Sunday, December 7, 2008

Buying a Basic Car, a Classic Example of "How To"

In the United States, it is pretty much required to have a car just to get around. Owning a car is a necessity for many. There are more cars than people in this country.

Yet so many pay far too much for this basic need.

The following example of "How To" buy a car is based on the real-life experiences of a friend of mine, who is "frugal" and willing to do the legwork and research to get more out of life on a given income. My hat is off to her.

Shelia needed a car. She had just returned from a trip around the world, and had sold her old car before leaving. She asked me what kind did I think she should buy. Being more of a car fanatic than a pragmatic car owner, my answer was twofold: "Do the research" and "Japanese, probably".

The former is most important. Take your time and figure out what you need, not what you want, and decide on a make and model and age range, and then research all the aspect of that vehicle. Shop for the same make and model car, rather than comparing different cars, and you can find the real "bargains".

1. Foreign or Domestic? Japanese!

If you are looking for basic, reliable, secondhand transportation, a used Japanese car is usually the best bet at the present time, as they are reliable, hold their resale value well, and are readily available and thus easy to get serviced.

If you are on a budget, esoteric cars like BMWs or Jaguars are out of the picture. In addition to being expensive to buy and own, parts and service are not readily obtainable. Plus, they are expensive to insure. If you are not a "car nut" shy away from such cars.

American cars can be bought cheaply, but they depreciate at an alarming rate and have a poor record of reliability, and generally use more gas. Yea, sure the UAW says that Americans cars can stack up to any car made in the world. But we are talking reality here, not faith-based economics. So let's leave the rhetoric right out of it. American cars by and large suck, period. And so do French cars.

Other foreign makes, such as VW have a so-so record of quality. I would approach with caution.

Among the Japanese makes, Toyota and Honda are the best of the lot. Nissans are not as reliable and Mitsubishis - well, you might as well buy an American car if you are going to get a Mitsu. Oddball brands like Suzuki, Isuzu, and Dhaihatsu are probably not worth considering.

The Koreans are worth considering. Once considered the king of the scrap heap, their quality has come a long way, and some Korean cars could be a bargain.

2. What Kind of Car do You NEED?

Again, we are talking basic transportation, here. A reliable ride for minimal money. We are not talking about some unpresentable junker, here, but a decent rust-free car with no dents, and all the body panels the same color. It is possible to find such cars, even on a budget.

Convertibles, pickup trucks, coupes, SUVs, Jeeps and the like are right out of the picture. Those sorts are cars are for stylin' mostly, and not very practical for daily use. Remember, we are talking basic transportation needs at a minimal cost.

Note also that more esoteric cars, like a BMW convertible, really should be garaged and babied. Shelia lives in an apartment complex. A BMW convertible, left outdoors, would quickly deteriorate, and probably be broken into (usually by slashing the top).

Shelia decided correctly that a small, fuel-efficient sedan was the answer. She needed something that was easy to park and drive in city traffic, got good mileage, could carry passengers on occasion, and not be so flashy as to attract thieves or break-ins.

3. PICK ONE Make or Model

One mistake many car shoppers make is to try to cross-shop different brands and makes. Comparing a Chevrolet to a Honda to a Dodge to a Toyota is frustrating and inefficient. Each is a different type of car, with different features, different sales price, and different resale value. Comparing one deal to another is impossible, as the numbers don't equate between the different makes and models. If you shop for a Chevy after looking at Toyotas, you'll probably over-pay for the Chevy, as Toyotas are more expensive cars, and you'll think an overpriced Chevy is a "bargain" in comparison.

So after doing your research, narrow your focus to ONE make and model car, in a limited rage of model years (3 or less). Then you can compare apples to apples.

4. Don't be a Badge Snob

Many cars are sold under different models and makes. GM sells the same car as a Chevy and a Pontiac and a Buick and a Saturn. Some Saab models are based on Chevys, Subarus, or even the same platform as a Malibu. There is no difference between a Ford and a Mercury except for some chrome trim and the price. And Japanese cars are sold in this country in their base form (Toyota, Honda) and as an upscale version (Lexus, Acura) even through there may be little difference between the two. There is little point, particularly when buying a used car, in paying extra for "badge engineering" as it is known in Detroit. Outside of the showroom, the name on the car makes little difference - so pick the cheaper model.

Shelia had a brilliant idea that I didn't even think of. "What about a Geo Prizm?" she said. Brilliant! The Geo Prizm was made at the New United Motors plant in Fremont, California, a joint venture between Toyota and General Motors. Back then, nearly every Corolla sold in the US was made in that plant, and went down the same Assembly line as the Geo Prizm. The only difference between the two cars is in trim - the Corolla has retractable mirrors and a slightly nicer interior than the Geo. Other than that, the two cars are mechanically the same and even look the same. But in terms of resale value, the Toyota version sells for $500 to $1000 more.

By the way, Toyota and GM still run this plant along with one in Ontario Canada. Today they makes the Toyota Matrix and Pontiac Vibe automobiles. albeit in separate plants. The sheetmetal is slightly different, but the underpinnings of both cars are the same.

5. Pick a Price Range

These steps are not necessarily in order, of course. Price range is key in determining what car to pick, and vice-versa. There is no point in picking a Rolls Royce, and then deciding your price range is $1000. It just isn't going to work.

When selecting a price range, you have to be somewhat realistic. There are cars that are worth little more than their scrap value, which today, is nearly $250 for a good sized car. "Fishing too far down stream" is never worthwhile, as you'll end up with an unreliable car that will need constant repair. So if all you can afford is $500 to $1000 for a car, perhaps you should think about riding the bus for a while, until you can save up enough money for a decent car.

Shelia decided she wanted to spend around $3000 or so for a used Geo Prizm, about 5-7 years old, with no more than 80,000 miles on it. Now, this was several years ago, so such a car no longer exists and probably such prices are not realistic, today. But after researching the vehicle, she decided this was a realistic price for a car of reasonable vintage at that time.

6. Do the Research:

Again, these items are not in order and may be performed concurrently. Shelia checked, and for pricing data on the car she was looking at. She also checked the local paper (not much there but dealers) for comparable prices, as well as the local autotrader and autotrader online. She tracked down a "chat board" for owners of the car and the related Corolla and posted a message asking owners what sort of things she should be looking for. She read CONSUMER REPORTS which she checked out of the library. Your local library, by the way, has lots of books on how to evaluate used cars and to help you learn about cars in general. The more you know, the more informed a decision you can make.

With all this data, she was able to pick the make and model car she waned (5-7 year old Geo Prizm) determine what a reasonable price would be for a car in her price range condition, mileage, and age (around $3000). Since she was shopping only ONE BRAND AND MODEL, it was possible to assemble this data easily.

7. Take Your Time

The worst thing you can do when buying a car is to be in a hurry. Going into a car dealer and saying "I need a new car TODAY" is the worst way possible to buy a car. Shelia was content to take the bus to work and wait weeks, if necessary, to find the right car. You cannot rush the process.

8. Start Looking

Shelia asked me to come along and look at cars with her. She felt that I might know something about cars, and that also having a man with her might help her bargaining position (we live in sexist times, still, and women are looked upon as unsophisticated by car sellers). It was also helpful to have a disinterested third party to bounce things off of.

We looked at six cars. I can't remember them all, but I remember a few.

We looked at one Toyota Corolla, just for comparison to its Geo cousin. It was $500 more than the other cars and not in as good condition. This confirmed to her that paying more for the "Man in the Sombrero" logo on the front grill was not worthwhile.

We looked at one Geo at a dealer, but they wanted nearly $1000 more than the other cars. No sale, but the salesman had a snappy plaid suit.

One car for sale by owner was filthy, with coffee stains in the interior, dirt on the engine, scratches on the bumpers and doors, and the ABS light on the dashboard. The owner said "you can fix that for like $500, I just never got around to it". This car had "neglect" written all over it. Oddly enough, of the private sale Geos, it had the highest price and the owner refused to budge.

Another car was clean inside and out, but the engine was dirty, and it had four mis-matched tires and needed a new battery. The price was about middling.

The best of the lot was clean inside and out, and even the engine was detailed. It had four matching tires that were reasonably new, and a new battery. The mileage was in the mid-range and the price was not a steal, but smack in the middle of where her research told her it should be. The interior was clean with no funky smells. Although none of the cars had a complete service record from new (desirable) this car had all the records from when the present owner had it.

I did some simple tests on the car for her - checking the condition and levels of the fluids, doing the "dollar bill" test on the exhaust (if a dollar bill, placed next to the running exhaust, gets sucked back into the tailpipe, count on more dollar bills being sucking into the car, as one or more valves are burnt or sticking. The exhaust should be a steady outward flow of air). The last car passed all test with flying colors.

What was interesting in looking at the same car in six different iterations, was that you tended to see wear and tear in the same places, and comparing prices on the cars was a lot easier, as we were comparing the same model and make. If we had cross-shopped different makes and models, the worn-out car with the broken ABS might have seemed like a "deal". But after looking at other identical cars, we realized it was not.
8A. Get it INSPECTED: If you are not clever with cars, you should consider taking the car to your local mechanic for an overall pre-purchase inspection first. Most mechanics can do this for a flat fee of $100 or so. They can tell you whether the car need brakes, tires, front end work, transmission work, or major engine work. No inspection is a guarantee, of course, but it can point out some hidden defects in a car.

9. Look for a VALUE not a BARGAIN

Many people make the mistake in buying a car of trying to find some incredible "bargain". While you can find a dress in a dress shop marked down to 75% off, you'll never find such a deal in the automotive world. If you do, WATCH OUT! There is something wrong with such a car.

Shelia decided that the nicest car we looked at was an acceptable value. It was clean, well-maintained, and offered at a reasonable price. That is the best any of us should hope for. Trying to find a car at a "steal" is unrealistic and immature.

10. Pay CASH

Shelia had cash to buy this car, and that is the best way to buy them. Most folks don't have cash to buy a car, and that limits the resale possibilities and market, and hence used cars sell much more cheaply between private parties than from dealers who can provide financing.

If you really don't have cash, talk to your credit union about financing. It is harder to do, as you have to find the car, line up the financing, and then make the deal, and in the interim, the cash buyer may have bought the car out from under you.

Note that most banks will not lend on cars over 5 years old, which is one reason cars over that age sell for a lot less.

Paying cash puts you in the driver's seat, literally. Pulling out a wad of 100 dollar bills and saying "well, how much will you take for it?" puts the seller on the spot, as he knows you are serious, and wants to sell the car. You can haggle paying cash. When you say "hold the car for me for several days while I line up a loan," well, you just don't have the leverage.

Note also that when you get a car LOAN, you have to get COLLISION INSURANCE. For young people, this can easily cost more than the car payments, which is idiotic. Young men (boys)buying sports cars often pay twice in insurance than they do for the car. At 48, I can afford the insurance on an M Roadster. At 25, you can't.

So if you pay CASH you can forgo collision insurance altogether, or, if the car is worthwhile, get coverage with a higher ($1000) deductible and save a lot of money. Banks usually require a $500 deductible for cars with liens.

Shelia called the owner of the car she liked and offered him 10% less than asking price. He came back at 5% and they closed the deal for a little over $3000. She negotiated a REASONABLE price, but did not expect a STEAL. Trying to STEAL the car at a low ball price just wastes everyone's time, so forget about it!

Shelia drove that car for nearly four years, putting 30,000 miles on it in the process. She later sold it for $1500, which works out to a nickel a mile in depreciation. Her only repair expense was for a new alternator ($400) and for regular oil changes. All in all, the car cost her less than $2000, not including gas an insurance - which is a heck of bargain that puts bus fare to shame.

It was a good looking car, too, with no rust or dents. Most folks thought it was a much newer car than it was, and assumed she had paid far more than she did for it. So yes, you can even have status on a budget, if you shop smartly.

The steps Shelia took in researching, identifying, selecting and buying a car are a perfect model of "how to" make a reasonable and well-informed retail purchase decision. Buying a more expensive or even brand new car (not advised) can follow the same or similar steps. Pick a make or model, research it to death, and then shop several identical cars from individual sellers. Find the nicest example of the marque, negotiate a fair price, and pay cash. These are the best deals going.