A Guide to Buying a Vehicle in the USA
By: Responsible Consumer
Tags: Buying A Car, Credit, Loans, Cars

A few weeks ago I wrote a guide on finding the ideal next vehicle. This is a follow up article on the actual process of buying the vehicle.

New vehicles

Nearly everyone buys vehicles from dealerships. I have heard a few people skip the haggling process with salesmen and buy through a wholesaler like Costco.

Wholesale resellers

The wholesaler — Costco has tie ups with local dealerships and offers new vehicles at “a lower price” for their members. In essence, Costco does some of the haggling you would have done by yourself. If you are up for some haggling, you could definitely get a lower price from a dealership.

Dealerships

Buying from dealerships has been a tedious and/or unpleasant process for almost every single vehicle buyer so far. Manufacturers such as Tesla have completely removed the haggling process and let people buy their vehicle as though they were ordering any product from Amazon. However, all other manufacturers continue to sell through dealerships.

The exact same vehicle can be bought from multiple dealerships, often within the same town. The challenge is in finding the dealership that is willing to knock down the final / “On-the-road” / “out of door” price.

What exactly is the “final” price?

The price of the vehicle when purchasing from a dealership typically comprises of the following:

Cost of the vehicle itself

A “value add-on package” or “convenience package” consisting of trivial and/or cosmetic items of little to no value such as floor mats, stickers installed by the dealership (~ 10% of the cost of the vehicle)

Dealer “documentation fees” (~ 5% of the cost of the vehicle)

Promotions

State tax (~ 6–12% of the total cost)

Vehicle registration

Title fees and cost of number plates (~ $100 but varies by state)

Much like the closing costs that accompany the list price of a house, these “fees” and non-removable “packages” often come up to 10–20% (or even more) of the price of the actual vehicle. These unavoidable costs vary from dealership to dealership. Some may increase the cost of the vehicle but not levy a hefty value add-on package, etc.

Some dealerships and even manufacturers may also provide substantial discounts for things like:

new graduate discount

loyalty (to same brand and/or dealership) discount

military / armed forces discount

etc.

At the end of the day, what you, the buyer, need to be concerned about is the so-called “out of the door” or “on the road” price which is that amount you are responsible for.

You could manually search for new / used cars via search aggregators like Autotrader.com. These search engines generally look at the inventories of each dealership and do a good job of helping you look at what is out there.

The problem with any search engine like this is that they are simply do not know the final cost of the vehicle and only know whatever the dealership puts up on their websites. In many cases, dealerships often “list” their vehicle at absurdly low prices (by stacking all possible promotions, that one is typically not eligible for) but a phone call or email to the dealership for a quote would reveal that the final price is substantially greater than the amount quoted on their website. Therefore, I would recommend that you don’t pay too much attention to the exact price for the listing.

Long-story-short, search engines are mostly useless in determining the cheapest dealership to do business with since dealerships game the system. The only way to compare dealerships is by talking to them, haggling with them, and getting them to give you a formal quote.

Essentially, your goal is to find the lowest offer by (politely) playing one dealership’s offer against another.

Dealing with dealership salesmen

The profession — “car salesman” conjures an image of a sleazy unscrupulous human being who would sweet talk their way to closing their deal at the cost of making the whole negotiation process an incredible disgusting affair.

However, there is no way out. One really does have to deal with such salesmen or their manager.

I have discovered that salesman effectively ambush the buyer when one physically visits the dealership. The prospective buyer is often asked for their phone number, email address, copy of the driver’s license. These information are used to target advertisements, train their salesmen to hound the buyer multiple times a day over the phone and/or email, etc.

A friend of mine therefore recommended that prospective buyers start a temporary email account that you can use to contact multiple dealerships asking for the “on-road” price of a listed vehicle. Do NOT give out your phone number or your personal email address.

Quite often, dealers will attempt to upsell customers on a more expensive trim or model, extended warranty packages, “convenience packages”. You are therefore recommended to be very firm on exactly what you need. Salesmen love to look for the wiggle room in being able to upsell something you never wanted.

In some cases, some dealerships are willing to out-bid their competitor. In other cases, they politely refuse. There is a possibility one may have to travel a few hours from home to go pick up the vehicle.

Used vehicles

Vehicle History

Used vehicles come with a history. The goal is to get a vehicle with a good history. Most avenues (more below) for buying vehicles partner with establishments such as AutoCheck and CarFax, which track and provide detailed history of vehicles.

Note however, that not all events in the vehicle’s history are tracked. For example car rental companies service their fleet with their own mechanics and do not report maintenance activity or even damages to CarFax / AutoCheck. Even private individuals can choose to have their vehicle fixed without the repair showing up in the formal records of the vehicle.

Ideally, you want to look for a vehicle that satisfies as many of these conditions as possible:

Clean title. Walk away from vehicles with other kinds of titles especially severe damage or financing related.

No major damage — Avoid vehicles with current or past “Salvaged” / “Junk” / “Rebuilt” / “Fire” / “Flood” / “Lemon” status — vehicles that have been brought back to operational (often questionable) condition after major damage. The one exception is “Hail” — Generally, hail results in dents on the bodywork. Fixes to bodywork will indeed be expensive but the vehicle may be structurally acceptable if you are willing to make compromises / budget is extremely limited.

No financing related issues — E.g. — “Repossessed” titles (indicates that vehicle was likely owned by someone who was irresponsible when it came to loan payments and also likely maintenance)

No major accidents. If you are confident and comfortable, you could potentially consider a vehicle with minor non-critical damage.

Fewest possible number of owners (e.g. 1)

Vehicle has undergone all routine maintenance on time (prescribed by the vehicle manufacturer)

Vehicle has undergone repairs / checks for all manufacturer recalls

Privately owned vehicle. Other alternatives are fleet / rental use

No color changes — indicates potential respray after major accident.

Avenues

I would say that there are three ways to purchase a used vehicle:

Flat-rates / no negotiation prices offered by an online sale such as:

Car rental companies like Enterprise Carvana (more later) CarMax (more later)

Car dealerships

Private sales:

On “social” networks: craigslist, Facebook Classifieds

Each comes with its own advantages and disadvantages:

Flat-rate offers:

Minimal hassle, no haggling over the price. Not necessarily the best deal though (e.g. Carvana and especially CarMax) You often get a short warranty from the seller, in addition to whatever is remaining on the original warranty from the manufacturer.

Car dealership

Vehicles from a variety of sources (auto-auctions, reselling fleet vehicles, junk / heavily damaged cars, off-lease vehicles, trade-ins etc.), so the quality varies wildly Very likely a BAD experience if you are not mentally strong / soft-spoken / do not know much about vehicles / did not do your homework If you do not possess the above qualities, you could find yourself a bargain. Some offer their own short-term (60 days / 1 year) warranty

Private sales

No assurances / buy-back from the seller It is your responsibility to either be knowledgeable enough to inspect the vehicle or take it to a mechanic to get ther assessment. Depending on where you find the deal, the seller may be shady. Often, a good but risky deal

Off-rental vehicles

If you are aiming towards the absolute cheapest used vehicles that are still in good / new condition, look at Hertz’s Rent2Buy or Hertz Certified program. Essentially, Hertz — the car rental company, sells their vehicles after 1–2 years of use for a very low price. Enterprise and Avis also do offer something similar, so consider looking at their inventory as well. Skip this section if you buying a vehicle used by hundreds of people (statistically rental cars are driven by about 50–60 drivers in a single year) before yourself is something you cannot stomach. Rental companies keep a young fleet of vehicles, no older than two years. Most vehicles are within their original manufacturer warranties and barely require any maintenance. Rental vehicles are said to be well maintained by their own mechanics. These rental companies claim that they sell on the best vehicles in their fleet and auction those vehicles with problems or ones that have been in accidents. Because these vehicles have been driven a lot more than a comparable privately-owned vehicle, some of them may have run out of the original manufacturer’s warranty. That being said, Hertz does offer their own short warranty that should offer some peace of mind. Most importantly, the vehicles are priced well below the KBB-suggested price. The drawback is that the selection (makes, models, trims) is often very slim and typically consists of the cheapest trims which offer minimal / no features. If you need certain features that are not available in the vehicles you are looking at in Hertz’s inventory, you may want to look elsewhere since most features cannot be added on to a used vehicle (at least not at an inexpensive price). Consider signing up for either the Hertz Gold or AAA membership — Hertz provides a $350 discount for each of them.

Online stores

The next place I would point people towards is Carvana.com for used vehicles — Think of this as Amazon.com for cars. Unlike Hertz, this website has a wide selection of vehicles to choose from. However, the vehicles will be priced higher than Hertz, but still at the low-end of the KBB price. Always check KBB before shortlisting a vehicle. Perhaps most importantly, you only get to see the vehicle virtually through photographs before buying the vehicle. Carvana is typically very transparent and forthright about the condition of the vehicle. They provide photographs of any and all major scratches, minor dents, scuffs, etc. when they list the vehicle so the buyer does not feel betrayed in any way. Upon clicking the right buttons, the vehicle will be delivered to your doorstep in a week. This is the first time you get to physically see / inspect the vehicle. That being said, they do offer a no-questions-asked 7-day return policy if you did not like the vehicle for some reason. If unsure (especially if the vehicle is past its original warranty), use this opportunity to have it inspected by a certified mechanic. Among all the places one could buy a car, Carvana is by far the most pleasant seller. Their prices are transparent and reasonable. One can often find a $500 coupon on reddit.com via a quick google search.

CarMax

The last of the no-haggling sellers of used vehicles is CarMax. CarMax is infamous for absurd markups, which cannot be negotiated. Given that they offer the convenience of a large selection of vehicles (in their parking lots and online) that are locally accessible, inexperienced buyers often buy their vehicles from CarMax without knowing that they could have saved thousands of dollars. What is worse is that CarMax typically buys rental vehicles from Hertz and Enterprise and sells them on for massive profits. I personally would not recommend anyone to buy from CarMax. That being said, I would recommend physically trying out / test-driving a vehicle from their lot since they keep vehicles from all brands.

Financing

Dealers want more down payment, trade-in because they have immediate value. they want you to pay exorbitant interest rates and/or very long term loans. Some deals do come by though. Do the math