HOW TO SURVIVE THE NEW CAR BUYING PROCESS

“I thought boxes were the best toy. When my parents got a new car, I ran to my mother and said, ‘Did it come in a box?'”

–Colin Angle

After 18 years, it was time. So we bought a new car.

Somehow, we survived the process.

This post is about what we did correctly and incorrectly and how you can learn from both our triumphs and mistakes.

Moreover, I will describe several good approaches to buying a vehicle and keeping your finances intact.

OUR JOURNEY

I remember when we first drove our old car from the lot. But then, it was a very different time.

George W. Bush was president. A young Tom Brady had let the New England Patriots to their second consecutive Super Bowl. And Hurricane Katrina destroyed much of the Gulf Coast and New Orleans.

More to the point, car safety features then were primitive. Most cars had only one set of airbags. Radios had CD players and no visual displays with navigation systems. Backup cameras were rare and an oddity.

Cars were reasonably safe, but nothing like today. So, now, being older, we needed to find a safer car with modern features.

Here are the steps we followed to purchase a new vehicle.

FIRST, FIGURE OUT WHAT YOU WANT

Our needs are different than many others. Yours will differ depending on your finances, whether you have kids, drive a lot, etc. Here are our concerns in priority:

• Safety
• Reliability
• Size—we have tended to buy small reliable cars. However, we may eventually drop down to owning a single vehicle. All that argued for a larger car than we usually buy, one that can haul things. Larger but efficient.
• Inexpensive operating costs–for insurance, repairs, gas/electricity.
• Flexibility—we intend to take a cross-country road trip at some point. This issue tends to work against buying an electric vehicle since the electric charging grid has not been built out in much of the country, especially in some areas off the beaten path.
• Indulgence—this might be the last car we own, so we are a bit less inclined to skimp this time around.

SECOND, DEVELOP A GAME PLAN WITH YOUR BUDGET

Most people have financial constraints. They can only spend so much on their car or transportation expenses. And keeping car costs low helps other parts of the household budget, like housing, food, healthcare, and savings.

Here are some strategies that can help balance your overall needs with those of your need for transportation.

• Use the 10% rule—this author has advocated that you spend only 10% of a net yearly family income on a car purchase. That is excellent advice if you can do it. Unfortunately, the shortage of good used cars and their historically high prices make this very hard to accomplish if you also want to purchase a vehicle with low mileage. Still, it is an excellent idea and a worthy goal.
• Purchase a three-year-old used car—this has also been a good strategy as it balances the discounted depreciated car cost and utility. Three-year-old vehicles can often be used for an additional ten years or more, which is good value. Again, right now, people are not discounting used car values as much as they used to. Hopefully, as the supply chain constraints ease, new car supply will help decrease used car costs.
• Buy new reliable, inexpensive cars outright on sale, maintain them religiously, and run the wheels off them. That has been our approach—how else do you end up with an 18-year-old single-owner car? If you have positive arbitrage when looking at dealer financing, you can consider financing a car, too, instead of buying it, if it will save money. At this writing, there was no such opportunity on cars we wanted. Good financing was available on a few gas-only vehicles (not hybrids).

THIRD, UNDERSTAND THE CONTEXT

Cars are expensive AND a poor investment. In this old post, I note that while costs like owning a house and eating healthy food can be considered investments, owning a car is not. It is a pure cost. And if you buy an expensive car, it can ruin your budget.

Once on the lot, you will be tempted to buy the most elegant or flashy car. However, it is essential to remember that a higher-priced vehicle is often the enemy of financial independence.

FOURTH: DO YOUR RESEARCH ABOUT MODELS

Before buying, you must know what kind of mileage, safety, reliability, convenience, and operating costs will be. Each model is different. One place you can look is here. There are many other sources. And no, I have received no money from providers from these links. I don’t make money from this site; it is a service to readers.

FIFTH: GET READY FOR THE ELECTRIC CAR CURVE BALL

Electric cars are only about five percent of the cars that are sold at present. But that will change. In states like California, purchasing a gas vehicle by 2035 will not be possible.

That leaves buyers in a bind. In a few years, gas-powered cars will be functionally obsolete. But will electric cars be a better deal?

Maybe.

If you are interested in cross-country trips, the pace of charging station build-out is a concern. However, it is not an issue if you strictly use your vehicle around town.

And electric cars remain extremely expensive, even when you factor in Federal rebates. While manufacturing cost improvements are coming, the holy grail of electric vehicles is to make a car for under $30,000. Considering that the average American family only made $70,781 in 2021, that is still a stretch for most families–even if manufacturers make the goal.

And if you buy an electric car now, will it be as functionally obsolete as gas cars in five years?

No one knows for sure. But the pace of battery technology and several other advances make it probable. We are still in the beginning stages of a technological revolution where the vehicle you purchase is outdated when you take it off the lot.

Moreover, there is no guarantee that electric cars might not be supplanted by hydrogen power or fuel cell technology.

That means that consumers face several complex and unclear choices. First, you must decide if an electric car is for you.

You may be ready to try less polluting technology. For example, while hybrid gas cars significantly improve over conventional gas engines, it is still a polluting technology. But, it is better and worth it if you value the environment.

SIXTH: THINK AGAIN ABOUT YOUR PURCHASE PLANS

Ok, now that you have done the first pass, hopefully, you have narrowed your approach to new car purchases.

Here are a few options to think about:

• Buy an efficient gas model. Just know that when you go to sell it, a gas car may have little value upon resale considering the shift to electric vehicles. Do your own analysis to see if this option is worth it. Also, some of these models currently come with attractive financing but not hybrids (so far).
• Purchase a three-year-old used car—this alternative is a little cheaper but may still be worth your consideration. There are savings to be had, but the costs are still significant. See here.
• Use a lease—You rent the car but do not own it. In this case, you may be able to offset the cost of an electric car lease with the value of the Federal tax credit.
• Purchase outright—what we opted for. Of course, when you own a car for 18 years, you have a long time to save for a new one. But again, this kind of decision is not for everyone, considering that the technology of our new car is outdated (it is a hybrid) and that outright purchase is not possible for many people.

SEVENTH, GET READY FOR STICKER SHOCK

If you can afford a new car, congratulations. You are in an elite company. The average new vehicle costs $48,008—a staggering amount of money.

But you may be in for another surprise. When you do your analysis, it is usually based on the manufacturer’s suggested retail price (MSRP). However, some dealers add a surcharge for hot models. But it does not end there. It turns out that it is not optional to leave off some equipment.

No, I am not talking about tax, license, dealer markups, etc. I mean, the MSRP, So you are required to pay extra for floormats, etc., and they are NOT in the MSRP. But you pay extra for them.

So, we had to pay for first aid kits, trunk trays, and mud flaps, whether needed or not.

The non-option option.

MSRP is not what it used to be.

The only price that matters is what you spend “out the door”—the cost to drive off the car lot, including tax, license, and dealer prep.

EIGHTH: DO THE TEST DRIVE AND ASSESS THE AVAILABILITY

You should test drive any vehicle before buying it. Be sure to drive several competing models.

But don’t be surprised if a popular vehicle is unavailable. Popular hybrids, plug-in hybrids, and electric versions are often in short supply.

As I said before, sometimes popular vehicles have dealer markups too.

NINTH—KNOW THE ENEMY OF RATIONALITY IS YOU

Vehicles are part of our public persona. So buying the car with the most features and the biggest protection plan is the easiest thing in the world.

Let’s face it; it makes you feel good to drive in a sexy new car. The neighbors are jealous. Your co-workers are impressed. But if the dealer is ecstatic because you drove the most expensive car off the lot and cannot afford it, you don’t want their approval.

To avoid that, here are a few items you may wish to consider:

• Take a pause: stepping back can make you more rational about what you want to buy.
• Use a car-buying service—negotiating is tough when you are emotional. So, once you know what you want, you may want someone else to do it. For instance, our credit union has a service. In addition, you can often compare costs from different dealers online through other services.

SOME CONCLUSIONS–AT THESE PRICES, THE TRANSITION TO ELECTRIC VEHICLES WILL TAKE A WHILE

New cars are expensive. That is why the average age of vehicles on the road is an astronomical 12 ½ years.

And, while everyone I know wants a non-polluting future, I think it will take a while. We are all inclined to step up to better technology, but you must be able to afford it.

At these prices, it could be a long slog. However, I want to be able to purchase an electric car soon and hope that the technology and competition will bring prices down.

Disclaimer: consult with a financial fiduciary before taking any steps outlined here. Not all advice may be suitable for your circumstances or investment style.

Image: Velito

License: Unsplash