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Mike McInerney’s Car Buying Bible

There have been a ton of articles written about buying a car. This one is not like any other you may have read. This article is a unique perspective from someone with years of experience working in and around the car dealership business. While other authors may have similar backgrounds, none have taken steps to radically change the way consumers buy cars. The inverse is also true; no one who has tried to change the way people buy cars has actually sold them. So, in this article, you will see how the car buying process is currently set up, and you will also read about modern alternatives that will make car buying better.

First Considerations

So, you think it’s time for a new ride, but there is a lot to consider before it becomes a fixture in your driveway. For each of us, the decision-making process is different. There is not a right or wrong or common, just different. Depending on our financial situation, age, vehicle needs, credit rating, mood, time of year, physical location, or use of vehicle, we all have different criteria we use to make the best choice for ourselves. Regardless of these intangible issues that we all face, there are some things that need to be determined first in the consideration process; Should I buy a new or used vehicle? Should I buy it with cash, finance it or lease it? Should I get one now or wait to see if the price improves? Or should I do nothing and keep driving what I have or rely on alternative transportation for now?

Buying a car entirely online

Throughout this car-buying journey, I will interject my professional input regarding what I believe is the optimal solution to the traditional process. Today’s technology is good enough to give car buyers information and, therefore, control. Never before has this been feasible because of two primary factors; manufacturers and dealers distorting transparency.

Manufacturers have created insanely complicated combinations of models, trim levels, and equipment packages. Along with rebate configurations that only a rocket scientist could translate, manufacturers are a huge part of the car buying transparency conundrum.

Dealers, on the other hand, are locked in an extremely competitive industry. They are small business people, entrepreneurs, who have a lot of capital at risk and need to keep the metal moving (sell cars at high volume and high profit) in order to satisfy the manufacturer’s demands and the bottom line. Customers are hard and expensive to acquire. According to the NADA (National Automobile Dealer’s Association) the average customer acquisition cost in 2017 was $640. This translates to the absolute necessity for dealers to get customers in the door, sell them aggressively and make as much money on each customer as possible.

Technology is the great equalizer. Only with technology can the complication described above, become normalized and understandable to the public. Deliver My Ride, the online car-buying platform I developed, was developed to create clarity in this complex industry. At each step of the car-buying process, I will describe how Deliver My Ride’s site assists, improves or replaces the traditional car-buying process by bringing facilitating an entirely on-line experience.

Should I buy a new car versus a used car?

There are several factors to consider when choosing between a new and used vehicle. There are advantages and disadvantages to both.

New cars are less risky

New passenger vehicles, by law, can only be sold through franchised new car and truck dealers. These dealerships are regulated within the states they operate and by their manufacturers with whom they have sales agreements. This means that dealers are accountable to both the state and the manufacturer, giving you a significant level of confidence that you won’t be defrauded by illicit sales practices. In addition, new vehicles are untitled and fully warranted. Even vehicles with no miles logged on their odometers could have a Flood Title, for example, meaning they could have been involved in a flood without being physically damaged. Fully warrantied vehicles are covered for mechanical issues by the manufacturer, at no cost to you, for a designated time or mileage. A lengthy warranty provides peace of mind, knowing that if the new car has any defect, the dealer will fix it without question or charge.

Used cars are cheaper

Used cars can be sold peer to peer, through used car lots, or from online sites. While the pricing is lower, the risk can be higher. From whom you buy your car is as critical an issue as what car you buy. Buying a car from an unregulated seller like a friend or family member could result in major problems if the vehicle has undisclosed or unknown defects, mechanical or physical. Small claims court is rife with cases where the seller is accused of false advertising. And who really knows if the car primarily has highway miles or if the owner was a little old lady? And while used cars, aside from antiques or collector cars, are typically cheaper than new cars, they have limited warranties. Unless the used car has the balance of the new car warranty or a transferrable extended warranty, consider buying one if you go used. More on extended warranties later.

New cars offer more choices

New cars have a lot of duplicity. In larger metro areas, you can normally find identical vehicles [Year, Make, Model, Trim, Color, etc…] on several dealership lots. The Popular Equipment Group is a common phrase that manufacturers use to equip a vehicle’s trim level. Other common descriptors are Base Equipment and Fully Loaded. These two versions are vehicle categories aimed at a smaller target market. Dealers will order base units for their advertising strategy (more on that later) or loaded vehicles for special orders. But the bulk of new car inventory has popular, or most requested, equipment. Since cars with popular equipment sell at the highest rate, sales managers or those who order the vehicles in the dealership tend to order and re-order vehicles equipped this way. The same is true with popular colors. You won’t find a slew of yellow pickup trucks on a dealer’s lot because, you guessed it, black sells the best. The obvious benefit to duplicity is choice. If you have your heart set on a vehicle with popular equipment, you can likely find a new one in close proximity. And even if local dealers don’t have the exact one, they can check their locator system and trade with a dealer who has it.

Demonstrators (Demos) are new cars that have some miles on their odometer. Until a vehicle has been titled, it is technically still considered a new vehicle. Most demos are “retired” with fewer than 6000 miles on them. Dealers normally discount these vehicles a few hundred to a few thousand dollars. Demos are typically used by dealership personnel and their families as a perk of the business. Since they are not titled and have very low mileage, they remain eligible for new vehicle rebates.

Service Loaners can be the same as demos or they can be designated specifically for those customers whose vehicles are in the service department. Service loaners can be designated by the manufacturer as special warranty program vehicles. Dealers will order or assign new cars for this designation for a specific number of miles. After they are retired from service, they too can be sold as new and often receive incentives different than new cars receive. When shopping for new vehicles, you might ask the dealer if there are any demos or service loaners available for sale. If not, put your name in when one becomes available.

Used cars are already depreciated

Used cars, on the other hand, are not commodities. They all have different personalities and flavors. Do you have your heart set on a yellow Ford F-150 short bed with tan leather seats? That might be hard to find, and you’ll likely have to settle for what’s on the menu. With used cars, they might be cheaper, but your choices are limited. However, while new cars lose a significant percent of their value once they drive off the dealer’s lot, used cars are already depreciated so you won’t lose as much if you turned around and sold it.

Certified Pre-owned (CPO)-

The final thing to consider when choosing between a new car and a used is the real cost of ownership. While a new car might have a higher sticker price, consider the incentives it might have like rebates and low interest rates. A late model, new car might be priced to sell because the new ones are arriving or are already on the lot. New technology in terms of engine efficiency, even new tires, can lower the cost to operate a vehicle.

At the end of a model year, which seems to be arriving earlier and earlier every year, the manufacturer will have already taken orders for the new models. So, their pipeline is either full or needs to be for the factory to run at maximum profitability. Incentivizing dealers to sell through existing inventory is conditional and based on how many are left in each market. For example, the biggest dealer in town might still have a few hundred Chevy Silverado’s and doesn’t have room for the new model year. So, the manufacturer gives him $5000 per unit to get rid of them as fast as possible. The dealer can pass that money to the customer along with existing rebates and low interest for a fire sale. If you were deciding the real cost between a new and used pickup, this scenario could make that new truck a better deal.

As mentioned earlier, used cars have already been depreciated since they have been titled. A vehicle Title is a legal document indicating ownership. With is, a used car is likely to retain its value for a longer period. If you choose to sell a used car, assuming you purchased it at a fair price, it’s depreciation will have a flatter curve.

With the quality of vehicles today, and the consolidation of parts suppliers, most used cars built in the past 10 years have similar quality. The same can’t be said for vehicles built in the 70’s and 80’s when American manufacturers turned out some historically bad quality. So choosing a newer model used car should last a while as long as it is well maintained. Of course, purchasing an extended warranty when you buy your used car will mitigate unforeseen mechanical repairs. The cost of these insurance policies can be very expensive, however, but there are several warranty providers to shop from.

Deciding to buy new or used is a combination personal preference and affordability. The higher cost of a new car is mitigated by the fact that they are direct from the factory, warranty included. They qualify for lower interest rates, so the money is cheaper to borrow. And they likely have rebates and other incentives to make them more affordable. But used cars are already depreciate, so they are less expensive and will likely last longer than last generation’s used cars. Yet they may not have a warranty and buying them can be pricey. Lots to consider, so base your decision on the factors most relevant to you.

Should I buy or lease my next car?

What is the difference between leasing and financing a car?

The simpler explanation between financing and leasing is the former, so we will start there. Once you land on a car that you want to buy, the next step is to determine the best way to pay for it. Most of us don’t have enough cash handy to write a check out of their bank account, so we need to borrow money from a bank, credit union or personal line of credit. Even for those who do have enough cash available, financing options can be too good to pass up.

Every dealership has an F&I office. F&I stands for finance and insurance. An F&I office arranges vehicle financing and sells extended warranties, credit life and disability insurance on the loan. We will cover F&I later in this article. After purchasing your car, your salesperson will most likely introduce you to the F&I manager who will take a credit application, submit it to various lenders, and quote payments. The payments quoted will include the amount you will finance, plus the cost of borrowing money, or interest.

Interest on a vehicle loan can range from 0% up to 20% or more. The interest rate will increase based on a low credit score and/or high debt to income ratio. In most cases when buying a new vehicle, the manufacturer’s captive finance arm (Ford Motor Credit Company, Chrysler Financial, Toyota Motor Credit) will subsidize the interest rate. They do so to stimulate car sales. Originally, they were created as a sales tool and have become massive profit centers for the car companies. A subsidized interest rate normally carries conditions. For example, you can either take 0% interest or a $2000 rebate, but not both. When faced with this option, be sure to have the F&I manager show you all options because your objective is to pay the least amount for the vehicle over time. If you are financing a large amount over a long period, say $50,000 over 72 months, the 0% will likely be a better discount than the $2000 rebate.

Since most of us are payment shoppers, which means the payment is more important than the car we are buying, leasing should also be an option to explore. Why, because your monthly payment can be significantly lower on the same vehicle compared to finance payment. The primary difference between leasing vs buying is ownership. When you lease, the bank owns the title. When you finance, you hold the title even though the bank will have a lien stamped on the physical title until you pay off the loan.

There are lots of strange and complicated nuances associated with a lease, however. First, there is an amalgamation of factors that determine a lease payment that don’t exist with buying a car. When you buy; agree on a price, add dealer fees, state fees, and taxes then finance that amount. When you lease, there are money factors (interest), residual values, acquisition (bank) fees, disposition fees, mileage constraints, capitalized costs, conditional taxes and a bunch of other stuff (everything you want to know about a lease). It is important to be aware of all these charges when discussing a lease because many of the fees can be negotiated. Dealers, for example, can increase the interest in order to receive kick backs from the lender. But the bottom line is this, if you are a payment buyer, compare the payment options between leasing and financing. Besides being affordable, leasing is convenient in that you can hand the keys back to the dealer or lender after 2 or 3 years without the hassle of trading it or selling it in the future.

Another viable consideration besides buying or leasing a new or used vehicle is alternative modes of transportation. These range from traditional bus and train transit, rental cars, and bikes to modern ride sharing alternatives. Depending on your proximity to destinations visited and/or the availability of buses and trains in your area, non-ownership of personal transportation could be an excellent option. When considering the average annual cost of owning or leasing your own vehicle(including car insurance, gas, repairs, tolls and parking) hopping in an Uber several times a week might not be a bad way to go.

Finally, a major thing to consider before you make choice is when to pull the trigger. Timing is everything, as they say, and its relevant in the world of cars as well. Rebates come and go on a monthly basis, sometimes mid-month or the last week of a month. Manufacturers report their earning to Wall Street on a quarterly basis, so guess when rebates are really aggressive? Some say that the end of the month is a time that dealers push for every last sale meaning you could get a better deal then. You might even play the game of showing up an hour before closing time to see if the dealer will buckle. There is always the other side of the coin, though, opportunity lost.

I cannot even remember how many times a customer told me they would wait until next month, next week, or tomorrow to see if the deal would improve just to find that the rebate ended and was not renewed or the car was sold and a replacement was not to be found. It happens all the time. The best way to justify trying to time the market is to prepare and educate yourself. Find a reliable source, like www.delivermyride.com, that exposes all the information necessary to make a decision and when you feel it’s right, go ahead and execute.

Meta
Research

The web has become the great equalizer for researching products and services. Due to the complexity of the car business and the money it generates, there are limitless web sites dedicated to providing research tools with the hopes of generating revenue for themselves. Here we will describe the various resources, their objectives, and the value they provide.

Original Equipment manufacturers (OEM’s) sites are obvious go-to sites for car shoppers to begin their research since they are the brand. While they have every ounce of data available for every single model and vehicle configuration, they are not in the ecommerce business, they are manufacturers. So, their site is technical, research-oriented content intended to inform and inspire. The OEM website represents the manufacturer’s brand, the message they want to portray, and the lifestyle their models appeal to.

OEM sites are not car buying sites because they support their dealerships as opposed to competing against them. On these sites, you will find general sales data like current incentives and listings for dealers in your area, but not available inventory or discounted pricing. In other words, you aren’t going to be able to buy your car here.

Dealership sites have a lot going on. Since they are the face of the dealership, you can find their address, hours of operation, introduction to their staff, their history, new and used car inventory, pricing, calculators and a ton of small print disclaimers. Even though a new car dealership represents the manufacturer’s brand, each one attempts to differentiate itself from its competitors. For this reason, their pricing needs to be creative and often times confusing and misleading.

Dealership pricing is misleading in many ways. Today’s shopper visits several sites before deciding on what and where to buy. Visit 2 or more Jeep dealership sites and you will likely notice that the pricing is different even though the Manufacturer’s Suggested Retail Price (MSRP, Sticker Price or List Price) is the same. A dealer’s primary objective is to sell you a car, and given the highly competitive nature of the industry, they will show deceptively low pricing or payments to get you to contact or visit them. To comply with advertising laws, dealership sites rely heavily on disclaimers with very small print added to pricing descriptions. And this is where most of the confusion lies.

Since there are a multitude of fees and taxes associated with a vehicle, there are as many ways to manipulate a vehicle’s “sale” price. The following is a list of the most popular fees and charges associated with a car sale or lease:

  • Sales tax
  • Use tax
  • Documentation fee
  • Destination and Delivery charge
  • Registration fee
  • Electronic Filing Fee
  • License plate charge
  • License plate transfer fee
  • Acquisition fee
  • Interest rate
  • Security deposit

Dealership sites are an obvious destination when conducting your research. They have inventory and the dealership is likely in your area if you searched something like ‘Ford Dealer Near Me.’ However, the pricing strategy has one purpose, get you in the store. If you find a car on a dealer’s site, keep in mind that the pricing will be different when you start to negotiate. And the worst kept secret is that the price won’t be lower.

Dealer Groups are becoming more and more prevalent as consolidation occurs and dealers find ways to reduce overhead and consolidate common costs. A dealer group can be two or more Ford dealerships owned by a single person or company or it can be multiple brands owned by a single person or company. Some of the largest dealer groups in the country are AutoNation, Penske, Group 1 Automotive, Lithia, and Sonic. Some of these are even publicly traded companies.

In the 1970’s, car dealers were prohibited from owning multiple brands. Their franchised sales agreement disallowed it. Outspoken car dealers like Martin “Hoot” McInerney sued the manufacturers so they could own multiple brands, arguing that doing so was a form of business diversification from which dealers were unfairly restricted. Even though the manufacturer diversified into real estate and finance companies to hedge against economic uncertainty, dealers were not. So, McInerney sued and won the right to own multiple brands forging the path for other dealers to do the same.

While dealer groups save money and increase profits through consolidation, the savings they realize don’t necessarily translate to lower costs for consumers. When researching vehicles on dealer group sites, understand that each dealership still operates independent of the other. They are each tasked with running profitable businesses as opposed to passing their efficiencies down to you. However, a dealer group with multiple brands allows you to search one site instead of many, assuming the dealer has all its inventory on one site.

Third party marketplaces like Deliver My Ride not only has all brands available in one location, it also has multiple dealers competing against one another. This third party, unbiased approach guarantees that the process will be convenient and the pricing competitive.

3rd Party sites are a good resources for research because they tend to be unbiased and they typically have all brands of both new and used vehicles. On sites like Autotrader, Cars.com, Edmunds, TrueCar, and Car Gurus you can do a fair bit of research, but beware! These are traditional lead generation harvesting sites.

Lead generation sites have a singular purpose, capture your contact information and sell it to anyone and everyone who will pay for it; Manufacturers, Advertising Agencies, Dealer Groups, and Dealerships. What do these entities do with your contact information, they either re-sell it to an end user (dealership) or use it to contact you, ad nauseum, until you visit their store.

Lead generation is a big, big, profitable business, so these companies are very savvy in artfully tricking you into sharing your data. How big are they? CarGurus and TrueCar are both publicly traded companies with billion-dollar valuations. While they purport to help you with research, their function is to help themselves.

Retargeting Ads- Have you ever seen ads like these pop up after visiting a research site? These are called retartgeting ads. When you visit any car related site, they can capture your digital location and serve you ads so that if you click on one, you will return to their site and keep shopping.

Articles about cars are also an excellent way to research automobile content. Just search for your desired topic [Cars with best fuel economy, Safest SUV, Cheapest lease cars near me] and you will find thousands of articles written about these topics. This article was likely the result of such a search

Referrals and online reviews are also great resources for data as you conduct research. Blogger, vloggers, industry experts and average Joe’s all have their opinions. Some referrals and reviewers provide in-depth information, but others are just talking heads. Find reviews that others find valuable, which have had thousands of views, so you don’t waste your time with a shill or a disgruntled troll with an ax to grind. In the end, referrals from people you know and trust are always the most honest and valuable reviews you can get.

Look for reviews about ‘Best SUV’ and you might land on a review from someone commissioned by Toyota to tout the Toyota Highlander. The review might make excellent points about safety, performance and value, but further discovery might help you determine that the tires wear out fast or the sunroof leaks on these models. Maybe your cousin owns one and warns against. Research is a key function of investing in a vehicle. Make sure you can trust the source.

As a concluding statement for the important aspect of conducting research prior to buying a vehicle, consider the fact that everybody buys things their own way, at their own speed, and with different criteria as to what’s important to them. As described, there are a ton of resources that you can tap into for resources both online and on newsstands. Not to mention the word of mouth and referral aspect of getting valuable feedback from friends, family, neighbors and acquaintances.

More research is better than less and unbiased research will save time and money.

A. Selecting the seller
a. Reputation
b. Product
c. Price
d. Trust
e. Location
B. Acquisition
First contact
Email
Chat
Phone
Visit
Follow up
Email
Phone call
Dealership visit
Appointment
Walk-in
Vehicle selection
Presentation
Test Drive
Negotiation
Trade-In
Lease turn-in
Finance
Credit application
Lease vs. Finance
Extras
Warranty
Gap
CL and CD
Delivery
Required Documents
Driver’s License
C.O.I.
Conditional rebates eligibility
Finance proof
Explain paperwork
Dealer fees
State fees and taxes
Finance docs
Title and Registration
Odometer
Explain technology
Introduce Service Department
Ownership
Satisfaction survey
First visit
Warranty repairs
Recalls
Collision
FAQ
Things to avoid when buying a car online
Things to look for when buying a car online
Things to be aware of on CarGurus
Dealerships in Detroit or factory markets that advertise employee pricing
Leasing online vs buying online, which is best
How can I avoid the pain of negotiating with a dealer

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