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Car Shark – Buying a Used Car

by carshark on October 30, 2010

The Car SharkWelcome to the first of what will be an occasional series on many things motoring from guest blogger Car Shark, it will not feature anything to do with motorsport as I find that about as interesting as watching paint dry, it will however offer tips and guidance for those looking at negotiating the minefield that is the motor trade in NZ.

Buying a used car.

Buying a used car is not often an enjoyable experience, many of you will be placing your trust in somebody you do not know and in an industry that is quite rightly looked upon with deep suspicion, however, do not dismay, what follows will help you avoid the pit falls and prove that not every dealer is out to rip you off.

To ensure that you get the best possible deal there are a few golden rules that you should never break;

1. Never be tempted by a “minimum trade” promotion.

Minimum trade deals or promotions are never what they seem, while the dealer may well be offering what appears on the surface to be a far better deal for your trade in you will almost certainly be paying more for your new car than you would at any other dealer. Minimum trade deals are usually tied in with finance promotions, if the dealer is not charging you more for the car you are buying you can be sure he is charging an excessively high interest rate.
Minimum trade deals are a rip off, avoid them at all costs.

2. Always try and deal with a Franchise dealer.

As a rule you are always better dealing with a Franchised car dealer, Franchised dealers have a lot more on the line than most independent dealers, try and find one that has been in business for some length of time.
Most manufactures insist on high standards of from their franchised dealers, they have a strong interest in customer satisfaction and repeat business.

3. Do your research.

The internet is a wonderful tool, it saves you time, shoe leather and fuel, once you have decided on the make and model of the used car you want then use the net to find it, as mentioned previously try and find a car you like from a franchised dealer or dealers, narrow it down to three or four examples.

4. Always buy a New Zealand new car in preference to a Japanese import

Forget all the rubbish you will hear from salespeople and dealers, a good clean NZ new used car is always going to be a far better buy than a Japanese (Or Singaporean) import.
Most will have some service history, you can track (via motorweb or carjam) their recorded odometer readings, you can also find out the cars ownership history.

5. If you have even the slightest doubt about a car you are looking at then walk away from it.

Never be afraid to admit that your mechanical knowledge is not great, when you do find a car that you like and before you sign anything have it checked out by a mechanic you trust or the AA.

6. Do not commit to anything.

Once you have found the three or four examples you are interested in then visit the dealer or dealers, make sure you test drive the cars, thoroughly check their overall condition, check when they last had a service, ask if the car has a service history.

If you are happy with the car ask the dealer if he is negotiable on the price, do not ask what his best deal is at the moment as this could end up boxing you into a corner.

If the dealer is any good he will take this as a classic “buying signal” and gently start to try and close the deal, at this stage you should not commit to anything, simply say that you are interested in the car but you want to think about it, also mention that you have other cars you want to consider.

Under no circumstances should you tell him where the other cars are or who the dealers are, that is none of his business.

At this stage of the process many buyers often start to feel the pressure come on, the salesperson will want to know what it is that you need to think about (remember he is trained to overcome objections and will have a sales manager lurking around to ensure you do not leave without buying a car)

Be firm with the salesperson or dealer, tell him that you are interested but you want to think about it for a while, take at least 24 hours to decide, many people buy a car on impulse only to end up regretting their purchase for the next three or four years.

7. Negotiating the deal.

Once you have decided on the car you want (assuming that you have checked it out thoroughly) then the fun begins.

It is vital that you understand how the sales process works, the dealer or salesperson will obviously want to get as much as he can for the car, while price is a consideration it does not pay to get hung up about it, you are far better to pay a couple of hundred more for a good clean example than buy from the dealer who offers you the biggest discount, it also pays to keep as much of your powder dry as you can.

However, remind the dealer that you did ask if he was negotiable and assuming that he is then an offer that includes a 10% discount is a good place to start, look for a $1500 discount on a $15000 car, a $1200 discount on a $12000 car and so on.

When you do make the offer you must say nothing more, the golden rule here is that the first person to talk loses, no doubt there will be some back and forth negotiation, this is normal and as I said do not get too hung up on this as it is better to pay a little more for a good example, and anyway, you have not finished with him yet.

Given that you are looking at buying a used car you may have a list of minor faults that you want the dealer to repair, do not disclose this list until you have settled on an agreed price.

I would suggest saying something like “OK, before I sign anything there are a couple of minor faults that I need repaired”  remember by law he has to issue the car with a new WOF (or sell the car with a WOF no older than 28 days)

At the very least your list should include having the car fully serviced at the dealers cost, if the car is fitted with a cambelt then make sure you find out when that needs to be changed, if a new cambelt is due then ensure that the dealer covers the cost of this (including tensioners and possibly the water pump)

Check the registration, make sure there is at least six months left to run, and while it may seem silly to point out, ask for, and ensure you get, a full tank of fuel.

Once you have agreed a deal with the salesperson they will want a deposit from you, make sure that any deposit you hand over is minimal and refundable.

8. The paperwork.

In many dealerships you will now be handed over to what they call a Business, or Finance and Insurance, manager, these people have one role and that is to sell you Finance and Insurance.
They will place pressure on you to buy an extended warranty, to take finance and to take payment protection insurance.

Before you purchase an extended warranty you should remember that you are protected by two very powerful pieces of consumer legislation, the consumer guarantees act and the fair trading act, in most cases an extended warranty is a waste of money, the dealers legal obligations will cover most repairs that are needed.

Should you need to take finance then remember that the rate is always negotiable, a dealer will buy his money at a wholesale rate of between 8% and 12% depending on the volume of business he puts through, the dealer makes his money on the difference he pays for his wholesale rate and what he can get away with charging the customer, you should not be afraid to ask what the rate is and to negotiate that rate, if you are paying more than 13% then you are paying too much.

The finance deal will also include a booking fee, this is typically around the $250 to $450 range, the dealer will tell you that this is a cost imposed by the finance company, while he is not technically lying  he is also not telling the entire truth. The dealer splits the booking fee with the finance company a booking fee of $400 will usually be spilt 50/50, do not be afraid to tell the dealer that you are not going to pay the full amount.

The dealer will also try and sell you payment protection insurance, as a rule payment protection insurance is not worth the paper it is printed on, if you do want to protect your payments then there are far cheaper options available.

Payment protection insurance is seen as pure cream by the car dealers, on a three year finance agreement the payment protection premium may well be between $2500 – $4000, half of this premium is the dealers profit.

It is worth saying again, if you must take payment protection insurance then do not buy it from the dealer, check out a range of policies and you will find that you save yourself a small fortune.

Ensure that the dealer lists all the items you want repaired on the sales agreement, check carefully to ensure that nothing has been omitted, at this stage you can sign a conditional sales agreement but under no circumstances should you sign the finance contract, do not do this until you are ready to take delivery of your new vehicle.

Never take the car from the dealer at this point, he may well pressure you to take delivery on the promise of getting it back off you next week to repair any minor faults, I cannot stress this enough, do not take delivery of any car that is not 100% to your satisfaction , even more so if the vehicle is financed.

9. The delivery.

Even though you will be excited at the prospect of picking up your new car you must still be wary, before you take delivery check to see that any faults the dealer agreed to repair have been done, if the only way to check is to drive the car again then do so, take the salesperson with you.

The dealer should be able to provide you with any invoices for mechanical work done on the car as part of the sales agreement, if he cannot or will not then remember that it is not too late to walk away from the deal.

Ensure you have a copy of all the sales and finance documentation, make sure that the figures are correct, take five minutes and check that everything you wanted has been done and that no surprises are hidden in the finance agreement.

Once you are happy that everything is in order then and only then should you take final delivery.

The Car Shark is a twenty five year veteran of the NZ motor trade, he has worked in many dealerships and has extensive experience. The Car Shark has held every position in the retail trade from Car Cleaner to Dealer Principal.

The Car Shark has no allegiance to any one brand of car or any one manufacturer, he will always remain fiercely independent and is not afraid to spill the beans on the inside workings of the retail Motor trade in New Zealand.

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  • andrewo

    Although I agree that franchise dealers are the best place to go if you’re not knowledgeable about cars, I have had excellent deals from the car auctions – at about half the dealer price The key reason begin that I took along a second pair of eyes who knew the game. So if you have a friend or relative in the business, make use of them. It’s worth a few beers!

    A tip: If you want a car that’s not been screwed, buy something that a kid wearing a backward baseball cap wouldn’t be seen dead in. A middle of the range family 4 door with no wing, standard steel wheels and definitely no turbo. Of course you’ll have no street cred…

    Happy car hunting!

  • whalewatcher

    I had a long battle with Manukau Toyota 9 years ago – they sold me a car without ABS, when I had specified that as a requirement, and was then told they had a car that was what I wanted. On the day I test drove it, the sales manager had been using it, and the window card was in the glove box, not on display in the window as it should be by law. When I later signed up for the car, the window card was not gone through and signed by both parties as required.
    I battled for a year for a replacement. Kept getting stonewalled, finally got on the phone to the LMVD association, was given the cell phone for the dealer principal, phoned him but he was on holiday. However the General Manager who answered his boss’s cell phone was most helpful. Problem sorted within the week.

    Lesson – if in doubt, go to the top

    • Blondie

      lol, that reminds me – I purchased a car (on finance) two weeks before I found out I was pregnant with my daughter. Obviously I would never have committed to such a purchase if I’d known my circumstances were about to change so dramatically. But like you, I’d never received the window card. On the basis of that, I was able to void the entire purchase (which probably saved my credit rating). Lesson learnt – will never buy a car on tick ever again.

  • spook

    Interesting to read car shark’s comments, and some very valid points he makes. As a car sales professional also with 25 years experience, I have to question some of his advice. No doubt franchise dealers offer the best product available, however there is a big price spread and many private dealers will sell a car $3 to $4000 less than a franchise with often very little difference in quality. Car Shark does show bias too when he states NZ new cars are better buying than imports. Sure there have been some dodgy cars imported, but there have also been lots of dodgy NZ new cars sold. What happens to the abused and manky NZ new cars(and there are plenty of these)? Do they disappear off the face of the earth? Of course not, they are recycled by dealers, panelbeaters or Car Fair sellers (always selling for there relative who has gone overseas)- some of these are experts at turning a sows ear into a silk purse. Very few of these mongrel ars are imported from Japan as the cost of doing them up here is more than what it’s worth to by a nice example in Japan. There has been a lot of publicity from the NZ car industry about NZ new cars and their proven history, but I have sold many Japanese cars with no history in absolutely fantastic condition.
    Now once a car is found and a deal is struck, Car Shark recommends negotiating a deal and then throwing in a list of extra requests after the deal is struck!!! This would be a consumer’s dream if it was possible to do business this way!! Let’s face it – car dealer’s have a right to run a business, and anyone negotiating in this way shows no respect for those rights. Consumers deserve to get fair treatment from dealers, but this is a two way thing, and a car dealer who has just agreed to his lowest possible price is not going to agree to spend $1000 extra on cambelts, registration, tyres, fuel or whatever else. Keep your negotiations above board people, or you can’t complain if the dealer starts getting tricky-dicky with you in return!!!

  • mediatart

    10% off as a starting negioation ?
    No way. The window sticker price is dreamland.
    Car Shark has been a bit disengenious here. For the mass market where people buy between $10K and $20K this is way too low. These cars cost a third of that in Japan.
    Sure let the dealer have some profit, $1000 seems a good deal . Selling more cars makes more profit. Not selling a handful a week when you could move 20.
    Auckland has way too many caryards. Put them out of their misery but giving a customer a great deal, a really great deal.

    • carshark99

      mediatart

      Without wishing to sound rude it is clear that you have no idea how the car market works, nor do you have any idea of the margins that most dealers are operating within.
      If a dealer could purchase a vehicle in Japan for $7000 (as you suggest) and sell that same car for $20,000 (again as you say they can and do) then there would not be so many dealerships closing their doors with each passing week.

      While the original purchase price for a car that is priced in the “mass market” price bracket may well be around the $7000 figure that is only the start, often there are agents fees, shipping (it cost around $3500-$5000 per vehicle), MAF inspection and compliance and VIN costs at this end, on top of that you have grooming and panel and paint costs, the $14000 margin in a $20,000 car is a myth.

      Sure, there may be some dealers who start with a 1/3 margin on a car from Japan, however I would suggest that these dealers are not in that “mass market” area, they will be catering to finance clients (what we call sub prime) and a good portion of that margin will be used up in a minimum trade price style gimmick or enticement.

      The whole purpose of my post is to help the public get a good deal, that is why I strongly suggest that they purchase from a franchise dealer, simply put franchise dealers are not operating with huge margins, a bog standard popular NZ new Corolla that retails for around the $15000 mark will normally have a gross profit margin of around $4000, from that you need to deduct GST and any possible discount negotiated by the client.
      No dealership can operate on a gross margin of $1000 per car sold, the economics of it just do not stack up, typically the gross margin retained in a used vehicle sale will be around the $2000-2500 figure.
      You are also under the impression that franchise dealers should aim to sell roughly 20 per week on smaller margins, well, most of the medium to larger franchise dealers in our larger cities will be doing in excess of 20 per week, even those sort of numbers make the business viability marginal in many cases.

      I am not asking you to feel sorry for these guys, I want to see the public get a good deal but I also have a desire to see a lot of the myths about the industry exposed for what they are.
      I am perfectly aware of the low opinion that the industry has in the eyes of the public, a lot of that is warranted, and yes, like you I do want to see the number of dealers decrease as it is normally the bad and dishonest ones who go first.

  • workingman

    Car Shark

    How do you go about buying from a dealer where there is not a large choice, e.g. Mercedes, BMW, Audi. They seem to think they do not need to give a discount, or is just they hold longer than me? :-)

    • carshark99

      Can you give me a bit more detail of what you might be looking for?

      Are you talking late model NZ new or Japanese or Singaporean Import?

      I am happy to give you advice and offer a guide as to what you should be paying, but as I said, I would need a little more information.

  • mediatart

    Shark . The profit figure of $1000 would be the minimum. – I though you were telling us to get a good deal. Some would pay more because of crap trade in or couldnt negoiate if their life depended on it. For others , who a have a credit score like the Chinese governement, this should the very best deal.
    Plus I said profit. Not before all the ‘parade of horribles’ you mention which ‘might’ apply for low rated stock.
    And yes in the US a large dealer selling something average brand like Dodge will sell 50-60 used cars a weekend. Here a large dealer breaks out the champagne if they close 5 sales a weekend.
    There are too many yards full of ‘canoes’ pushing overpriced used cars, allmost all from Japan. ( you could provide the nickname for a car sold for top dollar)

    As for franchised dealers they are only there to push up the price of the 3yr old models coming off lease so they can make money selling the same car twice.
    F& P played the same game offering high trade in prices for half knackered washing machines, only if the bought new.
    Depreciation from new should be from 30-60% of the price after 3-4 years, yet too much junk only gets to half original price after 6 years !!!
    Like this
    http://www.trademe.co.nz/Trade-Me-Motors/Cars/Holden/Commodore/auction-328318527.htm

  • carshark99

    Mediatart

    “Depre­ci­a­tion from new should be from 30–60% of the price after 3–4 years”

    Who said it should?, there is no fixed equation to ascertain the value of a 3-4 year old vehicle.
    The used car market operates on the classic capitalist principal of supply and demand, there are many factors that influence what 3-4 year old cars are worth but by far the greatest is the old adage of “it is only worth what the public will pay for it”.
    Most ex lease vehicles are sold via tender or auction, while the owner (the lease company) may set an initial residual value the car will not sell if the residual is more than the market is willing to pay for it.

    Off the top of my head the things that influence the market price of an ex lease vehicle are..
    1. Their popularity
    2. The Brand
    3. What the new car market was like 3-4 years ago
    4. How many of them are on the market right now
    5. What the public are prepared to pay for it.

    The notion that Franchised dealers have some plan to keep the cost of cars artificially high is laughable, if they could buy them cheaper and sell them cheaper I can assure you they would.

    Now, if I can go back to the original intent of my post, I hope that I have given the average buyer some hints or pointers as to how they might save themselves the trouble of buying a lemon or paying too much for a car, I use the term “average buyer” with care, I assume our “average buyer” has at least half a brain and is not well known to the people at Baycorp or the Repo man.

    For those in the sub prime market there are not as may options, most would have a history of repossessions or payment defaults, for those people the choices are not great, often the only places they can go are to the dealers you talk about who have artificially high retail prices and poor quality Japanese Imports.
    A large portion of that artificially high retail price will be used by the dealer to “create” a deposit for the customer so as to improve the chance of the customer making it through the finance process.
    I have to state right now that is not a practise I like nor it is one that I would ever recommend, it nearly always ends in disaster for the customer.

  • jabba

    ok, I’m a
    year late but my issue happened last Saturday.. Goes like this, hard to shorten
    it:

    I have been
    cruising Trademe/Autotrader for a month. Included individual dealer sites and
    also went to 2 Turners auctions in Penrose.

    Ended up on
    Otahuhu and stopped in at GMC. They seem to have reasonable prices. Now, we
    (wife and I), were checking out a Mondeo wagon (need a square back for dog
    cages and the Mondeo has a good one). There were about 4 of them .. From memory
    they ranged from 13990 up. The saleswoman advised that the one we were looking
    at was reduced 2 hrs ago to $11990. Seemed pretty good so told her we would
    return the next day (last Saturday .. pissing down) with one of our boys to
    check it out with us. Note, I checked Trademe and there was the car with a sign
    saying $11990. We turned up at 11am (me, son and his girlfriend .. wife busy).

    We confirmed
    the price and took it for a drive .. Seemed fine. Got back. My son asked why it
    was reduced and she said the car was on the lot long enough and they wanted to
    generate cash flow from it .. No profit??. Now, on both days, another salesman,
    a builder doing renovations and another bloke were hovering about.

    I agreed to
    buy at the agreed price. I asked what happens now as the car wasn’t registered.
    She said I could pay with a bank transfer and she would take us to a Mt Wgtn
    place to sort out the paper work. She plugged in their laptop, logged onto the
    ASB, we both bank with them. I had the money transferred and she told one of
    the other people that she was off to sort out the transfer. He THEN told her
    the $11990 price was related to another car … WTF? She said sorry (1/2 doz
    times), rang the Manager who was on holiday and he said to cancel the sale as
    he wanted $13990. I was stunned as were the other 2 AND my wife when I rang
    her. I then offered them another $1000 .. she said no then offered $1500 .. Still
    no. So, I asked for her to reverse the transfer BUT she wasn’t allowed to until
    Monday but offered an ASB cheque. I had had enough by now so took the cheque as
    I was $11990 down and no car .. Wanted something.

    So, the
    missus rang the saleswoman to complain .. waste of time. She said I took the
    cheque so that was that.

    She rang the
    Manager on Monday. He told her it was a mistake and told her about 3 times that
    we were opportunists were insisting the sale was final. When she told him we
    would take it further, he told her that they were wrong and would lose the case
    BUT it would take us 6 months.

    What a
    shocker .. All over $2000 (actually $500 in the end).

    Still wondering
    how far to take this.

    By the way,
    the saleswoman tried to say she had only been there for 3 days. Possibly true
    BUT it seems she runs their Nth Shore yard and has been in the business for
    decades.

    Really pissed off.

  • JE

    Any tips on how to handle a trade in vehicle? The article doen’t make any mention of this.