On Cars Part II – Acceptable Price of a Car

Cars 3Please see my earlier post: Cars I – On Not Getting Fleeced

Here’s several ideas that may help you pay the right amount for your car.

1.       Cars are not investments.  Unlike houses, cars only lose value over time.[1]  Cars are big consumer goods that depreciate quickly in value.

2.       As a result, all money you put into your car evaporates over time.  The more you pay for your car, the more money you’ve vaporized with consumption.

3.       Paying more for a car at the lot does not make it more likely that you’ll avoid dings, scratches, accidents, depreciation, or food spills.  In fact the monetary damage you inevitably suffer as a result of these events will be that much higher, based on your higher starting price.

4.       Used cars are offered at a lower price than comparable new cars.

5.       Buying a new car means you’ve got one day to enjoy your higher value consumer good.  After that one day, you own a used car.  The value of that car the next day, should you choose to sell, is significantly lower than it was when you bought it, yesterday.

6.       Paying cash, rather than purchasing with a car loan, is not available to everyone, and it does not necessarily guarantee a better deal at the car dealership.

7.       What paying cash does do, however, is make you a more disciplined buyer.  If you have only a certain amount you’re willing to spend, and it comes immediately out of your bank account, you’re less likely to be fleeced in all the various ways the dealerships will try to fleece you.



On accessories, know that some car dealerships like to channel the Pentagon’s pricing scheme for paper clips, hammers, and toilets when it comes to car accessories.  Accessories are a major profit center for some car dealerships.

“Those little floorboard carpets there?  Hoo-boy, those will probably run you an extra $1,200.” 

“Oh, you actually want windshield wipers?  Well, that’s only available in the Deluxe model, which we sell for an addition $6,800 above the base model.  Not everybody requires windshield wipers, as you know.”

Obviously the cure for this type of bullshit is the Interwebs, which – when consulted in advance – clear up exactly what is ‘Base Model’ and what is ‘Deluxe.’

The weird and amazingly annoying thing is how often – in the present day – power windows, air conditioning, and a car stereo qualify for extra costs above base model.  Any car company who still considers these ‘Deluxe’ accessories should be publically shamed.  That’s my new rule.

Cash Back

If you’re walking away from a car dealership with extra money ‘cash back’ following your car purchase, you’re doing it wrong.  Just trust me.  This is not a good deal for you.

Zero money down, Zero % financing, Zero payments for 6 months

Same idea here as cash back.  File this one under the category: There’s no free lunch. 

So, you’re definitely overpaying for this thing you bought with zero, zero, zero conditions.

And yeah, I’m talking about a company like Mitsubishi, which had the zero, zero, zero offer a few years ago.  Any business which offers you a costly consumer good like a car[2] on credit terms like this knows, in their heart of hearts, they are fleecing you on the price.  Anyone who bought a Mitsubishi under those terms offered a few years back probably overpaid by about 30% for that product.[3]

Now, if you never intended to pay for the car and just wanted to take temporary advantage of an overly generous car offer, then you’re a clever cheater and Mitsubishi’s offer was just a nice way for you to cheat the system. 

But if you’re a bona-fide car buyer who bought a Mitsubishi under those conditions: I’m sorry but you paid too much for the car.

Please see my earlier post: Cars I – On Not Getting Fleeced

[1] I’m not referring to collectibles, smart-ass.  I am aware of that exception to my rule, which is irrelevant to this rule about car-buying.

[2] Or, even more typically, but on a smaller scale, home furniture.

[3] Of course I’m making this 30% number up. But I do have experience with the time value of money. Zero, zero, zero deals depend on customers, who have no idea about the time value of money, not noticing that the only way this makes sense is if the selling company WAY overcharges for their product.

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On Car Buying, Part I – Not Getting Fleeced

CarsI’ve been thinking lately about what we buy when we buy a car, and how to make the best personal financial choices when car buying.

Can you buy your personality at the car dealership?

From birth, until now, you have been taught that your car is your personality.

Are you Ford Tough?  GM Patriotic?  Audi Sporty?  Toyota Dependable?  Volvo Safe?  Mercedes Classy?  Lexus Svelte?  BMW Quick?  Volkswagon Quirky?  Hyundai Cost-conscious?[1] Without hardly trying, I can conjure a car to match each of those adjectives as quickly as I can type the words.

I am here to tell you the shocking news that your car is not your personality, and that instead your car is a transportation tool for moving your physical self from one location to another, via paved roads.

The more you purchase your personality at the car dealership, the more you will pay for something you don’t need, which puts you further from your financial goals.

On minimizing merciless fleecing at the car dealership

Many of us associate purchasing a car not only with purchasing our personality via a 2-ton consumer transportation device, but also with financial trickery.  The latter association is well earned – the ‘used-car salesman’ stereotype is no accident.

To minimize personal fleecing, the best thing you can do is limit the number of transactions you engage in with your car dealership.

When you walk on to the car dealer lot you may think you’re buying a car.

Frequently you’re simultaneously buying a car, trading in your old car, negotiating a loan, settling on an affordable monthly payment, picking automobile accessories, and discussing dealer warranties and services.

You do these transactions once every 5 or 10 or 15 years, whereas your counterpart from the dealership does this multiple times a day.  The information and skill disadvantage between you and the car salesman is extraordinary.  Each simultaneous transaction presents a fleecing opportunity.

My advice: Try to do only one thing at a time.

If you need a car loan, try, try, try, to get this loan lined up ahead of time, ideally from your local bank or credit union. 

If all goes well, you begin your car shopping at the dealership with a known price limit, interest rate, and monthly payment amount.  If, at the end of your car purchase the dealer can do better than your bank, so be it.  But you can at least leave all of that loan negotiation until the end, separated from price.

If you need to trade in your old car, you may find it most efficient and convenient to drop off and pick up a car in the same place, so I can’t frown too much on the practice, for non-financial reasons.  On the other hand, just know that the introduction of another ‘moving part’ to the transaction allows for another opportunity for your friendly car salesman to dip into your wallet.

Car loans – Your mortal weakness

The most effective way to fleece a car buyer is to focus his attention on the car loan monthly payment, and away from the price of the car or the interest rate on the loan.

“How much can you afford per month?” asks your friendly car salesman, who has thereby tilted your head back to better expose your throbbing jugular to his surprisingly pointy canines.

If you got your loan approval ahead of time at your bank, monthly payment is an irrelevant question that you can ignore.  

Ideally, you reviewed a maximum purchase amount, bank loan interest rate, and resultant monthly payment at the bank, away from the charged and scary atmosphere of a car dealership.

Even if you need the car dealer’s loan you should still ignore the monthly payment question while inside the dealership.  Focus first, instead, on the overall price of the car.  After that is firmly set, you can move your focus to the interest rate of the loan, which reflects the cost of money.

At the risk of stating the obvious, if you got the best price possible on the car itself and the interest rate is acceptable, then the monthly payment will be fine. 

Or it won’t.  But it will be the best you can get.  You should know your acceptable car price and interest rate – based on your income, and your credit rating and the local cost of money – before walking onto the dealer lot.

Please also see upcoming post Car Buying II – Thinking About Your Car’s Price

[1] I could go on with the less desirable traits earned by car brands: Are you Peugeot Undependable?  Jaguar Pretentious? Fiat Promiscuous?  Dodge Plastic?  KIA impoverished?  Mitsubishi Sub-Prime?

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