Save Money on a New Car in 4 Simple Steps - A Definitive Guide

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Since arriving here in 1992, I bought a grand total of 5 cars:

  • In 1992, a used Ford Taurus; donated in 2000 when it no longer made sense to repair it
  • In 1996, a new Dodge Grand Caravan; sold when that made sense
  • In 2000, a new Honda Civic; sold to CarMax in 2013
  • In 2010, a new Toyota Camry; will likely keep for a bit
  • In 2011, a new Toyota Venza; will likely keep for a bit longer

What I Learned from the Cars I Bought

Each time I bought a car, I learned something new.

  • From the first car, I learned that it’s much better to buy new and drive for at least 10 years. That’s why I bought each of my other cars new.
  • From that first car and the second, I learned the importance of buying reliable cars. Both the Taurus and the Grand Caravan spent far too much time in repair shops. Since then, I’ve purchased only Hondas and Toyotas. For those of you who would chastise me that I should buy American, Honda currently holds 3 of the top 5 spots in’s most American-made cars, and lists both Honda and Toyota on its list of American car brands.
  • From the third purchase I learned that I don’t enjoy driving an under-powered car.
  • From the fourth purchase I learned the critical importance of a good credit score, when my auto loan annual interest rate was 0%. That was the APR for my fifth car’s loan too.
  • From the fifth purchase I learned the importance of good gas mileage – the Venza gets less than 21 mpg – ouch!

The 4 Steps for Saving Money and Paying Below Invoice

Except for buying a home, a new car or truck is likely the largest single purchase you’ll make. If you don’t do your homework, expect to overpay by thousands of dollars. Most dealerships are honest, but they’re in business to make a profit. If they can sell you a car above invoice, they’ll be happy to make the higher profit.

Here’s your step-by-step guide to avoiding being taken to the cleaners.

Step 1: Choose the Right Car (at the Right Time)

As mentioned above, I’m a great believer in buying reliable cars new and driving them for at least 10 years. To choose the right car for you, research the reliability of cars that fit your needs. Start by making a list of criteria important for you, such as:

  • Class of vehicle (e.g. midsize sedan, crossover, pickup, sportster, etc.)
  • Engine size
  • Options (e.g. stability control, air-conditioning, towing capability, keyless entry, etc.)
  • Specs (power, turning radius, interior space, trunk volume, etc.)
  • Fuel efficiency
  • Price range
  • Estimated 5-year cost of ownership 
  • Reliability scores (e.g. from Consumer Reports)

Once you compile your criteria, identify your top 3-5 choices.

Then, visit local dealerships and test-drive each candidate model. Be upfront that you’re in the market and expect to buy within the next couple of weeks, but you’re still narrowing the list of cars you’re considering.

Say what other models you’re considering and ask the sales rep to point out the advantages of the one you’re there to test-drive (but don’t gush over anything).

Immediately after the test drive, take notes about what you liked and what you didn’t like about it.

No matter what the dealer says, don’t start negotiating. You haven’t done your homework and don’t want to give away anything yet.

Once you’ve test-driven all the models you’re considering, choose your two favorites. Even if you like one far better, having an alternative will improve your frame of mind when it’s time to negotiate.

Note that if there’s a waiting list to buy one of these cars, you can expect to pay a premium price for it. To save money, choose a different car or wait until that one isn’t as hot.

If last year’s model is very similar to this year’s, consider buying the older model (still new). You may not get all the options and colors you want, and may have to accept some options you don’t care to pay for. However, flexibility here will help the dealer give you a better deal on a car he wants off his lot asap (e.g., an unpopular color car makes no difference to your car’s comfort, convenience, or performance, but may net you a better deal).

Step 2: Collect New Car Quotes – Not Just from Dealerships

When there’s no competition, sellers tend to increase prices. That’s why you must get competing quotes on a car. If there’s only one dealer in town who sells the model you’re looking for, cast a wider net and look at dealerships in nearby towns, counties, or even across state lines.

Find several dealerships in your area for each of your target models. Request an email quote from each dealership for each car, specifying the trim level, options, colors, etc. Quotes should come within a day or so. If a dealership refuses to provide a firm quote, move on to the next. Try to collect at least 5 quotes for each car.

While waiting, request free quotes for both models, again, with the trim, options, colors, etc. from the many free services available to you. Here’s a non-exhaustive list of 9 possible sources (though note that this is not an endorsement of any of these, nor a recommendation that you buy a car through them):

Finally, visit the AAA website and request quotes there as well. If you’re not a current member, becoming one now could be the best $57 you’ve spent in a long time. The 10% AAA hotel discount is nice, but where AAA really shines is, surprisingly, in pre-negotiating car pricing for members. When I bought my 2010 Camry, I saved $1500 over the lowest competing quote, paying nearly $1000 below dealer’s invoice.

Compare all the quotes you get back from dealerships, car pricing services, and AAA and pick out the lowest 3 for each car. Decide which of the two car models you’ve researched you’d prefer at the current best quote and go to Step 3 to start negotiating.

Step 3: The Only Negotiation Tactic You Need

If you’re like most of us, you’re not a trained negotiator. Getting the best of a dealer who negotiates dozens of deals monthly is just not going to happen.

What you can do is show the dealer that you’ve done your homework so you get the best deal you can expect. The dealership won’t take a loss on the sale, but neither will they gouge you.

To get your best deal, contact the sources of your second- and third-best quotes for the car you prefer. Tell them you have in hand a better quote, and you’re contacting them as a courtesy prior to making a deal with the lowest bidder.

Ask if the quote they already gave you is the best they can do, or if they can “sharpen their pencil” a bit. Perhaps they forgot to throw in a customer incentive, maybe they really want to close another deal before the end of the month, or possibly they just have a few too many copies of your dream car on their lot.

They may decline, in which case you’d buy from the dealership that offered the best deal. However, these second- and third-best quoters might sweeten their offer.

While some would suggest you tell these higher bidders what the lowest quote was, I’d counsel against it for both ethical and practical reasons.

If asked, tell them you consider it unethical, and you’re sure they’d not want you sharing their quotes with the competition. This will probably get you the best offer possible given their situation, which is all you can reasonably ask for.

Step 4: Avoid Losing your Hard-Won Gains

After negotiating the best price, don’t give up your gains by accepting a low-ball trade-in offer, an overly-expensive interest rate on your financing, or a high-priced extended warranty.

In general, you should be able to get a better price selling to a private party than trading in your old car. If you want to avoid the hassle, at least get a free offer from Carmax before trading in where you’re buying, so you know if their offer is reasonable.

Having an approved loan from a financial institution (e.g. found through BankRate) will let you know what interest you qualify for, so you can evaluate the dealership financing offer. If you’re a member (or can become a member) of a credit union, look at their auto loan rates, which are often more competitive than what a bank would offer.

Even if the dealership offers you 0% APR, check if they can give you a further rebate instead that would lower your loan amount. Then, compare the monthly payments for the same term between their 0% offer at the original price and the bank’s (or credit union’s) low-interest loan for the lower amount.

If the specific sales rep you’re negotiating with doesn’t seem to be working with you in good faith, just leave and come back another day. Most likely you’ll meet another rep whose turn it is to talk with the next customer coming through the door. With the large number of reps in each dealership it’s not likely you’ll be stuck with the same one.

This is also where getting an online quote can help. The rep you work with will likely be the Internet or fleet sales rep who gets rewarded as much or more on volume than per-sale profit, making him (almost) your partner in a successful deal.

The Bottom Line – What’s in a (Car) Price?

Every new vehicle sold in the US has a detailed printout describing the vehicle, its specs, options, fuel efficiency, etc. At the top of that printout, in large bold numerals, is the so-called MSRP, or Manufacturer Suggested Retail Price. This is the price the car manufacturer (i.e. Ford, Honda, Audi, etc.) would be thrilled if you paid for the car (that’s why they’re suggesting it). There’s little or no relation between the MSRP and what an informed buyer will pay for the car.

Next is the Dealer’s Invoice price, which is nominally what the dealer pays for the vehicle. Why nominally? US auto pricing is byzantine, and there’s really no way to know what a dealer really pays for a vehicle unless you’re working in their accounting department, and possibly not even then. Dealer’s invoice excludes such things as dealer holdbacks, dealer incentives, etc. that carmakers give dealers outside the public’s view.

This brings us to the dealer’s cost, which is what the dealer really paid, accounting for everything. Short of a great deal of trouble, and potentially breaking the law, you’ll never learn this cost. Some services offer to sell you this information, but it seems far-fetched that anyone who knows it would continue to have access to such information once they’re caught selling it to the public. Nonetheless, some free services mentioned above do manage occasionally to provide partial information about dealer holdbacks, incentives, etc. If you can get this information, mention it in price negotiations and you may get some of those incentives taken off the price you’re quoted.

Finally, there’s your negotiated price, which following the advice above should be somewhere between dealer’s invoice and dealer’s cost. The dealer has expenses, such as rent or mortgage on the dealership, marketing, salaries, etc., plus he’s in business to make a profit. The point of this article is not to bankrupt dealerships, but to help you limit them to a reasonable profit.

If you want to see how financial strategy can help you in both your personal and business finances, email me and we'll set up a free, no-strings-attached phone call.


This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.
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Comments (3)

  • R
    • 2020-05-25 21:42:33

    Step 5 Check with companies where you shop or are a "member". For instance, COSTCO has a car buying service that aligns you with a specific dealer of the brand you've chosen. This service may give you additional discounts beyond what you've achieved from the first four steps. Or it may not but its another possibility.

  • A
    • 2022-03-01 17:26:50

    Could we please talk today? My phone number is 404 406-4650 I am looking to buy a car today, March 1. Thank you.

    • O
      Opher  in reply to Andrea Steinman
      • 2022-03-01 17:48:58

      Hi Andrea. If you're buying a car today, I don't think there's much I can help you with beyond your hopefully having followed the advice in my article. One critical change that's happened since I wrote it has to do with pricing, and specifically MSRP. Before the current pandemic-related supply-chain problems reduced the availability of cars, MSRP was never a good starting point for the buyer. Now, if you can get a new car at MSRP, you're probably getting the best deal you can hope for. In fact, most dealers tack on anywhere from $500 to $10,000 *over* MSRP. My experience with that, having recently purchased a new Camry, is that your best bet is to (do everything in the article that hasn't been upended due to Covid, and then) buy from a dealer with whom you or your family have history. I bought my new car from the same dealer where I bought our previous two, and where two of my kids bought their cars. It's also where I go to have our cars serviced. As a result, the sales manager agreed to charge me at MSRP without tacking on the $5000 they normally add these days, and didn't charge for features I did not order. When I did the math later, it turned out I paid *less* for this newer better Camry than I did for the 2010 Camry I had before, after accounting for inflatiom. Good luck!

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