Home Personal Finance Smart Money We Just Bought a Used Car, Kind Of
We Just Bought a Used Car, Kind Of

We Just Bought a Used Car, Kind Of

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Situation Overview

We bought a used car! Kind of. In actuality, we helped QL’s dad buy a used car over the holiday break. At age 72, bored with retirement, he recently started a new job and found himself in need of a fuel-efficient commuter car. After some research and negotiations, we ended up purchasing a 2013 Honda Civic LX.

Start with a budget

  • We had a budget of ~$10,000, with a little flexibility.

Search for your alternatives

  • Decide where you will buy it from
    • There are several outlets you can purchase from, and each has its tradeoffs, but the vehicle’s history matters more than where you purchase it
      • OEM (Original Equipment Manufacturer) dealerships generally have the highest prices, but they worry about their reputations so usually only offer newer model years. They also inspect a car thoroughly before they accept it as a trade in or purchase it at auction, so that may offer you some comfort when it comes to buying.
      • Used car retailers offer cars for slightly lower prices, but in order to do so they had to acquire these cars at a lower price than the OEM dealers. This means that if you drilled down into the details, there would be minor quality differences between this and the OEM dealership used car. That said, odds are you will never notice these differences. Although these retailers also inspect a car before purchasing it, you may want to arrange for an independent mechanic to inspect the car before buying it.
      • Other individuals don’t have an entry price (trade in value or auction purchase) so they are able to offer you the lowest price and most flexibility in negotiation. You will need to find an independent mechanic to inspect the car before buying it and you will likely incur some maintenance costs to get the vehicle in prime operating condition before you start driving it. Think about topping off fluids, potentially getting new Freon, new tires, etc.
    • In the end, we chose to buy it from the local Honda dealership because we were short on time. Had we had more time, we would have tried to find a private individual to purchase the car from, to remove the middle man fee.
  • Check the Carfax
    • It’s important to understand where your car came from, how many owners it has had, its service and mileage history, and whether it has been in prior accidents.
  • After seeing several options in person, we decided to pursue a Honda Civic LX

Hone in on value

  • Check Kelly Blue Book prices as a guideline
    • The Honda Civic was traded in from a prior owner. He was the sole owner of the vehicle. We checked KBB.com to see how much he likely received in trade in value from the car, as a floor for value. We assumed a value of $7,000.

    • Dealers put in money to fix up the car, changing oil, removing dents, detailing the interior, changing tires, etc. We assumed they had put in $1,000 in labor and materials.
    • From there, we checked the price the dealer retail value would likely be
      • Sure enough the dealership priced the used car at $10,900.

    • We also noted that the fair value range of the vehicle was $9,601 – $11,384

Take it for a test drive

  • We took the car for a test drive and tested various features and functionality. One good thing about buying it from a dealership is it puts the car through a 160+ point inspection process before it decides to put the car on its lot. You likely won’t find major issues with the vehicle as the dealer wouldn’t have acquired the car if it had major issues.
    • Test the music/speakers to ensure functionality
    • Listen for engine and transmission noise at various speeds, including on the freeway
    • Use the cruise control
    • Check the tread on the tires
    • Check the HVAC controls
      • Ensure the heat will warm up the vehicle
      • Ensure the A/C will cool down the vehicle
    • You may want to pay and arrange for an independent garage to perform an inspection on the vehicle
      • As discussed above, this is particularly important if you’re purchasing your vehicle from a used car center or private individual



Negotiations

We are not expert negotiators, and buying a car is always tough because of the information asymmetry (the seller knows all, and you know little), but our transaction went something like this.

  • List price: $10,900
  • First offer
    • We assumed that there was a 20% margin built into the car, and based on the KBB values above, we negotiated aggressively, offering $9,000 all in (which would include all taxes and DMV fees) for the vehicle. Admittedly this was a low ball offer, given we assumed their basis was $8,000, but we wanted to see what the sales manager would offer.
    • After discussing with the sales manager, our salesman returned with an offer of $10,500, which only gave us $400 discount from the original $10,900. The total price with taxes and fees was $11,930. He was confident that they would be able to sell this vehicle the following week regardless of whether we bought it. Honda Civics are very good cars, and I didn’t disagree with him in my head.
  • Second offer
    • We countered with a total price with taxes and fees of $11,000.
    • After discussing with his sales manager, the salesman came back with $11,400.
  • Third offer
    • We wanted to come as close as we could to the $11,000 so we then offered $11,300
    • After discussing with this sales manager our salesman came back with $11,350 and said it was their final offer. If we had more time, we would’ve walked away but QL’s parents were tired of looking for a car. Her dad also needed a car to drive to work the following Monday. Therefore, we accepted the offer with a final request of getting a full tank of gas. The salesman agreed and added in a car wash.

Parting thoughts

In the end, our final price was $11,350, which implied a listing price of $10,062. We walked away thinking we got a fair price for the car, based on KBB.com values, however, had we had more time to shop around, I believe we could have purchased a used Honda Civic for a slightly better price.

 

Do you have any tips or suggestions for negotiating the purchase of a used car?



Comment(5)

  1. Four years ago I bought a used Toyota Rav4 from a Toyota dealer after doing some research like yours. I read everything I could find in Consumer Reports and this was very helpful. Years ago I had worked briefly in a large dealership in California so was a little familiar with the negotiation process. Also had some classes in negotiation skills when I worked in a bank so was able to get a good price like you did.

    1. That’s great to hear it worked out for you. Based on your job at the dealership, are there any important negotiating points you think everyone should know starting off?

      1. I think doing your homework upfront sends the salesperson a message and helps establish the parameters of the deal. It may force him/her to concede points early and get to their bottom line. In some dealerships they have to move product to make room for new models and are operating under some time constraints so may sell you the car at cost or slightly above cost.
        I knew exactly what model I wanted and looked at all of the Toyota dealers in the area and found my car. I was able to close the deal for what I estimate was $100 -$200 over their actual cost so they made a little and I got exactly what I wanted. It helped that I was shopping in December just when they were under pressure to move that’s years models to make room for the next years models.

  2. Is this a good tactic to use when you are financing a car? or, does this only apply to cars that are being bought out without financing?

    1. Yes it is. Dealers actually like it when you use their financing since it is another opportunity to make money off you.

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