Jill Merriam Key Hyundai Blog

Car Buying Secrets: Tip #2 Know What you Want to Pay for a New Car

May 10, 2010

I think you should know what you want to pay for a car before you walk into a car dealership.  But, I am saying that for completely different reasons than most people would say it.  I’m not saying it because I’m afraid you’ll get ripped off if you don’t.  I’m saying it so that you feel comfortable walking into a dealership. 

I am going to address this topic over two posts.  This first post is going to talk about new car pricing.

The reality is that with all the information available on line now, the likelihood that a customer gets ripped off is much greater buying a pair of shoes in the mall than a car from a dealership.  I have a shoe buying story that makes my point clear.  I wanted to buy my four year old a pair of these new sparkly Skeechers.  I went into one store and they were $45.  I almost bit the bullet, but they didn’t have her size.  So, I went to another store and they were $28.  That’s a 38% difference!  Now, I know we are talking about a much bigger dollar amount with a car, but I wanted to exaggerate my point.

That being said, let’s explore the information that is available out there.  To be honest, most of it is incredibly confusing to me and makes the process more difficult rather than less difficult.  I recently went on Consumer Reports and paid $12.95 to buy a “how to buy a Hyundai Sonata” report.  I honestly didn’t completely follow the whole thing.  So, how is a consumer going to be able to follow it?  I know Consumer Reports is a reputable consumer advocate but the reality is, at $12.95 for an emailed report, they are making a big margin off of you.  In fact, I have an affinity for Consumer Reports because they are a CT based company and they buy some of their Hyundais from Key Hyundai.  So, I’m really not dissing them.

So, how should you know what to pay on a new car?  As a new car dealer, we make money in three ways.  The first is the difference between invoice and MSRP.  The MSRP is the price listed on the sticker on the car.  The invoice is the price that we buy the car from the factory.  This price includes a fee for advertising and a fee for transportation that we have to pay.  These are hard costs to us and we can’t negotiate them with the factory.  So, when you see a consumer website that says, “refuse to pay the advertising and refuse to pay the transportation,” that is just bad information.  Those are hard costs to us just like the cost of the tires or the cost of the door panels.  The average mark up in a Hyundai is about $750 througout the entire product line.

The second way we make money is called holdback.  Holdback came about years ago when the factory didn’t think car dealers were good at managing money.  So, they “heldback” the car dealer’s profits and paid them out at the end of the month.  Our holdback averages about $500 a car.

Finally, the factory pays us out incentive money for hitting various sales levels.  This money is at the discretion of the factory and can vary from month to month.

If I had a friend that was buying a new Sonata out of state and asked me how to negotiate the best price, I would tell them to go to the dealer with a price that is comfortable to them and fair to the dealer.  To me, that price is $500 off of MSRP.  At that price, you certainly wouldn’t be getting ripped off (frankly, you wouldn’t be at MSRP either given all the value in a Hyundai) and you won’t have to do a ton of back and forth with the sales person/sales manager.

In fact, I would be super leary of a dealership that quoted a rock bottom price.  The reality is, all dealerships need to make the money up somewhere.  We’ve already discussed how they can “take you” if you don’t know your credit and Secret #3 is going to be about your trade).   New car dealerships operate at an overall margin of 1.5% so there is not much room to give up profit and still stay in business. 

I don’t know about you, but my time is more valuable than spending 2-3 weekends negotiating an extra $200 or even an extra $500 off the price of a car.  It is amazing to me that people will do that but think nothing of dropping $100 on a meal that they thought was mediocre or spend $200 at Kohls on things that they don’t get that much use out of.

Seriously, before you set out to buy a car, think about what you are trying to accomplish.  Are you trying to buy the car that you love and that fits in your budget or are you trying to negotiate a rock bottom price?  When I set out to make a major purchase, I know I’m thinking about getting what I want at a fair price, and I know there’s a hook when the price is the lowest.  At the end of the day, if you chose a dealership that is reputable and do your research, the buying process should be fun and stress free.  

If you ever need individualized advice, please feel free to email me directly at jillcares@keycars.com  

I am Jill Merriam, owner of Key Hyundai of Manchester CT and Key Hyundai of Milford CT and the dealer for the people.

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