QuestionThanks again! You are correct in that I do a little writing. Did you say that the price I should work from is the invoice minus the rebates/incentives, plus 3-5%? I like that take it or leave it approach also. There are too many competing dealerships in the area where I live to not take advantage of that.
I'm sold on your book too and will look at picking that up and telling the neighbors--like your approach to this nasty business of buying and selling cars.
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Wow! Thanks for the info. you clearly have a handle on this subject.
It's so complex, I'm trying to decide what to do. I'm pretty sure I want to lease because that keeps the payment where I want it and I hate dealing with car repairs on older cars.
Here's my situation. I have an 02 Hyndai Accent that I want to replace with a small truck. My Accent Blue Books at about $3000 as a trade in and $4500 as a private sale. And I owe another $2800 on it, so I would like to sell it privately and get at least $3800 - 4000 for it (giving me $1000 toward a lease).
If I wait until March/April, I will have an extra $2000 I can put toward it from a tax return. On the other hand, I wouldn't mind keeping that $2000 for other things.
The bottom line is I need a small, four-door truck that I can lease for $225 - 250. I've researched the trucks in the class I am targeting and my top four are (in order of preference): Toyota Tacoma ($19592 at invoice), Chev. Colorado ($19177 at invoice), GMC Canyon ($18824 at invoice), and Nissan Frontier ($20249 at invoice).
The Toyota holds its value the best, then the Frontier, the other two are average. We bought a Sienna for my wife last year and have really liked Toyota in general.
I read that to figure an initial offer you should start with 3% above the invoice price, but never go higher than halfway between invoice and MSRP.
Then there's the 2006 Vs. 2007 factor and what's better to begin a lease on right now. So, I am really confused if I should try and lease now and maybe pay a little more or if I should wait until March/April.
When do you think I might get the better deal or what course would you recommend if you were in my shoes?
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Have a few questions about leasing:
1. Do manufacturer rebates apply toward a lease?
2. Is it possible to lease a used vehicle?
3. A co-worker told me that they only lease vehicles with high re-sell values so that at the end of the lease they can sell the vehicle privately and make enough money to make a down payment on another lease. Is this possible or does it make sense?
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Hi Doug,
Thanks for you question about leasing. Leasing vehicles is one of the most misunderstood methods of financing, so much so that I’m working on a follow up book to my $ave Thousand$ Buying Your Next Car: Confessions of a Former Car Salesman, (www.Make-Me-Smarter.com) that specifically covers this method of financing. For now, let me answer your questions as you asked them.
1. Yes, all rebates and other applicable incentives (other than finance rates, of course) apply to leasing, as do all standard buying and negotiating tactics. Of course, as I wrote in my book, you should NEVER, NEVER, NEVER have to negotiate, but that’s getting off of the subject. The first vehicle I leased was a 1994 Mitsubishi Eclipse from a Mitsubishi dealership (near Pittsburgh.) When I started to negotiate the price (I didn’t know then what I know now), the manager lied through his teeth telling me that the leasing companies based their leases on the MSRP, and that you never negotiate the vehicle price with this type of financing. I think they closed the dealership and threw a party with the ton of money they cheated me out of that day. Ouch – live and learn!
2. Yes, it is possible to lease a used vehicle. However, you may be surprised to find out that it’s usually cheaper (lower monthly payment) to lease a new v. used. Basically, lease payments are based on the difference between the current market value and the value of the vehicle at the end of the lease term, known as the residual value. Let’s say (for example only) a new vehicle has a value of $35,000 and a residual value of $20,000 at the end of a three year lease. On a lease you’re only paying on the difference between these two values, which is $15,000. You would have paid to use 43% of the value of the vehicle.
Used vehicles depreciate faster each year so they are worth less at the end of the loan than a comparable new vehicle. Again, for example, let’s say that you buy a two year old vehicle with the same lease value of $35,000, but the residual value (pre-determined by the industry) says that at the end of a three year lease it will only be worth $10,000. You would be paying to use roughly 72% of the value of the vehicle over the same time and would therefore have a higher payment.
3. As far as buying vehicles with high re-sell values the answer is a definite--maybe. Here’s a real life situation to make the point. Large gas guzzling SUV’s were very popular when gas was cheap; due to their popularity the industry placed high-residual values on them. When gas prices skyrocketed the resale value of these vehicles plummeted making turning them back in the only sensible option. And if this isn’t the case, you have to think that the banks and leasing companies who come up with the future residual prices are doing so based on what they think the real value will be at that point in time. They’re not in the business of giving money away, but they do make mistakes once in awhile. I’d say that this is a crap shoot depending on the vehicle, the industry, the economy, gas prices, etc. All the better if it works out in your favor, but I wouldn’t base my next purchase on it.
Hope this information helps you, Doug.
Regards,
Ron
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Hey Doug,
Well, I’d like to say just read my book. The Six-Step Approach™ I developed shows you how, in a non-traditional way, to deal with these croo.., oops, I mean car dealers. But, since you don’t have time for that I’ll give you some inside perspectives.
You describe your situation very well (must be a writer), and I think I have a good idea of what you’re trying to do. But before we talk about what you should offer, let’s look at what should be driving your buying decision as to which of these trucks you should be in.
Buying a new vehicle isn’t just about the money. If it was we’d all be driving Kia’s, or whatever the truck equivalent of this is, and I certainly wouldn’t be driving my Porsche to the office everyday. In your case, instead of basing your decision on which truck holds the highest long-term value and then trying to emotionally buy into it, I recommend you pick the one you really want--and then find the best deal for it. The decision of course, as I know you already know, should be based on good financial common sense and your financial situation. You’ve done more homework than 99.9% of car buyers, which is definitely the right thing to do, and which makes it much easier to make a decision that’s right for you.
Now for about what your initial offer should be. Let me say that you have this backwards: an initial offer on your part leads to a counter offer on theirs, followed by the nauseating back and forth negotiating BS—which is EXACTLY what they want and pull you into. The idea here, as I describe as a part of my Six-Step Approach, is to research the vehicle you want, know exactly what invoice price, rebates, and any other incentives available are, calculate an amount based on a reasonable markup, and then make then a FINAL offer to them. Tell them what you’ll pay them for what you want—not the other way around. The key here (no pun intended) is to make an offer that’s ‘reasonable’. If you look on www.kbb.com (for example), you can find what the going price is for new vehicles in your area: it’s an excellent starting point that’s based on current market conditions, popularity of the specific vehicle, actual sales numbers, etc.
“Look Mr. Dealer, I’ve done my research and know everything there is about this truck. Working from the invoice, less rebates this is what you paid for it. I will buy it from you right now for this amount (3-5% are good choices.) Do we have a deal.
Well, let me go talk to my manager. (Then they bring you back a counter offer.)
No, this is my final offer. If you’re not interested in doing this deal right now just tell me. And if that’s the case I already know that there’s another one available at the next dealership, I’ve talked with them and already have an appointment setup. So deal or no deal (pun intended)? (If they won’t deal you play your last card.) Ok, thanks. Before I go I’d like to be introduced to your sales manager. And one more thing, can you give me directions to the next dealership so I’m not late for my buying appointment!”
Yeah, I get carried away writing, but it’s the best way for me to tell you what to do without you reading my book. Don’t make an initial offer, don’t negotiate, and don’t deal with them on their level; this is exactly what they want. If they don’t want to sell you a truck, go to the next dealership and try again. These people live on meeting sales quotas: as long as you’re making a reasonable offer (as I discussed above) you have an excellent chance of getting what you want at the price you want.
Oh, and the reason for asking to meet the sales manager, they usually don’t know what’s going on with any particular deal. If they believe you will buy now you have a better chance at getting them to do the deal. Believe me, the desk manager aren’t always the sharpest tacks in the box.
In return for all of this, please let me know what you end up doing. I like getting feedback on how things turn out, Doug.
Regards,
Ron
AnswerYou’re right, Doug: everything works from invoice price. Subtract rebates and incentives and then add their profit to that. I’ll tell you now that they definitely won’t like this and tell you something like “you’re already getting a rebate deduction and we can’t take off any more.” Bull! By definition, unless they’re offering a strictly local deal (rare), dealers are fully reimbursed for factory rebates. Even ‘dealer cash’ that they like to throw around for the weekend sales are reimbursed. So when they sell at MSRP minus rebates buyers think they’re getting a good deal, but in reality the dealer just made his kid’s next six orthodontics payment. Trust me, dealers make so much money you wouldn’t believe it, and guess where it comes from?
Thanks for your endorsement of my methods. I decided to write this first book of my Make Me Smarter™ series after only one week in the business. I watched a young guy get hit for $13K(!) over and above what he should have paid. My book is available on Amazon (ISBN: 0977620204) and my website, www.Make-Me-Smarter.com. I can’t sign books that go through Amazon because they have a rolling stock of inventory. If you order directly on my sight it will be my pleasure to sign it for you, Doug.
Regards,
Ron
