Philip Reed on Buying a New Car

When it comes to buying a car, Philip Reed knows a good deal when he sees one. He’s the senior consumer-advice editor for Edmunds.com, one of the most popular car-information sites on the internet, and the author with Mike Hudson of Edmunds.com Strategies for Smart Car Buyers. Reed is constantly looking for tips and tricks to make it easier for consumers to buy a new car. He’s even gone undercover as a car salesman at two different dealerships, so he’s familiar with both sides of the car-buying process. Before joining Edmunds.com in 2000, Reed wrote news pieces for The Los Angeles Times, USA Today, and was a staff reporter for The Rocky Mountain News. He shares his insider tips on how you can get a good deal when you buy a new car.

Why is a new car such an important investment for people?

In this country, cars are very important to us. It gives us a sense of identity—of individuality—because we can buy a unique car and then modify it to make it look unusual. Also, our egos are attached to our cars. You buy a big car, you’re a big man. You buy an expensive car, you’re a successful person. I live in Los Angeles, and it’s alarming how important the car has become.

What did you learn about the car-buying process as an undercover car salesman?

I [now have] empathy for the difficult situation that car salesmen are in. They are caught between their sales managers, who are always pushing them to get better prices and make sales, and the customers, who they are trying to build a good relationship with. They’re also in a really difficult market, where it’s harder to make a living as a car salesman.

Another thing is I learned about the great fear that consumers have about stepping onto a car lot and paying too much. A lot of people don’t understand the whole process. They don’t know what is going to happen next. When they get a rough idea of what to expect, it improves their comfort level. The more comfortable they become, the more they can devote their sensitivity to assessing the vehicle itself.

What can consumers do to overcome these fears about buying a car?

There are so many ways to save money, and a lot of ways to lose money by not being informed. An hour of good research will save you a couple thousand bucks and will put you in a car you’ll be happy with for five years, rather than one you’re tired of in two years.

Get informed by using any car-buying tools that are available on the web. We have a 10-step process on our site. It’s very simple, and focuses on everything from finding the right car to negotiating to driving off the lot. You can also look at our checklist. It has a lot of stuff people might already know but there might be one thing on the checklist you might have forgotten or didn’t know.

What is the biggest mistake that people make in the first 30 days of buying a car?

They see a car ad on TV and say, “wow, I like that. I’m going to look into that.” That’s not a good way to shop for a car. There are so many new cars on the market that if you jump at whatever strikes your fancy, you’re probably overlooking a whole bunch of cars you should consider. Take the car that excited you, put it into Edmunds.com’s car search, and click on the “Compare Vehicles” feature, and it will pull up everything that is similar.

What are the most important things to do to start the car-buying process in the first 30 days?

Separate shopping and buying. First, choose the right car. That’s a whole different mindset than sitting down and being a savvy negotiator. When you’re settled on the car, then you go in and make your best deal.

Decide how much car you can afford. If someone is buying a car, we recommend a 20% down payment. The reason is that the first year’s depreciation is 20%. If you don’t put down the down payment, then you’re upside down—you’ll owe more than the car is worth. Car payments should be no more than 20% of your total take-home pay.

Select the type of vehicle. Look back over your car-buying habits. Think about how you tend to use cars. I tend to buy a car and keep it for a long time. Others people are frequently changing—they’re in and out of cars. Then, think about how you’ll use the car, which will point you toward a vehicle class and features.

How can consumers use the internet to assist in buying a new car in the first 30 days?

Once you’ve done your research, contact the dealer’s internet department. [Dealers] have sort of been forced into creating this department, since it grabs lots of internet shoppers they couldn’t get otherwise. This is where you’ll save money.

When you research a car-dealer’s site, you may be asked if you want a free quote from local dealers. This request takes you directly to the dealer’s internet department. There is fairly little negotiating in this department. They know you’re shopping around and have to hit you with the best price off the bat. You can also call the internet department directly for a quote.

How can people find out what price they should be paying for a new car?

At Edmunds.com, we find out the price that a number of people reached after negotiation. We put that in an average and we post a true market value [TMV] price for every car. This is the typical price that this car is selling for in your area. Most people are comfortable knowing they are getting more or less what others are paying.

Then, take this information and go out and get prices. Try to contact five dealers. You’ll find out very quickly what the car is selling for. Remember that when cars are brand new, they are going to sell for high prices. When they’ve been out for a while or if they are unpopular, the price will drop. Also, make sure you know about incentives and rebates, too. An incentive is anything that motivates you to buy a car, and a rebate is a specific incentive. When you look up a car on Edmunds.com, there is a link for incentives, so make sure you know what is available on the car.

What is the most important feature that consumers should be focusing on in a car search?

The key is to find out what features are important to you. Review the way you use a car and what is important to you. Then, look at what is standard on your car and see if there are options you want to pay extra for, such as a sunroof, upgraded stereo, etc. In some cases, you don’t have complete control over this unless you order a car to be built specifically for you. When you go car shopping, you can always go and evaluate those things. I would encourage people to look at fuel economy and consider that very carefully. Gas is not going to come down again; it’s only going to go higher. The market has broadened, so there are many more [fuel-efficient] cars available than there used to be.

What types of environmentally friendly vehicles are out there, and how exactly do they work?

Hybrids are among the most green vehicles. They store electrical energy in a battery system to capture energy usually wasted when stopping or going down hill. They also shut off the gas engine at stoplights. Other cars with small engines cut emissions, such as the Honda Fit or Toyota Yaris.

There is a debate over whether hybrids are really a good purchase. Will consumers lose money in the long run if they buy a hybrid?

Hybrids usually hold their value for a long time. In the past, people have paid high premiums for hybrids, meaning that they paid extra compared to a similar vehicle without a hybrid system. But, the prices have dropped and tax credits have erased much of this premium.

What are some of your tips for buying a car in the first 30 days?

Shop and buy on different days. Do your test-drive and leave. Tell them right up front, “I’m going to test drive it today but I’m still looking at other vehicles. If I like it or I like the way I’m treated, I’ll be back.”

Decide on financing before you go the car lot. You can get pre-approved for a loan through your credit union or apply for online lending. You can do all of this even if you think you might accept dealership financing. That puts you in a much stronger position. If you walk in and say you haven’t checked your credit in a while, then there are all kinds of game playing that might occur.

Where is the biggest money trap in the car-buying process?

When you sign papers on the car, you’re taken into the F&I room—F&I stands for finance and insurance. They have what is called a “menu” and they run through it and try to sell you all that stuff: an extended warranty, gap insurance, fabric protection, prepaid maintenance plans—all kinds of things. There’s very little of value there.

What’s the best insider tip for buying a new car?

If you have a deal that you think is pretty good, ask if the dealer will deliver the car to you. If they’re not far away, they’ll bring it during your lunch hour. Then, you can sign your papers at your office and not theirs. They do this all the time. Then, you avoid the whole last minute sales-pitch, and that’s the great thing about it.

SIGNATURE QUESTIONS

What is the belief you personally go to during times of change?

My belief is that change is often a good thing, and I’m excited when I’m confronted with change. If I’m worried, I try to turn that around and create excitement and expectations around change. I don’t always live up to it, but that’s what I believe.

The best thing about change is…

…that it’s an opportunity to reevaluate yourself and your goals for the future.

What is the best change you have ever made?

I made a change to accept responsibility for my own actions and I stopped blaming events in my life as being out of control. Then, I began to see I was in more control. It was a change that I made when I was 30 years old. I’m 55 now. I wish I had made it much sooner.

For more information on Philip Reed, visit www.edmunds.com.