Car Buying Guide: Know You're Getting A Good Deal

When I was Internet Manager for a major car dealer, the most frustrating issue my customers faced was not knowing if they were getting a fair and reasonable deal. It was this not knowing—this black-hole of uncertainty—that created such anxiety, it transformed making a final decision to buy into a long and difficult process. The bottom-line was my customers did not want to make a mistake. The lack of clarity around buying figures translated into angst, fear, and delay.

It was also a difficult experience for the car dealer’s sales staff and their managers. Customers came in with unreasonable expectations: a friend or co-worker would talk about the “great” deal they just made when buying a similar vehicle. Such stories can be exaggerations that make the storyteller look good. They win bragging rights, but set-up ongoing rejection at the dealership level as others try—and fail—to make similar deals.

TrueCar.com to the rescue

There is a relatively new player in the new car valuation game. TrueCar.com is on the cutting-edge of making the car-buying process transparent. Go to TrueCar.com and input the make and model of car you’re hoping to buy. Up pops an image that shows you what others in your area are paying for the same car, along with the dealer’s actual cost. TrueCar even lists what a “great price” is, along with the “best local price.” This is the exact information new car buyers need to make a good deal.

Let’s take the TrueCar.com system for a test drive. I’m going to price a Honda Civic LX sedan with automatic transmission. Prices and incentives vary depending on where you live. I’m in the San Francisco Bay Area so I’m going to price one with my local ZIP code.

TrueCar tells me that the sticker price, also known as the Manufacturer’s Suggest Retail Price (MSRP)—including destination fee—is $19,305. After shopping around I was able to confirm this figure as accurate. I also learned from TrueCar that the factory invoice is $18,029. Subtract this from the sticker price and the gross profit the dealer hopes to make is $1276.

Many car buyers have long suspected that the factory invoice is not the dealer’s actual cost. TrueCar confirms this. It turns out that my local Honda dealer’s actual cost is an unusual $1371 below factory invoice. Why unusual? I know from previous research that the dealer’s holdback on the Honda Civic LX is $371. This is money the dealer receives at a later date from the manufacturer that effectively lowers the dealer’s cost below factory invoice. Subtract $371 from the factory invoice and you have the dealer’s usual actual cost for this car in my area.

However, if not for TrueCar, I would not know that Honda is providing dealers with an extra $1,000 “dealer incentive” for a limited time. Some dealers automatically pass this along to customers, but others only do so if asked. When we add the temporary dealer incentive of $1,000 to the $371 holdback, we have the current dealer cost that is well-below factory invoice.

What’s a good deal?

TrueCar tells me that the average price paid in my area for a Honda Civic LX sedan with automatic transmission is $18,484. Is that a good deal on this Honda Civic? TrueCar provides the following price information:

Above market: $18,641 or moreGood price: $18,640 or lessGreat price: $17,959 or lessBest local price: $17,229

It turns out that most local car buyers are getting a good deal on their Honda Civics. However, armed with this pricing information, car buyers are better equipped to negotiate a fair and reasonable deal with their local dealer. This is especially true for those who want the best deal possible and take into account dealer’s having an extra thousand dollars in dealer incentives to play with.

TrueCar’s figures not only provide a target to shoot for when negotiating selling price, but knowing what others in your area are paying for the same car helps set reasonable expectations that should make for a smoother negotiating process--with less stress--for all concerned.

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