What is Dealer Holdback?
on Jan 30 in New Cars tagged car buying tips, New Cars by Jason
Holdback is money that an auto manufacturer pays a dealership to stock their inventory.
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You’re probably wondering why a dealership needs to be paid to stock inventory. After all, if the dealer wants to sell cars, don’t they need cars on the lot? Why do they need to be paid for that?
The answer is that most dealerships need to borrow money to put cars on their lots. Think about it this way: if a dealership has 200 cars, and the cars cost an average of about $25,000 each, that’s $5 million in inventory. Dealerships, like most other businesses, don’t have that kind of cash flow, so they need to borrow the money to pay for every car on the lot.
Of course, when you’re borrowing $5 million you’ll have some pretty expensive interest payments. These interest payments are known as “floorplan.” This floorplan can add up to an awful lot of money very fast. Depending upon the interest rate, it can cost anywhere from $3 to $20 per day per vehicle in inventory. It doesn’t take long to do the math to figure out how expensive it is to stock inventory. Because of this expense, many dealers decide not to stock a lot of vehicles.
Thirty or forty years ago, manufacturers, eager to sell as many cars as possible, decided that it made sense to pay dealers some “floorplan assistance” so that they would be able to stock more cars. Today, dealers receive 2-3% of the price of every vehicle back from the manufacturer when they sell the car. That money is supposed to be used to offset inventory costs.
For many dealers, holdback is a necessary part of their income. However, you’ll also find dealers with such high turnaround that holdback is a type of profit for them – they actually make money on the interest subsidy because they’re able to sell all their inventory very quickly. Having said that, it’s very difficult to expect a dealer to share any of their profit from holdback with you. Most dealers are already operating with a pretty thin profit margin, and they feel like the holdback money belongs to them. Besides, most customers don’t know about holdback or ask for it.
If you’re trying to get the best deal, follow our standard car negotiating advice, and also remember to go online and get multiple quotes. If there’s a vehicle the dealer really wants to sell and you’re interested in it, you might be able to convince them to sell it for less than invoice. Even if they don’t make a profit, they’ll still have their holdback money, and you would have gotten the vehicle at a bargain price.
New Car Buying Tips: How Much Should a New Car Cost?
on Jan 30 in New Cars tagged negotiation tips, New Cars by Jason
How much should a new car cost? While there’s no single answer to this question, dealers should be able to sell you a new car for 1-2% over the invoice price and still make a fair and acceptable profit.
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There are quite a few websites you can visit to find out what the invoice price of a car should be. Our personal favorite here at AccurateAutoAdvice.com is Edmunds.com, but you can also find out invoice price on Cars.com, KBB.com, Yahoo! Autos, and believe it or not, a lot of the manufacturers are starting to put this information on their websites too.
Once you have the invoice price in your hand, request a few quotes from different places before you approach a dealer. You never know, you might hit upon a special offer when you do that and end up with a price that’s even less than invoice. Try Edmunds, and at least three other places, to make sure you don’t miss anything.
What happens when a dealer doesn’t want to sell you a car for 1-2% over invoice? Sometimes when a new vehicle is in high demand, it’s almost impossible to get a discount. If you’re not willing to pay full price, then your best strategy is to wait for demand to die down.
There are times when a dealership refuses to budge on price because of “principle.” They don’t want to discount their car because it’s a luxury vehicle, because they say it’s scarce, or because they know they’re the only dealer in the area with that particular car.
When a dealer refuses to budge on price, there are a few things you can try:
- Get back online, but widen your search to different states and metropolitan areas. For instance, you might be able to go to a different city or state and save a couple thousand dollars. If you’re saving that much money, it would make sense to fly or drive there to pick up your car. The really cool part is that a lot of big dealers in large cities are willing to deliver the car to you, even if you’re out of state.
- Buy on the last day of the month. Dealers always have quotas that they have to meet, or contests that they’re taking part in, or they have incentives to sell a certain amount of cars, etc. These all stop at the end of the month, and if selling you a car will help the dealer meet their sales goal, they might stretch quite a bit to get your business.
- Try calling the dealership in the middle of a storm. Dealers are expected to sell a certain amount of cars every day, regardless of the weather. If you make them an offer in the middle of a storm, you might be pleasantly surprised. The only catch is, you have to be willing to go to the dealership during the storm to pick up your new car!
As always, take your time when buying a new car. Do your new car research, get multiple new car financing quotes, and feel free to contact us with your questions.
Special Ordering a New Car: What You Should Know
on Jan 24 in New Cars tagged deciding what to buy, New Cars by Jason
Special ordering a new car is supposed to mean that you get exactly what you want, usually within a couple of months. Unfortunately, it’s not that simple. Here’s what you should know…
Most automakers don’t accept orders on new vehicles between two and three months before the end of the production year. Generally speaking (depending upon model and manufacturer) you can’t order anything between the months of April and August because production years tend to end in the last few months of summer.
With some manufacturers there’s no point in doing a special order. A lot of companies make cars overseas, and because these cars have to travel across the ocean, there’s more than just the standard two-month to complete the special order — there’s also the two-month shipping time. Because of the amount of time it takes, overseas manufactures don’t really like to do special orders. If it’s even possible to order a car, it’s often strongly discouraged.
When you’re thinking about special ordering a new car, keep in mind that some automakers only allow you to buy cars within certain option groups. If you’re looking at getting one or two options from the package, special ordering might be a waste of time. Toyota is famous for making customers buy option groups, and so is Honda – for example, a lot of times they won’t sell you a sunroof unless you buy the “sunroof package.”
Special ordering a car doesn’t always make the most sense. If there’s a special feature or package that you absolutely have to have, than by all means do a special order. But when you order a specific feature or package, try not to order something too out of the ordinary because it will affect your resale value. If your car is too unique, you may not be able to find a buyer when you’re ready to sell. People tend to buy vehicles that are similar to the other automobiles on the road, so don’t order a car that’s so different no one will want it.
The last thing to think about before you order a new vehicle is that you might be able to get a better deal buying off the lot. You may have to compromise on the color, or features, or both, but if you buy off the lot you’re always going to get a good deal. In fact, buying off the lot is almost always the best deal, the reason being that new car dealers have to pay interest on every car that’s on the lot – every day that a new car sits on a lot, it costs money. Therefore, dealers try to sell the cars they have quickly so they don’t end up paying a lot of finance charges for inventory.
In other words, new car dealers are more interested in selling the inventory they have on the lot right now than the inventory they’re going to get in two months.
As always, take your time when buying a new car. Do your new car research, get multiple new car financing quotes, and feel free to contact us with your questions.
New Car Warranty Basics
on Jan 19 in Warranties tagged New Cars, Warranties by Jason
New cars come with three kinds of warranties:
- Bumper to bumper. Covers defects on almost everything on the car, usually for at least three years or 36,000 miles.
- Power-train coverage. Simply put, a power train warranty covers everything that makes the car “go”. While some manufacturers only warranty their power train for three years or 36,000 miles, most are now covering their power trains five years or 60,000 miles. These are often included on certified used cars as well.
- Federally mandated warranties. Certain parts of the emission system, as well as the airbags and safety belts in the car.
Here’s what is covered under these warranties:
Imperfections and Damage (but only when brand new) – If your brand new vehicle has a rip in the seat, a tear in the head liner, if a piece of fabric is discolored, or if a body panel is improperly painted and doesn’t look right, these are all covered under the warranty. However, there is a caveat – you must get these things noticed and documented before you take delivery of your new car. Before you leave the dealership with your new car, inspect it very carefully so you can catch all these things. If you bring the car back to the dealership after a few days with a torn seat or a scratch, the dealer may not warranty these problems.
Adjustments – If there’s something on the car that isn’t quite right, or that isn’t done to your satisfaction, that’s usually considered an “adjustment”. These things may not affect the functionality of the car. For example, let’s say the front grill sticks out a little on the left side, or maybe the radio doesn’t seem perfectly centered in the dash. These things are covered under warranty, but usually only for the first year or the first 12,000 miles.
Defects – Anything that doesn’t work the way it’s supposed to is covered under warranty.
What’s not covered?
Damage – Damage isn’t covered under warranty – that’s what your car insurance is for.
Wear and Tear – Damage or problems that result from normal wear and tear are not covered. For instance, if the knob on your radio falls off, if a door handle breaks, or if there’s an interior piece that wears out or that gets scuffed, they may not be covered under your factory warranty.
As always, take your time when buying a new car. Do your new car research, get multiple new car financing quotes, and feel free to contact us with your questions.
Should You Buy a New Car?
on Jan 15 in Buying, New Cars tagged deciding what to buy, New Cars by Jason
You’re thinking about buying a car, but you’re not sure if you should buy new or used. First of all, if you’re not sure of what type of car you need or how much money you have to spend, make sure you look at our advice on figuring out what you need in a car and figuring out a car budget. Once you’ve figured out your budget and the features that you want, you can then determine if a new car makes the most sense for you.
Generally speaking, there are FOUR reasons to buy a new instead of used:
1) You plan on keeping whatever you buy for more than five years. If you keep a new car for five or more years the long-term costs work out to be less than buying an average used car and doing the same. Even better, for every year you keep a new car past five, the ownership costs get lower and lower. Keep a new car for 10 years, drive it until the wheels fall off, and you’ll save a fortune.
2) You require a special feature. If you have a special purpose or need (like towing a big RV or trailer, hybrid engine, etc.) a new vehicle is often times the best or only way to go.
3) You’re “picky.” You want a specific color or feature; you don’t want anything with scratches, dents, or a funny smell; you need the sunroof AND the manual transmission, etc. Since you’re paying good money for a car, you should try and get what you want…but if you’re really particular about features, condition, etc., don’t bother looking at used. You’re probably not going to be happy with anything that you find and you might waste a lot of time.
4) There’s a tax benefit for buying new. A lot of people who are self-employed will actually save money buying a new car because it’s a tax write-off. We can’t speak for what is or isn’t a tax write-off for your specific situation so the best thing to do is call your accountant and find out. However, new cars tend to make more sense for people that have their own business.
In summary, there’s also a lot to be said about buying a used car, but new cars have their benefits too. If you’re leaning towards buying a used car, here are some questions you should ask yourself before buying a used car. But if you find yourself identifying with one of the four reasons we’ve given then you should feel good about buying a new car.
As always, take your time when buying a new car. Do your new car research, get multiple new car financing quotes, and feel free to contact us with your questions.
Should I Take The Rebate Or The Interest Rate?
on Jan 15 in Financing, New Cars tagged Financing, New Cars by Jason
When shopping for a new car, a lot of times the question comes up: Should I take the big rebate, or should I take the special interest rate that’s being offered? The rebate is popular for sure – when you look at new car ads, you usually see the rebate advertised. In fact, manufacturers and dealerships like to advertise rebates because it makes their car seem less expensive than competing models. However, for about 75% of us, the special interest rate makes more financial sense than the rebate.
Here’s what you need to know:
1) Special interest rates make sense for most consumers. Most people will save more money in interest charges than they could ever hope to save using a rebate. This is especially true of anyone with less-than-perfect credit. Special rates are usually offered by the manufacturer’s special financing arm which is more forgiving than a regular bank.
If you’re not sure about the rebate or interest rate, find out for yourself and use our payment comparison tool. You can compare the rebate to the financing side-by-side and find out what makes more sense in about 30 seconds!
2) Sometimes the rebates that are advertised are not available to all consumers. Believe it or not, it’s completely legal for a dealer or manufacturer to advertise a rebate that almost no customer will qualify for. Take a look at the fine print in the advertising and make sure you don’t need to be a student, a military veteran, or the owner of a previous model of that brand of car etc. to get the advertised rebate.
Finally, because it’s common for automakers to offer rebates for special groups (like AAA members, people who own competing vehicles, etc), call the auto manufacturer’s customer service line and find out what rebates you qualify for. Unfortunately, dealerships are not very good at figuring out who qualifies for these rebates so you can’t rely on the dealer to find out for you.
As always, take your time when buying a new or used car. Do your new car research, get multiple new car financing quotes, and feel free to contact us with your questions.
When Is The Best Time to Buy a New Car?
on Jan 07 in New Cars tagged car buying tips, New Cars by Jason
Just like fruits and vegetables, there are good times of year to buy a new car, and there are bad times. The car-selling season officially begins in March, and it runs through mid to late October, but that doesn’t necessarily mean that those are the best times to buy.
For instance, if you’re looking to lease a vehicle, the best time to do that is March thru May. That’s because late in the first quarter and early in the second you’ll get good residual values, good rebates from the manufacturers, and good lease rates. In fact, you may even be able to get a good lease deal as early as January. However, once the second quarter ends in June, good lease opportunities tend to go away, and leasing becomes a lot more expensive as the manufacturers shift their focus away from leasing to purchasing.
The best time of year to purchase a new car (with either cash or financing) is August or September. Our advice here is to buy the current model (not next year’s), the reason being that manufacturers and dealers offer their best incentives at the end of the model year. The only problem with waiting until the end of the model year is that you may not get what you want: inventory levels are usually depleted by the end of September. If you’re trying to get the right car at the right price, it may make more sense to start shopping at the end of July (especially if the car you want is kind of rare or special).
Of course, you can wait until October or November and get a really fantastic deal, but because inventories have been picked through by then you may not find exactly what you want. In our experience, it’s better to get a car you like than to get a good deal because you’re more likely to trade-in a car you dislike earlier than you should. If you’re looking for a specific color, feature, etc., it’s best not to wait too long. But if those things don’t matter to you, the end of the year is a good time to almost steal a new vehicle.
One thing we come across all the time that we think is really bad advice (and is among the reasons we started this website), is that many people will tell you that buying a new car at the end of the model year is a bad idea. They’ll tell you that you’re basically getting last year’s model, and even though you’re getting a discount, the resale value is going to be lower.
However, none of those reasons should matter – you really shouldn’t be buying a new car if you’re worried about resale value, especially over the next two or three years. New cars are for people who intend to keep their vehicle for a very long time (5 years +). If you’re only going to keep the car you buy for only a couple of years, either lease or buy used – you’ll save a lot of money.
During major holiday weekends manufacturers spend a lot of time and money on marketing and incentives – think about buying during the July 4th, Labor Day and Memorial Day weekend sales. Dealers are aggressive and incentives are good.
As always, take your time when buying a new car. Do your new car research, get multiple new car financing quotes, and feel free to contact us with your questions.
How To Pick The Best New Car To Buy
on Dec 16 in New Cars tagged deciding what to buy, New Cars by Jason
The task of choosing from the more than 900 models of vehicles available on the auto market can be overwhelming. If you follow these five steps, you’ll find the process much easier.
1) Decide on the type of vehicle you want, whether it’s a truck, an SUV, a coupe, 2-door, 4-door, car with automatic transmission, car with manual transmission, etc. We have a post all about figuring out what kind of car you need, and you can go through this to help you decide on what type of car meets your requirements.
2) Make a list of the models that suit your needs. There are a lot of websites that will help you with this, but our personal favorite is Edmunds.com. They will give you a list of all the vehicles that meet the requirements you specify.
3) Start narrowing down your choices even further by crossing out any vehicles that don’t meet your budget or that aren’t reliable. We’ve got a car payment budget calculation tool, and we also have some great car budgeting advice for you to read. Also, with new cars, it’s important to ignore special financing and rebate offers when you make your purchase decision, since most similarly priced models will have similar incentives.
4) Test Drive. Now that you have a list of cars that meet both your needs and your budget, and that are reasonably reliable, here’s the fun step: test-driving. Look at the vehicles, sit in them, drive them, and make sure you get a feel for them. Try to get a sense of whether you like the vehicle or not. Too many people fall in love with vehicles they’ve never driven, and the minute they sit in them and actually drive them, they don’t like them anymore.
5) Pick Your Top 3. After you’ve driven all the models on your list, you will know which three you like the best. The last step is to do more research: take the top three for another test drive and compare them to each other, and pick a winner from there. If you get through your list and you’ve test driven everything on it and you still haven’t found anything that you like, it’s probably because you’ve missed a feature that you want, or maybe you’re even looking at the wrong type of car. You’ll need to go back from step 1 and re-evaluate what you want and need.
As always, take your time when buying a new car. Do your new car research, get multiple new car financing quotes, and feel free to contact us with your questions.
