Buying a car: Part 2

In last month’s column we took a look at the ethical (sic) behaviour and super-ego lacunae of some car salesmen. It seems they perennially rate at the bottom of the list of trusted professionals along with politicians and journalists (oops).

They frequently use the classic good-guy/bad-guy technique whereby the seductive salesman is there to be your friend who helps you deal with that fictional nasty boss out the back, so once again be wary.

When it comes to negotiation at trade-in time they know exactly how much your car is worth and it’s best to completely ignore comments like “I’ll try to get the best deal I can for you” as this is really just a silly ploy to gain your trust and you’d be a fool to think they can say that with any sincerity. It also pays to ignore the technique where they show you how much money they’re making on your vehicle and then ask you how much of this figure you’d let them keep in order to have your business.

With so many lies and so much mis-information, how do you work out how much to pay for that new car?

In 825AD the Arabic mathematician Al-Khw?rizm? wrote a set of rules about calculation. These became known as algorithms when his name was translated into Latin. If I was to design an algorithm for pricing a car deal I’d start by saying there are three types of car.

To begin with there are Category A cars which have a very limited supply and where you’ll place your order and wait for months in a queue for delivery (eg Golf GTi). Expect to pay the full retail price and accept the wholesale price for your trade-in as identified via web-sites such as redbook.com.au. After all if there are plenty of people who are ordering that model any dealer would be silly to offer a discount, but there are very few cars that I’d seriously put in Category A.

Next there are Category B cars which constitute most of the market. They are available at relatively short notice and dealers will negotiate the price. Dealers make about 16% on a car and everyone should remain friends if you take 12.5% off the new price (so-called fleet discount) and once again just take the wholesale price for your trade-in.

Don’t fall into the trap of letting them “talk up your trade” with comments that your car has been well-looked after. An extra grand or so for your car is hardly worth sneezing at when you want them to take $7,000 off the price of their car. I never disclose to salesmen how I’ve arrived at my change-over figure as they’ll usually insist that the substantially higher price of the new car is set in stone and it’s only the trade-in price that can be negotiated.

Most cars, even those German cars made in South Africa, are Category B.

The trickiest deals of all are with Category C cars. These are cars that just don’t sell and may sit in car yards for months or even years. The Mitsubishi 380, Citreons, Saabs and Toyota Landcruisers fall into this category and it’s very easy to pay too much.

When I traded in my old Landcruiser on a new 100 Series the dealer offered me $22K for my trade-in on a new model worth $66K ($44K change-over). I told him I wanted $27K for my car as per the Redbook and I’d give him $51K for his car as per the cheapest price I’d seen advertised ($24K change-over). The dealer laughed at me and told me I was wasting his time, scornfully saying they couldn’t give me any more for my trade-in and then discount the new car’s price. I walked out and didn’t find any resistance from the next dealer who happily signed me up saving myself $20,000 overall on a $51,000 car.

I’ve heard that Citroën dealers will take as much as $17,000 off the price of the C5.

Regardless of what sort of new car you’re looking at the wholesale trade-in price is all you should expect for your own vehicle. There is always a strong case for selling your own car privately to family or friends who will know they are getting a well-looked after vehicle at a bargain price.

Although I am absolutely not qualified to give financial advice I’d strongly recommend paying for your new car from a home equity loan with an interest off-set facility. This gives a low interest rate and as cars are never fully tax deductible you have the flexibility of paying the loan out at any time without penalty. This flexibility can also be very handy if your circumstances change.

Incorporated Doctors will need to purchase in their company’s name to claim back the GST so definitely seek financial advice before signing any contracts.

Safe motoring,
Dr Clive Fraser

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    Medical Motoring is an online record of the articles written by Dr Clive Fraser and published in the Australian Medicine magazine by the Australian Medical Association.