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Note: I realize that this subject is a little off-topic here. However, Mac users are also buyers of new cars, and I think the insight I’ve gained in the last few weeks could be helpful to folks who enter into the crazy world of new car buying.

I would like to state that I don’t believe that all car salespeople are wretched, money-grubbing, slimy, sleazy, lying, scum-bags. I really don’t. However, the nature of this market is brutally competitive, and these salespeople are trying to make a sale in almost any way they can. Sometimes this leads to less than honest practices, and some deceitful approaches.

3 Rules
There are 3 very important rules to know right off the bat when you decide to negotiate for a new car:

  1. Do your homework first. Test drive and know exactly what you want (make, model, color, options, etc) before you begin to talk about price.
  2. Do not do a trade-in; you will lose money every time.
  3. It’s best to arrange financing with a third party before you see the dealer.

These 3 rules will greatly simplify the process and make it less likely that the dealer will take advantage of you. On a rare occasion, you may want to finance with the dealer, but typically that will not be the case.

Use The Web
The next thing you should know is that the web is your friend. Now, more than ever, you can leverage the collective wisdom and data from the many online sources to become a very informed and savvy buyer. Go to sites like http://www.cars.com, http://www.edmunds.com, and http://www.consumerreports.org and do some research. Go to various blogs and get other buyer’s opinions and stories of their experience with dealers. (Google “blog” and “buying a car” for a list of sites.) Take the time to read these blogs and ask questions. You will receive a wealth of information.

Get To Know These Terms
Once you begin the pricing game, you will become very familiar with two terms: MSRP and “Invoice“. But these are really not the important terms to know. So you know, MSRP (Manufacturer’s Suggested Retail Price) is ostensibly what the manufacturer of the automobile has suggested for the retail price. The “Invoice” is ostensibly what the manufacturer charges the dealer for the car. The more interesting of the two is the “Invoice.”

On paper, the Invoice is what the dealer paid for the car. But in reality, this is much more complicated. It turns out that the manufacturer of the automobile offers any number of incentives for the dealer to sell the car quickly. One common incentive is typically called a “dealer holdback” in the industry. This is often a figure (2-3% of MSRP) which is held back from the dealer as an incentive to sell the car. Once the car is sold, the dealer enjoys this 2-3% savings on the future purchases of cars from the manufacturer. In this way, these discounts to the dealer are hidden from the consumer. There are several other ways that the dealer can enjoy a profit on the sale of a car which are not reflected in the “Invoice” price indicated on the sticker. Suffice it to say that a dealer can realize a profit on a car even when selling below the “Invoice” price indicated on the sticker.

Deal Only With OTD (Out-The-Door) Price
The best advice I can give you is this: Compare prices among various dealers only by asking for an “Out-The-Door” price. In other words, make the dealer figure out exactly what it will cost you to drive the car off the lot–all fees included. A dealer can hide closing costs in many ways. There are so many terms for the types of hidden costs that I cannot even list them all here. But generally speaking, anything listed other than Sales Tax and License, is a cost added on by the dealer for profit.

After going through this process for several days, I’ve come up with a template for getting (quickly) to the bottom line with dealers.

In this case, I am looking for a Toyota Prius in a county which has a Sales Tax of 8.25%. Please feel free to use this template for getting your online quote:

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To make my car search easier, and to prevent me from comparing apples to oranges when communicating with various dealers, I’ve decided to use a very precise quote process.

I’ve done thorough online research on this car, test driven twice, and now ready to purchase. I would like your best out-the-door quote (All fees, taxes @ 8.25%, license and additional costs) on the following car. Please use the template below:

Base 2007 Prius-
Ext. Color: Silver Pine Mica
Int. Color: Dark Gray

(HG) Package #2 — includes AM/FM CD with six speakers, auxiliary audio jack and MP3/WMA playback capability, Smart Key System [2], backup camera [3] and Vehicle Stability Control (VSC) [4]

MSRP (with Package #2) …………… $ 0.00

Your Price (with Package #2) ……..$ 0.00

Doc. Fee ……………………………………..$0.00

Sales Tax (8.25%) ……………………….$0.00

Tire Tax……………………………………….$0.00

Lic……………………………………………….$0.00

Any Other
Fees/Costs/Charges/Expenses … $0.00

Total Out-the-Door …………………..$0.00

Thank you.

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Good luck.