How to Get a Fantastic Deal on a New Car

(From someone who did it twice in three months)

Hi guys. Many in the financial independence community see a new car as the sunlight and garlic to an otherwise sublime fiscal vampire existence.

Thou shalt not buy a new car!

Well, thankfully there are no rules in financial independence, so we bought a new car. Twice. In three months. And we learned a hell of a lot in the process about how to get a good deal.

Why not buy new?

Some of the reasons are obvious. Depreciation, of course, is the biggest factor. New cars typically depreciate 20-30% in the first year, and somewhere between 10-20% for each subsequent year. In five years, most new cars will lose approximately 60% of their value.

Why did we buy a new car?

We’ve been rocking out as a one-car-household since I sold my 2001 Toyota Tacoma in 2018—with years of engine life remaining, mind you—leaving us with a 2012 Subaru Outback. The Outback was a great car, but it couldn’t tow.

Tow?

Before the pesky pandemic started up, we decided we wanted to relocate out of the big city. We couldn’t decide on where to go (many of these areas we’ve only briefly visited), so it seemed logical to travel for an extended period of time to slowly vibe on a place. Instead of paying tens of thousands of dollars for long-term Airbnb rentals or sleeping for weeks at a time in the back of a cramped Subaru (no way), we bought this:

But before that, in January we bought a BRAND NEW 2020 3.5L V6 4×4 Double Cab Toyota Tacoma!

Then it was totaled!

And then in April, we bought a BRAND NEW 2020 3.5L V6 4×4 Double Cab Toyota Tacoma! More on that second truck in a hot minute.

Right…but why a new truck dude?

Why did we do this? Why did we buy a car that cost almost as much as what we spend in an entire year?

It’s a good question, one I’ve been grappling with in the octagon of my mind. If we just wanted to tow, surely, we could have found a good used truck for a fraction of the cost. It’s true, we could have. At least to suit our short- to medium-term needs.

But I know how reliable and simply badass a Tacoma is. I drove one most of my adult life. I also know through experience that the Tacoma depreciation rate is one of the lowest of any car on the market, a further testament to their reliability.

Early on we looked for used models. However, we were shocked to find that to get any meaningful margin from a brand-new model, the vehicle would need at least 100,000 miles on it. Why would we get rid of a Subaru with 70,000 miles to get a car with more miles? It didn’t make sense.

In the end, we made the hard decision to go for the new and expensive model, resetting the clock on our car needs for (hopefully) 15-20 or so years. Had we purchased a used truck, who knows how many years we would get out of the deal. We’ve been burned before on used cars. It simply felt better to start a period of zero to low income without the concern that we would need to buy a car within a decade.

(Related Post: Keeping the Safe in Safe Withdrawal Rate)

The pains of buying a new car

Initially, the thought of buying a new car ripped me apart. I negotiated with three dealerships for days, sparking a price war between them. I have a collection of literally 86 emails. The process was no less burdensome the second time around either. At least then, however, we were resolved in our quest for a new car, with no second-guessing.

In the following scroll, I outline some key tips to get a good deal on a new car, should you choose to accept this mission.

And perhaps you shouldn’t.

Step 0: Don’t wait until you need a new car

Those who are in a hurry have virtually no negotiating leverage, as we will see in the steps below. Those who can afford the luxury of waiting are consequently going to get a better deal. I can’t imagine just driving to a dealership on a Saturday and expecting to walk out with a good deal. No way.

Step 1: Get email contacts for sales staff

This is harder than you might imagine. Dealerships prefer in-person or phone contact. For all the reasons we will discuss, they really don’t like dealing with emails. Not surprisingly, they know they are likely going to end up in a bidding war.

And they should be worried, because that’s exactly what we are going to do.

Many dealership websites have an exceptionally annoying chat feature that initiates within seconds of you landing on the homepage. Use this chat feature to insist on an email sales contact. Be prepared to resist multiple attempts at getting you to come in to the show room, or asking for your phone number.

Be strong.

Politely insist that you will take your business elsewhere if they are unwilling to provide an email. That always gets their attention. Firm, but fair.

Repeat this process for at least three dealerships in your area, or wherever you are willing to travel. The more, the merrier.

Step 2: Inquire on used models

For many vehicles, I can’t really recommend getting a new model. The depreciation is too high the second you drive it off the lot. However, the dealer might have backdoor incentives to sell new instead of used (although they usually make more money on used cars). If you seem apprehensive about the price of a used model, they may throw a bargain your way for a similar new model. Now you have your first negotiation nugget.

In our case, I was first interested in getting a used model in the 2017-2019 range. Unsurprisingly with a Tacoma (in the high-demand Colorado market, where they are very popular), the deals were fairly terrible compared to new models.

After pushing the salesman a bit on the price of a used model, he unexpectedly texted me a deal for a new model far below anything listed on the website and cheaper than the used model!  

Game on.

Make sure you get the deal in writing. Competitors will want at least the price and VIN number of the vehicle so they can make sure they are not comparing apples and orangutans. They also need some sort of proof that you aren’t bluffing. Sales staff are likely to resist giving an offer in writing, but again politely insist with a thinly-veiled threat of walking if they are unwilling to oblige.

See? This is why you need time on your side.

Step 3: Send lots (and lots) of emails

Once you have a baseline deal on a universally stocked model, you can really start playing ball. Take your written offer and send it to as many competitors as you can.

Ask for the following:

An itemized out-the-door offer

It’s very easy for a dealership to hide hundreds to thousands of dollars in taxes and other fees. Just comparing sales price of the vehicles is very misleading.

Also, make sure you know your local tax rate. Note: your tax rate is determined by your home address, NOT the dealership address (if buying far from home).

An out-the-door offer also helps you understand up-front what a new car actually costs. Hint: you will pay thousands of dollars above the list price once all taxes and fees are levied. It’s better to know now.

Spec sheet

Make sure you are understanding what features you are getting. If Dealer A is going to beat dealer B by $500, but Dealer B’s offer has $800 worth of additional features, you might be getting hosed, buddy. A spec sheet will include all standard and optional equipment.

Dealer Invoice

This is the price that dealership pays the manufacturer for the vehicle. I’ve asked for it several times, and unsurprisingly my requests have fallen on deaf ears. However, when negotiations stall, a request for the dealer invoice signals that you’ve done the research. You understand there’s a sweet spot where the dealership can make a reasonable profit, and you can get a deal.

When you get an offer, send it back and forth to the dealers. Keep working them until they are unwilling to budge. Scrutinize fees: this is where dealers can make back losses on sales price. SO MANY EMAILS!

How many emails did we send for our truck(s)?

Tacoma #1: 86 emails

Tacoma #2: 76 emails

Step 4: Be prepared to be really annoyed.

Salesman are masters at diversionary tactics. You will ask for an out-the-door offer, but they won’t send one.

Or they will, but it won’t be itemized.

They won’t accurately calculate taxes for your zip code. You will have to politely ask again…twice…and then thrice. Maybe more.

Stay persistent, and most importantly, stay positive. Be firm, but end and begin an email with some friendly and upbeat greetings and such.

Hi Jeremy!

I really appreciate your patience in working with us on this. Unfortunately, we are really going to need to see a fully itemized out-the-door offer on this vehicle. Price is very important to us, so we need to feel comfortable that Big Mikey Toyota is offering a good deal. Can you please send a fully itemized out-the-door offer and spec sheet to make us feel comfortable moving forward with such a large purchase for our family?

Many thanks!

Nancy Sue

Sometimes they won’t respond at all, making you wonder if you’ve pushed too hard. This is all part of the game. Remember when I said not to be in a hurry?

As with negotiating in other arenas, the first to speak is usually at a disadvantage. If you fill the silence with desperate-sounding pleas for more information, the sales staff will know that you are eager to come to a resolution. I usually find that after about 24 hours of silence, they will reach back out to gauge interest. The ball is back in your court. If not, you might have found the bottom of the price floor for that particular dealership.

Mrs. CC had to back me off the cliff several times. It’s hard to wait in silence.

Step 5: Don’t show your hand if you plan to pay cash for a new car

Dealerships make a good chunk of their revenue through financing contracts. They assume you couldn’t possibly pay all-cash for a new car, and they reap financial reward for the Standard American Debt Machine. But they don’t know that you’re pursuing financial independence and got this on lock, right? Who run it!??

Contrary to buying a house, for instance, an all-cash deal is NOT an incentive to quicken the process or get a better price. In fact, the opposite is true. If you plan to pay all at once, keep that dirty little secret to yourself.

With the first truck, I made the mistake of saying that I could be there with cash-in-hand. The communication stopped. Next time, I knew better.

Step 6: Show up only when a deal is done

Do not give out your phone number or agree to come to the show room until you have agreed on the best price and you have both an itemized out-the-door offer and spec sheet for your chosen vehicle.

Even then, you might get screwed.

We drove across town mid-pandemic to be told in the parking lot of the dealership by a masked fool that our truck had been sold that morning. It didn’t seem to matter that we had confirmed the deal only an hour earlier. But of course, they have another truck you might be interested in!

We walked out** without a truck, but we had our pride.

(**We may have jumped a concrete wall behind the building in an awkward escape. But maybe not.)

Step 7: Think long and hard about that extended warranty

My thoughts? Extended warranties are a waste of money.

Step 8: Drive your new car for two months and then get in a bad accident

This step ensures that you will get more practice buying a new car.

Step 9: Wait on insurance check and repeat steps 1-7

What kind of deal did we get?

Kelly Blue Book suggests our model has a fair market range between $30,549 – $33,154, with a dealer invoice price of $31,425 and an MSRP of $34,001. In our experience, adding taxes, fees, and additional options (seat warmers and black alloy wheels in our case) adds an additional $2000 or so, conservatively.

With no negotiation, we’d expect to pay in the range of $35,000 – $36,000 out-the-door!

The best you can generally hope for is to be at or just slightly above dealer invoice (2%-3% above).

Below is what we paid for each truck, out-the-door (all costs included).

Tacoma #1: $31,668.66. (0.7% above invoice)

Tacoma #2: $30,805.00 (2% under invoice)

So, I don’t know, I think we did decent (?). We certainly secured a better deal the second go around. I’d like to believe the lower price was due to our honed negotiating prowess, but was probably much more related to the coronavirus lockdown and dramatic reduction in sales.

But…it’s still a new car

Yeah, I know. You might look at those numbers above and think…

“Right, ok. You got a decent deal, BUT YOU STILL PAID $31,000 FOR AN F-ING CAR!!”

I’m with you. I hope in 15-20 years that I will look back and consider this all a great idea. That was the story with my last Tacoma.

I know far more people that drop $10,000 (at least) every five years. In the end, that person may spend just as much (or more). Plus, they get the joy of going through this process each quinquennial. Barf.

I’m not suggesting you should get a new car. In fact, for any other car other than a Tacoma, I’d buy used. Maybe late model, but used for sure.

However, if you find yourself looking down the barrel of a new car negotiation, hopefully our splendid experience can be of some benefit. The process is annoying and it takes time. However, the hourly return on time invested is more than worth the hassle. Instead of thinking…

“Ugh, negotiating is so annoying. Why bother?”

We can now consider…

“Actually, this really is annoying after all, but I’m paying myself at least $55 per email.”

Or something like that.

As usual, why pay $20 when you can have the same thing for $15?

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