the new vs. used car markets looked like.
Many will cite the “it loses 10, 15, 20% (depending on who you ask) of its value as soon as you drive it off the lot” line. And other popular finance wisdom will say you should buy everything used. I wanted to find out for myself.
I started pricing out new vs. used models. What I found was that cars that were within a year old were selling for just slightly less than new cars (about 10-15%). Even cars that were 2-3 years old were selling for just 15-25% less than their new 2012 counterparts.
I did some research into the present used car market and found that this is fairly common in tough economic times – the used car market, as a whole, gets propped up by buyers looking to save some money versus buying new. Typical law of supply and demand. Ironically, the frugal buyer kind of gets screwed.
I’m not a big fan of buying anything new these days, but the current market made me think that if I could find a new car (with incentives to bring the cost down), that had a full warranty and zero wear and tear, and pay roughly the same or less than a car with anywhere from 10,000 to 30,000 miles on it with a shrinking warranty and little knowledge of how the car was treated prior – it might be justified. But I had to find a good deal first.
Looking for the Cheapest New Car
I turned to my list of the cheapest new cars. I made a spreadsheet of each car, added in a few other cheap favorites, and included their MSRP’s, any current manufacturer discounts and incentives, the annual fuel cost, and average insurance premiums.
Much to my dismay, the only manufacturer incentive on any of the 15 cheapest cars at the present time was $500. I had figured I might run in to this issue, as January is typically a horrible time to buy a new car. Automakers just got done heavily discounting last year’s models in December in an effort to clear them off the lot and to hit their sales goals for the year. January offers them a fresh start and a little flexibility.
The GM Card Earnings
As an aside that plays a key role in my search, I had an old GM card laying around with some cash back earnings on it. It was the first credit card I ever used and I’ve kept it open for it’s favorable impact on my credit history.
It offered 5% cashback on all purchases if applied towards a new GM vehicle. Over the years, I had built up $1,011 in savings, which GM was upping to $2,000 through Feb. 23 through a special promo (they do this about once or twice a year).
This was good on any GM vehicle and is completely separate from any other negotiations with the dealer.
Turning Towards GM
My ideal car (at the time) was the now extinct Toyota Prius C. It had not been released yet. It is the new hatchback hybrid from the Prius line that gets over 50 mpg city and highway and retails for under $19,000.
I was not confident my car could last until its release without repair, and even if it did there would doubtfully be any incentives on the new Prius C as it would be newly released.
Knowing that I had the $2,000 off in GM card earnings ($1,000 of which expired in a month) and that there was a $500 Auto Show cash bonus for all GM cars, I started to turn to GM.
What I found next was encouraging.
GM was also offering a $500 GM loyalty discount (if you trade in a previous GM model). I also found that they were offering a special $2,500 consumer cash discount on the Chevy Malibu.
The Malibu had honestly never crossed my mind and it certainly would not be my first pick, all else being equal. It MSRP’ed right below $23,000 for the base model, it’s not the most functional for my outdoor lifestyle (that would go to the hatchbacks), and 33 mpg’s highway is not bad, but it certainly wouldn’t make my list of the most fuel efficient cars – 40 mpg hwy is the new 33 mpg hwy of 3 years ago.
The Best Value on a New Car
Instead of thinking about my “ideal” car, the most fuel efficient car, or even the cheapest new car from an MSRP standpoint, my strategy shifted slightly.
I decided that it would be wisest to go for the best car (within reason) for the best price. The Malibu was that car.
Its pricing, before negotiation or trade-in, looked like this
– $2,500 Malibu consumer cash
– $500 auto show bonus
– $500 GM loyalty bonus
– $2,000 GM card cashback
$5,500 off MSRP without any dealer incentives! That brought it right down to the bottom of my cheapest new car list at $17,370. The Malibu has way more standard features and is bigger than any of the vehicles on that list, proving it to be the best value I could find.
I wasn’t in love with the car, but I kind of liked that about the choice. My emotions and desires were not leading my purchasing decision. That’s a good place to be in.
Save Now. Swap for a More Ideal Car Later?
If I could get the best car value now, and knowing what I found out about used car prices, it is very possible (if not certain) that I could get the Malibu now and sell it for more than what I bought it for later in the year while it was still under full bumper-to-bumper warranty.
At that point, I could even apply the savings to a different car that had bigger incentives at that moment or was slightly used.
This strategy was not without its drawbacks, but it reasoned to be pretty damn good considering my predicament with Grandy and the lack of new car incentives at the moment.
On to the negotiation stage…
Car Buying Strategy Discussion:
- What strategies have you used when buying a new car?
- What considerations have you had when picking out a car?
Keep in mind you’ll pay tax, title, etc. on that car, and you’ll do it again if you sell it to buy a different one. Depending on your state, that could be several hundreds of dollars, twice.
Patrick, at least here in Texas — you don’t pay taxes on the trade-in value. So, if you trade in a $15k car to purchase a $20k car – you only pay taxes on the $5k difference. This must be done in a single transaction at a single dealership. You couldn’t, for example, trade in the car at one dealership, and take a check to the second dealership — you’d have to pay taxes on all $20k in that case. And dealerships know this (so you should too), when negotiating prices.
But, you make a good point — flipping cars would be expensive! The best deal going is to purchase a car, drive it until the wheels fall off, repair it, and repeat. The malibu I mentioned below was for the wife, my ride is a ’97 (wheels haven’t fallen off yet).
You do not pay tax on the trade in.
And, agreed – flipping would not be without cost and I would certainly crunch the numbers. I should add that if it does not economically make sense to flip and I stick with the Malibu, it is certainly not a car that I would be disappointed in sticking with at all. =)
I agree with Patrick, buying cars is expensive, not just because of the capital or monthly payment, but because of the taxes and fees.
With regard negotiating with dealers. I’ve not done this with a new car but I have plenty of experience with used cars.
Here is my approach.
1. Know what the car is worth to you and how much you are willing to pay. Do your research using a site like Autotrader to search nationwide for prices. Know how much dealers are selling for in a 200 mile radius, not because you are willing to travel, but because this is bargaining chip number 1.
2. Once you have this price in mind begin the negotiations below this price. Once you start going up to meet in the middle, there is no going back down again.
3. The last few steps of the negotiation, usually the last $500 that a sales guy is desperate to avoid coming down, use other incentives. On used cars I usually include a longer warranty. if there is refusal ask why they are unwilling to stand by their product. Include things like car mats, winter mats, new windscreen wiper blades, full tank of petrol, treatments for rust prevention on the underside. Each of these is a bargaining point that the sales guy and you can leverage.
Finally, know that you have to be prepared to walk away. You can always come back to that dealer, they don’t know where you are going next.
I’ve settled on the final price for every US bought car as I have been walking out of the door. Remember you owe them nothing and you’re there to get the most for the least. Be firm but polite.
Congrats on the new vehicle. We got the 11 malibu near the end of 2010. My only regret was not getting the 2010 model (roughly same price). The 10 has a couple of features not available in the 11. I haven’t looked at the 12s, but sounds like you did your research!
We actually found someone to trade vehicles with. We have a 2007 Camry and wanted a Ridgeline, they had a Ridgeline and wanted a car because of their commute. They agreed to do a straight trade to avoid dealing with a dealer. We get a truck thats worth several thousand more than our car and they get the fuel efficiency without the hassle of buying and selling or going to a dealer.
Congratulations! I always buy Honda. I always ask for the “drive-out” price. This gives me peace of mind as I don’t want salesman to give me any surprises at the end of the deal. And, even if I trade, I never tell them about my intention until I first negotiate on the car deal.
You have a very nice blog.
There is always the option of leasing and then buying the car at the end of the contract. The automakers allocate a certain amount of the cost of a car to advertising but with leases they often consider the lease as the advertising and reduce the car price appropriately.
That’s not the ending I expected! I’ve never bought anything other than a Toyota, Honda, or Nissan. I’m not sure I would buy a car I didn’t like and didn’t fit my lifestyle just because it was cheap. From what I see on the Malibu, it gets poor reviews, gets 22mpg city, and is above average for insurance cost. I understand wanting to use your cc rebate, but I’m not sure that’s a good reason to buy a car. I hope it works out for you. Like you say, maybe you can trade it later and come out ahead.
Woah, hold up a bit, Natalie! Do I smell some Japanese-automaker-loving vitriol? I think I do!
Like vs. Love: I didn’t say I didn’t like the car. I said I wasn’t “in love with it”. I like it quite a bit, actually. I admitted it would not be my #1 choice if price weren’t a factor, but I would not buy a car I didn’t at least like a little bit. Besides, to buy a car because you are in love with it can lead to bad things.
Reviews: it was named Consumers Digest “Best Buy” three years in a row from 2009-2011 and has very strong safety ratings. Reviews I’ve seen were positive.
MPG: 22 city sucks, I will concede this. Most of our miles are hwy though, and 33 is pretty good for a mid-size car, so this was not a deal killer. There are much smaller entry level vehicles that only get 35 hwy.
Insurance Costs: I spec’d this out vs. other cars and I did not find insurance costs to be higher than average.
CC rebate: That alone did not lead to me buying the car. It was the combination of an additional $3,500 in rebates, when no other cars had more than $500. ‘Wanting to use cc rebates’ seems trivial in nature, but when you look at a total $5,500 in rebates, that’s a huge chuck of cash.
I’m sorry if I offended you. Your story didn’t make it sound like you cared for the car, except for the cost. I’m glad to hear you at least like the car.
I checked Consumer reports and Edmund’s true cost to own for info on the Malibu and based my statements on what I saw there. I’m sure you’ve done more research.
When I shop for a car I look for four primary things:
2) Gas mileage
4) Total cost to own
For some reason this always seems to lead me to imports. I’d be happy to buy American if they had want I wanted. I sometimes wish I could have some of the fun colors and well appointed interiors I see on American made cars, but they seem to lack in the areas I value most.