A friend of mine alerted me to a radio article by NPR about how some new cars are cheaper than used cars.  I’m always up for a good debate, so let’s have some fun and debunk the claim that “Some New Vehicles Selling For Less Than Used Ones.”

Claim #1: “Some new cars are actually cheaper than used…”

• Truth Meter: Low
• Comment: This is true only under certain conditions. As a used car buyer, you CAN always pay more than a new car but you would only do this if you got tricked into paying too much!
• Reality: Used cars are still much cheaper than new cars. The idea that new car prices are plummeting and therefore making used cars relatively more expensive makes little sense. Car pricing is partly based on the price of similar alternatives. Therefore, if new cars prices come down, used car prices follow suit.

Claim #2: “Honda Civic Hybrid” is an example of a car where the new car is cheaper.

• Truth Meter: Even Lower
• Comment: A new Honda Civic Hybrid will cost you about $21,000 plus tax, title, and license. This is more than $3,000 less than the suggested retail price. However, I just used Carsala to do a price check, and I can buy a 2007 or 2008 for $17K (19% cheaper). Even better, I found the following ad on AutoTrader. It’s a Certified Pre-owned (CPO) car and the asking price is $1,000 less than the new car price. CPO means the warranty will be extended by one year and 12,000 miles so it has the same warranty as a new car.

Claim #3: Used cars are getting more expensive because if you’re “not producing as many new cars, then you’re not producing as many used cars.”

• Truth Meter: Very Shaky Grounds
• Comment: The statement if taken entirely literally is true. However, the used cars you want to buy now are two years old (see here for why), and the current decrease in car production will have minimal effect on the used car market. How many people are in the market to specifically buy a used car that is only three months old? Hogwash.

Claim #4: To buy a new car you will have to do some “serious research”, “shop well for financing rates”, and shop for “deals in your area.”

• Truth Meter: Finally something true!
• Comment: Buying a new car is a colossal pain. For me, it ranks with getting ALL my teeth pulled – without a painkiller. Read my past post about The Top 10 Things a Dealer Absolutely Won’t Tell You in case you need to be reminded about what car dealers will do and say to make as much money as possible from you.
• Reality: Buying a used car is much easier. With Carsala, all you need to do is (1) choose the car, model year, features and colors that you prefer, then (2) let Carsala find your cars and negotiate a price of up to 25% off Blue Book, then (3) inspect and drive the car in person, with the option of buying at the Carsala price. It doesn’t get much easier than this…

Selling a car can feel like a major drag, but it’s actually simple and straight forward if you have a good process.  If you’re short on time, finish each step individually until you’re fully prepared.

Research the Market

• Expectations about how quickly or slowly your car will sell can be mitigated by doing some online research and will help to lower any potential frustration. Look at Craig’s List and online marketplaces such as AutoTrader.com to see how many cars of your type are for sale. A lot of cars will mean that you need to be flexible in price and a few cars will mean you are in the power position when it comes to negotiating.

Price Appropriately

• Since you are a private seller and not a dealer, don’t expect to sell your car for as much as a dealer. Dealers offer things such as extended warranties that have extra value to buyers. When you are completing your market research, note the prices of similar cars. Next, price your car at a comparable price to other similar cars (not lower!). Find your car’s Blue Book value and figure out how much of a discount you are offering off of Blue Book, if any. This is an important number to buyers.

Clean Your Car – Please!

• A clean car is a sign of car and well keeping. You can usually get your car cleaned really well for less than $30 – and it is worth every penny. If your car’s paint is looking a little flat, also consider paying to have your car waxed by hand. Waxing usually costs around $50-$75. The money you spend on cleaning your car will easily be recovered by either the price you get for your car or how quickly you are able to sell you car.

Take A Million Photos

• Buyers HATE going to see a car and then find there is unexpected damage. Take a lot of photos and email them to your perspective buyers so they aren’t surprised when they arrive. Here’s a quick list of important photos. Exterior: all four corners, bumpers, all four wheels, tire tread (if possible), hood, doors, fenders, roof, front grill, license plate (with current registration sticker). Interior: driver’s seat, passenger seat, back seats, odometer, vehicle identification number (VIN), dashboard controls, transmission stick, floor mats, inside trunk, spare tire.

Advertise

• Picking your advertising place and creating the advertisement may be one of the hardest parts of selling a car. Look at other listings to see how those advertisement are communicating the cars features in a succinct but clear manner. Remember to think about the buyer’s perspective as your creating the advertisement. For example, people shopping on Craig’s List are looking for a hidden gem from a private party. Making your advertisement look like a dealer’s advertisement may actually scare some people away.

Get the Records In Order

• Just like a clean car, having all your car’s record together and organized is a sign to the buyer that you organized and took good care of your car. Part of the records should also be the pink slip in case you find a willing buyer!

Be Ready to Negotiate

• Everybody has their price. For a seller, I define this price as the price where if the buyer offers you $1 less, you will feel good about walking away after they leave. Don’t let your emotions get in the way during negotiations. Know your price before hand and stick to it.

Have the Motor Vehicle Department Paperwork

• How bad would it be to have a willing buyer, and lose the sale because you don’t have the right paperwork ready? Call your local Motor Vehicle Department or check online to get al the right paperwork to transfer your car to a new buyer during a sale.

Cancel Your Insurance

• Once your car is gone, there’s no need to spend $2-$6 per day on insurance. Cancel your insurance and stop spending money on a car you don’t even own.

I bought a Honda Civic about nine months ago and it’s great.  However, I have to admit that I really wanted a hybrid car but there weren’t enough used hybrids for sale to get a good discount at the time.  In fact, many used hybrid cars were selling for more than their original purchase price!  Times have changed, and currently used hybrids are much more affordable – at least temporarily.

Gas is at about half of it’s all time high.  However, most Americans intuitively believe that gas prices are going to rise again.  When the economy emerges from its turtle shell and the U.S. stimulus package starts funding new growth and jobs, gas prices are bound to rise – thereby increasing the demand and prices for hybrids.  For now we can bask in the glow of low hybrid car prices.  To prove the low price point, I put together a table today (Feb. 9, 2009), using Carsala’s price quoting tool, for two of three most popular hybrid cars.  Don’t believe the results?  You can and should check the discounts for yourself on Carsala’s web site.

The “Discount Off Blue Book” column was generated by using Carsala’s price quoting tool and for cars in the model years 2006-2008 with no more than 30,000 miles.  The “Estimated Price” column was generated by applying the discount to cars with only 25,000 miles.  Can you believe the average price for a 2007 Honda Civic Hybrid with only 25,000 miles is $16,100?  Remember, these prices are for cars that should be in excellent condition, still have warranties, and have been inspected by a professional.

It’s possible that the Toyota Prius and the Honda Civic Hybrid aren’t right for you.  There are a lot of options to choose from – some better than others.  Here’s a partial list in alphabetical order.  Not all of these cars will be available in the used car market if they are new to the car market or are made in limited quantities.

• Chevrolet Tahoe Hybrid
• Ford Escape Hybrid
• Lexus RX 400h
• Honda Accord Hybrid
• Nissan Altima Hybrid
• Mercury Mariner Hybrid
• Saturn Aura Hybrid
• Saturn Vue Hybrid
• Toyota Camry Hybrid
• Toyota Highlander Hybrid

So if you’re looking to buy a hybrid, now’s a great time.  Looks like I may be getting a hybrid after all…

When I watched this video of $15 million worth of exotic cars totally smashed up (hopefully all the drivers are ok), I kept thinking that I would be really bummed if I was the owner that had to walk into a dealer and buy the same car again.  What would it mean if the owners (or should I say previous owners?) of these cars bought them using Carsala? If you’re unfamiliar with Carsala, it’s a used car buying service that finds the used car you are looking for, negotiates with dealers for you, and saves you 25% off of Blue Book (on average).  The owners could buy a two year old version of the same car, use Carsala, and save $2.25 million!  That’s savings to hang your hat on.  Here’s the very, very, sad video of many beautiful cars that have seen better days.

In case you’re wondering, here’s how I calculated $2.25 million in savings.  The video featured $15 million worth of exotic cars.  Used cars tend to be only worth 60% of their new value after only 2 years.  Carsala saves used cars buyers 25% off of Blue Book on average.  So….  $15M x 60% x 25% = $2.25 million.  As an end note, Carsala doesn’t actually deal with truly exotic used cars, but it sure did work when I bought a 2007 Honda Civic!

Just determining which car you want to buy is hard enough.  Unfortunately, buying the car is even harder. You may remember from my first post, I have purchased seven cars and they came from auctions, dealers, and private parties.  I also love cars (and great deals on cars) so I thought it would interesting to share my most recent and thorough car buying process.

What I Won’t Do. Buying from car dealers and private parties can be excruciatingly painful and time consuming.  I once drove two hours to a dealer only to have the dealer tell me, “Oh sorry, I quoted the truck with the four cylinder engine instead of six cylinders.”  I also had a dealer try to sneak through a $200 increase in price because they thought I wouldn’t check ALL the numbers in the final paperwork.  Private parties are equally problematic because people sell cars so infrequently that they don’t care about anything other than selling the car.  My goal in buying this most recent car was to find a way to get a great deal on a car and avoid all the frustration with negotiations and “misunderstandings.”  Knowing that I wasn’t going to drive from dealer to dealer, web sites like AutoTrader.com proved to be not very helpful, other than for checking out different car choices in general.

Your salvage care before it's "fixed"

eBay. I buy a lot of stuff on eBay; books, kid’s toys, clothes, and much much more.  I have had people ask me if I work for eBay.  When I started looking for my last car, I thought eBay would be the perfect way to get a car at a good deal.  I started by watching, tracking, and recording sales of cars that were interesting to me.  Here’s what I discovered.

• There are a lot of cars on eBay
• Many people try to sell cars with salvage titles
• There are a lot of buyers relative to good cars without salvage titles
• Shipping a car is risky and even eBay’s recommended shippers aren’t reliable

The end result is that good cars don’t sell at a discount because there are too many people bidding on the good cars.  Also realize that if you need to spend $1000 shipping a car, that’s a huge financial advantage for somebody that is local to the car and can drive across town to pick it up.  Strike one.

Craigslist . Surprisingly, Craigslist is very similar to eBay except you usually find cars within a couple hundred miles instead of a few thousand miles.  A lot of items are mis-listed and mis-categorized so you either need to be good at using advanced (and poorly documented) search commands or have a lot of free time.  Third party Craigslist search businesses still yield very poor search results.

There is an abundance of high mileage and salvaged cars on Craigslist, probably because dealers typically won’t buy these cars for more than about half of Blue Book – if at all.  Dealers like cars that are low mileage, accident free, and in excellent condition.  If you find a good car, there will be a lot of other interested buyers so you’re not going to find sellers that are flexible in price.

Finally, while eBay has some policies to protect buyers, Craigslist has none.  In 2001, I almost bought a used Porsche from a guy in Texas until I actually found a mechanic at a Porsche dealer that knew the owner (and the car wasn’t in Texas!).  Strike two.

Local Newspaper Listings. Once upon a time, using newspaper classifieds was the best way to sell your car.  With free online classified listings such as Craigslist, newspapers are now advertising for dealers.  What you’ll mostly find are newer high priced (relative to Blue Book) cars.  Maybe the people that put ads in the newspapers believe that if you are actually using the newspaper to find a car, you might just be naive enough to buy one at an inflated price.  Strike three.

Here Comes Carsala. Without any luck from eBay, Craigslist, or Newspapers, I decided to try Carsala.   I liked the idea of not having to negotiate with dealers and getting about 25% off of Blue Book (wow!). Here’s what I did:

• Filled out Carsala’s form with details about the car I want to buy and when I could pick it up
• Waited for Carsala to call me with a quote in writing
• Went to the dealer, test drove the car, and then bought it!

I really don’t want this to seem like an advertisement, but it’s almost comic how easy it was.  The trickiest part was actually filling out the form.  You have to think about what you do and don’t want in a car.  For example, I really didn’t want aftermarket wheels or window tinting.  And don’t forget the seemingly obvious stuff such as a car with four doors, not two (Carsala actually pointed this out to me).  My wife and I decided on the car together, so it was interesting to document our car choice.  I thought my wife was determined to get a car without many options when in reality she decided she wanted every option possible.

If you can’t tell by this point, the clear winner for me was Carsala.  I’m about to buy a second car with Carsala but this time it’s for my mother-in-law.  In case you’re wondering what car I ended up buying, you can watch a video of me and the car here.  Please feel free to share your own car buying stories!

What does buying a car, house, dishwasher, television, and insurance policy have in common?

Give up?

Commissions…

There is a very good chance that the salesperson who sold you one of these things made a commission from the sale. Commissions are commonly a small percentage of the total sale or a larger percentage of what you pay over the sellers’ cost of the item.

The bottom line is that when you pay more, the salesperson makes more money.

Now I want to describe how Carsala makes their commission. I can’t find anything on the internet like Carsala, so I am going to call it a “reverse commission” and have high hopes that Webster picks up the term some day. In a reverse commission, Carsala makes a better commission when you spend less. If you’re confused like 95% of my friends when I say this, then keep reading.

Start by thinking about how a typical car salesperson makes money. Imagine that you bought a car for $20,000. If the dealer bought the car for $18,000, then the salesperson just made a $2,000 commission from the sale ($20,000-$18,000). If you spend $21,000, then the salesperson made $3,000. When you spend more, the salesperson makes more money. There are even more ways car salespeople make money from you, but that’s for a future blog.

With a reverse commission, Carsala takes a percentage of the savings you get off Blue Book. In Scenario 1 below, the Blue Book is $20,000 and Carsala has negotiated a price of $16,000. The commission is $600 (15% of $4,000). In Scenario 2, the Blue Book is still $20,000 but the negotiated price is $14,000. The commission is $900 (15% of $6,000), which is greater than $600 because Carsala saved you more money. Consider this: it is in Carsala’s best interests to help you save more money because when you save, Carsala’s commission is better. Lucky for us that Carsala’s actual performance as a result of analyzing car listings and using their negotiation tactics results in savings that are closer to Scenario 2!

For fun, let’s imagine what would happen if other industries used reverse commissions.

• Realtors might spend a lot more time finding hidden gem houses instead of asking to you to bid up a house price to make sure you have the winning bid.
• Insurance sales people would really try to only sell you the policy you need instead of a policy loaded with a bunch of features you will never use.
• That television salesperson might convince you to buy a 20 inch TV instead of a 60 inch TV so you will stop watching four hours of TV each day.

What a different world we would live in!