The People News, a free newspaper serving Cleveland Tennessee (TN) and Bradley County Tennessee (Tn).

Of Bradley County Tn.

JULY  2003

                            The People News, a free newspaper serving Cleveland and Bradley County Tn.







If you have bad credit, don't waste your time reading my article this month.  If you have excellent credit or cash to purchase your next car with, hopefully I can give you some valuable insight.

First of all, most any financial expert will tell you not to buy a new car.  There are a few exceptions, but in most cases, it is best to buy a low mileage, 2 - 3 year old car, with a good service history.  It is a proven fact most cars lose 25-40% of their original new car price within 2-3 years, then the depreciation rate goes at a slower rate, so someone else takes the big hit instead of you. 

In the Wednesday, June 18th Chattanooga Times Free Press, I chose three used car ads for example.  The first was a 2001 Honda Accord EX, 4 cyl, loaded, with 42,000 miles with an asking price of $17,000.  Keep in mind Honda's have a history of higher than normal resale value.  According to the NADA new car price guide, a 2003 Honda Accord EX sells for $23,000.  Even taking the higher resale value into account, the 2001 is 25% less than the same model 2 yrs newer. 

Hyundai's don't have near as good of a resale value as Honda, but a 2003

by Joe Kirkpatrick

Hyundai Elantra GLS sells for $14,225.  In the same newspaper as the Honda, a 200 Hyundai Elantra GLS with only 14,000 miles is advertised for $9995, a whopping 30% less than the same car one year newer. 

A 2001 Ford Taurus SE with 39,000 miles in the same newspaper is advertised for $10,900, while a brand new similar 2003 model is listed for $21,200 in the current NADA guide - or 48% higher than the two year old model with low mileage - that's almost ½ price at two years old!

If you still want that new car, let's look at the best way to get the best deal possible on one.  First and most importantly, shop for your financing before you ever shop for a car.  Meet with your banker or credit union representative and get a firm commitment on an interest rate and term length of the loan.  If your home is paid for and you are well disciplined in handling your finances, I recommend getting a home equity line of credit.  At the present time, up to $100,000 is available at 4.25% (it does fluctuate with prime however).  With a home equity line of credit, you get a checkbook and can simply write a check up to your available credit limit without getting additional approval.  You can also deduct a portion of your interest off of your income taxes, which you cannot do with the interest on an auto loan.  By having prearranged financing, you have a great bargaining advantage at a dealership, and we will talk about how a little later.

Before going car shopping, do your homework!  At NADA.COM, you can get both new and used prices at no charge, and can look at depreciation rates for different models.  You can also read Consumer Reports for the service reliability and customer satisfaction for different models as well.  It is best to sell your old car and not trade it in - a trade in value is almost always taken off of the list price of the new car, not off of the lowest cash price the car is available for. 

For instance, let's say you're looking at car with a list price of $25,000.  Your seven-year-old Honda is in really good shape and has an NADA retail value of $6000. The dealer is probably going to offer to trade with you for $21,000.  Well, you could probably sell your good used Accord for $5000, and the dealer would probably sell the new car at a discounted cash price of $23250 without a trade in.  Bottom line is, if you took their trade deal, you just sold your Accord to them for $2250!

Okay, we've got our financing and are ready to go.  It's Saturday morning, the sun is shining, a great day to go car shopping.  WRONG!  Dealerships also have good sales on sunny Saturdays - you want to go shop on a rainy Tuesday.  Remember, as you enter the parking lot of the dealership, you are no different than a high school football team coming onto the home playing field of a NFL championship team.  The salesperson you are going to deal with is a seasoned, well trained professional in sales.  99.999% of their customers have had no formal training in purchasing.  Always keep foremost in mind, no matter how likable and helpful  the salesperson is, they are there for one reason:  to take as much money out of your pocket as humanly possible! 

You find the make and model you want, and a sales person approaches you.  After the introductions, you want to take about a 10 minute test drive before you go any further.  If they take you on a test drive in a demonstrator rather than the exact car you want, later on if you decide to buy, insist on a test drive in the exact car you are buying.  When you get back from the test drive with the salesperson, if you are still interested, tell the salesman you would like to make an offer on the car. DO NOT EVER SAY, "what can you let me have this one for?"  If you do, you just threw the first interception pass of the game. 

Usually, when you say you want to make an offer, the salesperson  will want you to fill out a form and put your offer into writing, so he can "take it to their manager."  Don't be intimidated by this - you are about to make your biggest play of the game!  Take the sticker price (the actual  MSRP from the car company, not the one with "freight, prep, etc.), and deduct 20%.  Unless it is a desperate year end sale or a model that is really a dog, there's no way they are going to accept it.  What this does do, however, is they now have to bargain up from your price, not you bargaining them down from their price. 

The preliminaries are now over, and the game is going full swing.  How long you want to play is up to you.  The salesman will go from you to their manager, and perhaps the manager will come out and take over.  Also, letting them finance it for you is going to come up.  They don't do financing to help you out - they make money from it.  This is where having a home equity line of credit strengthens your position even more - when financing is mentioned, you say, "No thanks - if we can make the deal, I'm going to write you a check for the full amount." 

If you do not get the price you feel comfortable with, LEAVE!  There's always another day and another car.  In fact, if you do leave, the game may just have gone into overtime.  As you leave, always say, "we may be back, but we want to go down and take a look at XXXX dealership before we buy.  You have left the salesperson with one final thought - "before we buy" tells them you ARE going to buy, and their chance of getting into your pocket diminishes greatly if you leave and go elsewhere.  If the sales person says "Wait - let me talk to my manager one more time," that means you are really close to a deal, and maybe can work it out.  If they let you go, do go to other dealerships and look around; the ball is still in your court - you didn't spend more than you went in  intending to. 

About 90% of the time when you walk out, within 2 - 3 days you can expect a phone call from the salesperson  inviting you back in to "see if we cannot work something out."  Many times, this means you were not as close as you needed to be before, but they are ready to make some more concessions. 

One of the most humorous incidents I remember is when a friend of mine was bargaining on a new Toyota truck at Capital Toyota in Chattanooga.  The deal came to an impasse, and he told the salesman he was going to Toyota of Cleveland to see what they would offer.  He came to Toyota of Cleveland, got the deal he couldn't get at Capital, and was in the process of finalizing the paperwork when he heard his name being paged over the loud speaker in the showroom.  When he answered the phone, the salesman from Capital had called and had him paged, and frantically told him "we CAN do that deal like you wanted!"  My friend said when he told him he was in the process of closing the deal there, he thought the salesman from Capital was going to break down and cry.

How about a lease?  Most people are scared to death of them!  Before my first lease, I was skeptical also.  First off, let me say if you put more than 10,000 - 12,000 miles per year on a car, a lease is not for you.  However, if you fall into the aforementioned category, a lease can be very beneficial.  In 1997, I leased an Infinity QX4 for three years.  The list price was around $42,500.  I had to pay $2600 up front, which included the first and last months payment, and other general BS they trump up.  This means I paid 34 more payments of $399 ($13566) plus my initial payment ($2600) for a total of $16166.  At the end of my lease, I had the option of purchasing the car for $22,000.  Now, add that (22,000) plus what I had paid ($16166) and that comes to $38,166 about the same total price as if I had gotten my best cash deal.  At the end of the lease, I wanted something different, and I didn't have to worry about selling or trading, and my monthly payment for those 36 months was much less per month if I had purchased in the beginning.  Also, when you buy a car, you pay the sales tax on the whole amount up front.  With a lease, you only pay the amount for the payment each month, in my case, over a $1000 savings on the sales tax total by leasing instead of buying.

Last but not least, if you are buying a used car instead of new, get a CARFAX at, or if buying from a reputable dealer, have them furnish one for you.  A CARFAX gives you a comprehensive report on the car, including any prior wreck damage, theft, flood, or title problems.  Spending $15 for a CARFAX might save you $1500 to $15,000 on down the road!