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    Thread: New Car Purchasing FAQ

    1. Global Moderator David@vwvortex's Avatar
      Join Date
      Oct 7th, 1999
      No. Virginia
      '04 R32/83 Rabbit GTI/13.5 Jetta GLI
      04-02-2002 03:05 PM #1
      New Car Purchasing FAQs

      How do I know if I am getting a good deal?

      There are many factors that determine what is a good price for a car. Supply
      and demand is one of the most important. If the car you want is in high demand
      then you can be sure that you will pay a higher amount above invoice than a
      car that is not.

      The first thing you want to do is to calculate the dealer’s cost (invoice)
      on the car. Never work from the sticker price (MSRP) down. Always work from
      invoice up. Once you have the invoice price of the car, including options, you
      need to determine a fair selling price. Two sites that can assist you in
      determining this are http://www.edmunds.com and http://www.carsdirect.com .

      Edmunds.com has what they call their TMV or True Market Value. TMV reflects
      the average of the transactions within your region. Variable factors, such as
      the inventory levels of a specific dealer, or how eager the dealer is to sell,
      may also affect the TMV price. There is a calculator that has you select the
      specific car and options you want and it will tell you what the TMV is. I
      would suggest always offering less than the TMV to begin with, hoping to close
      the deal at or under TMV. TMV does not necessarily reflect the best deal you
      can possibly get, just what a fair deal would be.

      CarsDirect has an excellent configurator that will allow you to “build”
      your car and then tell you what the invoice is and also what a dealer in your
      area is willing to sell the car to you for. This is an excellent negotiation
      tool since if a dealer insists that he can’t go any lower and CarsDirect
      shows a lower price, you can just “threaten” to buy the car online.

      One thing to remember is that car dealers are in the business to make money,
      not to loose it. They are entitled to make a fair profit on every car they
      sell. Demanding to buy a car at invoice only helps to promote the
      confrontational atmosphere that most car buyers dread. Use the above
      referenced resources as a guide to what a fair price is and you will have a
      much more enjoyable car buying experience.

      What is the holdback?

      Dealer holdback is a percentage of the MSRP or invoice of a new vehicle that
      is paid to the dealer by the manufacturer to assist with the dealership's
      financing of the vehicle. It is almost always non-negotiable, because it is
      designed to help the dealer cover some of the extraordinary costs of doing
      business. Think of it as a forced-savings plan for the dealer. However, by
      knowing about the holdback, you can use it as a negotiating tool in some
      cases. First, a little more background.

      The total invoice cost of the car is due to the manufacturer, payable by the
      dealership, when the vehicle is ordered, not when it is sold. Since car
      dealerships (or any retail operation, for that matter) must have an inventory
      on hand through which the consumer can browse and ultimately select a vehicle,
      they must borrow money from the bank to pay for that inventory. The
      manufacturer pays for financing and maintenance for the first 90 days the
      vehicle is on the lot, in the form of a quarterly check called a holdback.
      After the first 90 days, the dealership dips into its own pocket, and into its
      own profit, to finance the car. Fortunately, most cars don't stay on the lot
      for three full months.

      This amount is "invisible" to the consumer because, unlike the destination
      charge, it does not appear as an itemized fee on the window sticker and is
      included in the invoice cost of the car. If the car sells within 90 days of
      arrival on the dealer's lot, he is guaranteed a profit even if the vehicle is
      sold to you at cost. Because of the holdback, the dealer can advertise a car
      at $1 over invoice and still make hundreds of dollars on the sale.
      For example, let's say you're interested in a vehicle with a Manufacturer's
      Suggested Retail Price (MSRP) of $20,500, including optional equipment and
      destination charge. Dealer invoice on this vehicle is $18,000, including
      optional equipment. The invoice includes a dealer holdback that, in the case
      of this manufacture's vehicles, amounts to 3 percent of the total MSRP. (The
      $500 destination charge should not be included when figuring the holdback.)
      So, on this vehicle, the true dealer cost is actually $17,400, plus
      destination charges. Even if the dealer sells you the car for invoice, which
      is unlikely, he would still be making as much as $600 on the deal when his
      quarterly check arrived. That is profit to the dealer only; the sales staff
      doesn't see any of it.

      So, if you offer the dealership a nominal profit (3 percent over invoice in
      this example) for this vehicle, or $18,540 plus the destination charge, the
      dealer and the sales staff are making as much as $1,140 and you're still
      getting a good deal by paying $1,460 less than the MSRP. (Remember that this
      price doesn't include destination or advertising charges, additional fees,
      tax, or license plates.)

      However, the true "profit" of holdback money depends on how long the car has
      been on the lot. If our vehicle had been sitting there for 45 days before you
      bought it, the dealer's holdback profit is only half of what it could have
      been, or only $300, cutting total profit on the deal to $840. At the 90-day
      mark, holdback profit has disappeared.

      Dealer holdback allows dealers to advertise big sales. Often, ads promise that
      your new car will cost you just "$1 over/under invoice!" Additionally, the
      dealer stands to reap further benefits if there is some sort of dealer
      incentive or customer rebate on the car. Generally, sale prices stipulate that
      all rebates and incentives go to the dealer. Using the example above, let's
      see what happens when there is a rebate.

      Suppose the car described above has a $1,000 rebate in effect. You need to
      subtract that $1,000 rebate (remember, the dealer is keeping the rebate) from
      the dealer invoice of $18,000, which results in a new dealer invoice of just
      $17,000. Now, you must calculate a fair price, using the Edmunds TMV or
      CarsDirect price. In this example, TMV is $17,510, which means that the price
      you should try to buy the car for is $510 over invoice, plus destination,
      advertising, taxes*, and fees. The dealer is still making as much as $1,110
      and you're paying $2,490 less than the MSRP. Remember, the longer the car has
      been in the dealer's inventory, the less money the dealer is making.

      Almost all dealerships consider holdback money sacred, and are unwilling to
      share any portion of it with the consumer. Don't push the issue. Your best
      strategy is to avoid mentioning that you know the holdback amount and what it
      is during negotiations. Mention holdback only if the dealer gives you some
      song-and-dance about not making any money when you know that isn't true.

      So how can you truly benefit from holdback information? Well, if the
      dealership doesn't have that pretty green color you're interested in, and they
      can't find it at another dealership in the area, they have to order it
      directly from the manufacturer. If that's the case, make sure that they know
      that you know about the holdback. If a vehicle is special-ordered, holdback
      money is pure profit, and you will need to factor this into price

      Domestic manufacturers (Ford and GM) and the Chrysler half of DaimlerChrysler
      generally offer dealers a holdback equaling 3 percent of the total sticker
      price, or MSRP, of the car. Import manufacturers (Honda, Nissan, Toyota, etc.)
      provide varying holdback amounts that are equal to a percentage of total MSRP,
      base MSRP, total invoice or base invoice.

      When calculating a holdback, use the following guidelines. If a holdback is
      off the:
      1) Total MSRP, consumers must include the MSRP price of all options before
      figuring the holdback. 2) Base MSRP, consumers must figure the holdback
      before adding desired options. 3) Total Invoice, consumer must include the
      invoice price of all options before figuring the holdback. 4) Base Invoice,
      consumers must figure the holdback before adding desired options.

      Following is a current list of makes and the amount of the 2001 dealer
      Acura 3% of the Base MSRP
      Audi No Holdback
      BMW No Holdback
      Buick 3% of the Total MSRP
      Cadillac 3% of the Total MSRP
      Chevrolet 3% of the Total MSRP
      Chrysler 3% of the Total MSRP
      Daewoo One-price sales. Customer pays MSRP.
      Dodge 3% of the Total MSRP
      Ford 3% of the Total MSRP
      GMC 3% of the Total MSRP
      Honda 3% of the Base MSRP (except Prelude, which has a flat-rate holdback)
      Hyundai 2% of the Total Invoice
      Infiniti 1% of the Base MSRP (holdback) + 2% of the Base Invoice
      (floorplanning allowance)
      Isuzu 3% of the Total MSRP
      Jaguar No Holdback
      Jeep 3% of the Total MSRP
      Kia 3% of the Base Invoice
      Land Rover No Holdback
      Lexus 2% of the Base MSRP
      Lincoln 2% of the Total MSRP + additional 2.5% rebate of Total Invoice to
      Certified Dealers for 2001 models
      Mazda 2% of the Base MSRP
      Mercedes-Benz 3% of the Total MSRP
      Mercury 3% of the Total MSRP
      Mitsubishi 2% of the Base MSRP
      Nissan 2% + 1% of the Total Invoice (holdback + floorplanning allowance)
      Oldsmobile 3% of the Total MSRP
      Plymouth 3% of the Total MSRP
      Pontiac 3% of the Total MSRP
      Porsche No Holdback
      Saab 2.2% of the Base MSRP
      Saturn 3% of the Total MSRP. But with one-price sales, this is a moot point.
      The customer pays MSRP.
      Subaru 3% of the Total MSRP (Amount may differ in Northeastern U.S.)
      Suzuki 3% of the Base MSRP (holdback) + an additional 1% (floorplanning
      Toyota 2% of the Base MSRP (Amount may differ in Southern U.S.)
      Volkswagen 2% of the Base MSRP
      Volvo 1% of the Base MSRP
      * Incentives and rebates are actually deducted from the transaction price
      after Uncle Sam has collected taxes. We have taken editorial license with the
      process in this example for the sake of keeping it simple.

      In addition, many dealers use the holdback money to cover other expenses at
      their dealership so that even if the car is sold the day it comes off the
      truck they still have plans for this money elsewhere.

      Should I buy or lease?

      Each has its advantages and disadvantages.

      Traditional financing offers the pride of ownership, no mileage restrictions,
      the freedom to customize your car without worry and it gives you the
      opportunity to pay the car off and not have car payments. The disadvantages
      are having to pay all of the sales tax upfront, having to usually put a
      substantial amount of money down, higher monthly payments, and the possibility
      of having repair costs and a car payment at the same time (if the loan term
      goes past the warranty period).

      Leasing offers the advantages of lower monthly payments, little or no money
      out of pocket, driving a new car more often, never having repair bills
      (assuming you lease only as long as the warranty period), only paying sales
      tax on the portion of the car you use and not having to worry about selling or
      trading in the car at the end. The disadvantages are mileage restrictions,
      limitations of the amount of customizing you can do, never ending string of
      car payments, having to keep the car in good shape and never actually owning
      the car.

      Which one is better is really determined by your lifestyle, needs, desires and
      finances. Generally speaking, a 36-48 month lease term will offer a lower
      monthly payment that a 60 month loan (with less than 20% down).

      How do I calculate a lease?

      Calculating a lease payment is not difficult, once you have all the
      information you need. The lease payment is based on the difference between
      what you pay for the car and what the car will be worth at the end of the
      lease, plus interest.

      When it comes to leasing, here is the lingo:

      Capitalized Cost - This is the selling price of the vehicle.

      Capitalized Cost Reduction - This is simply a down payment.

      Residual Value - This is what the car will be worth at the end of the lease
      (usually stated as a percentage of the MSRP).

      Money Factor - This is the interest rate. It is always give as a decimal
      figure. While it is not necessary to know the actual percentage rate when
      calculating the lease, you can figure it out by multiplying the money factor *
      2400. This number is used no matter what the term of the lease. For example, a
      money factor of .0025 would be an interest rate of 6%.

      Inception Money (or Get In Money) - This is the amount of money that you have
      to come up with at the start of the lease (not including any Capitalized Cost
      Reduction). The inception money usually consists of the first month's payment,
      a security deposit (usually equal to one month's payment rounded to the
      nearest $25 and a bank fee. It can also include the dealer documentation fee,
      tags and sales tax on the any Capitalized Cost Reduction (more on that later.)
      It is important to have all of these costs broken down so you know exactly
      what is being covered.

      Now, here is how we calculate a lease. First off, you need to have several
      things: the MSRP (or sticker price), the selling price (Capitalized Cost), the
      residual value (as a percentage) and the money factor.

      Let's use the GTI 1.8T as an example. Adding in the 17" wheels, luxury and
      leather packages, it will have an MSRP of $22,000. The residual value for a
      36-month lease (with 15K miles/year) is 57%. Usually a 12K mile/year lease
      will have a residual value 2% higher (or 59% in this case). The money factor
      for 36 months is .00250. Now that we have our figures, we can calculate the
      lease. This may seem complicated, but take it step by step and it is quite

      First we calculate the lease cost. Take the MSRP ($22,000) and multiply it by
      the residual value (59%). This gives us $12,980. Now, take the Capitalized
      Cost (what you pay for the car) and subtract the residual value from it. Let's
      say we pay $21,500 for this car. $21,500 - $12,980 = $8520. Now, we take that
      $8520 and divide it by the lease term of 36 months. $8520 / 36 = $236.67.

      If you didn't have to pay any interest, this is what your monthly payment
      would be . Unfortunately, few banks lend money without charging interest . To
      figure out the monthly interest you take the sales price ($21,500) and add it
      to the residual value ($12,980) and multiply it by the money factor (.0025).
      $21,500 + $12,980 = $34,480. $34,480 * .0025 = $86.20. So, you are paying
      $86.20/month in interest. You add that to the monthly lease cost of $236.67
      and you end up with a monthly payment of $322.87. But wait, there's more. Your
      state needs to collect their part of the deal in the form of sales tax. If
      your sales tax is 8.25%, you would multiply the monthly payment by 1.0825 for
      a grand total of $349.51. This is your monthly payment.

      Now, what about putting more money down in the form of a capitalized cost
      reduction. You would simply deduct this amount from the capitalized cost
      before you run the numbers. For example, if you put $1,000 down, your monthly
      payment would drop to $316.73. Now you are probably asking yourself, why not
      put more money down? First off, you have to pay your 8.25% sales tax on that
      $1000. But that is no big deal. The bigger problem is that if the car ever
      gets stolen or totaled, the insurance will pay off your lease, but you will
      never see that $1,000 again since it was paid up front. Also, think of it this
      way. If you were leasing an apartment and the rent was $750/mo, but the
      landlord said, "Give me an extra couple of thousand up front and I will lower
      the rent to $650/mo." Few of us would actually do that. Leasing your car is
      just like renting. If you can't afford the payment without putting more money
      down, I would suggest taking the money you would put down and put it in the
      bank to earn interest and then deduct an amount every month to cover the

      I know this seems complicated, so I created an Excel spread sheet that
      calculates everything. All you need to do is punch in the numbers. If anyone
      wants it, just send me an e-mail at schapiro_scott@yahoo.com.

      One more bit of advice. Never lease a car for a longer term than the
      manufacturer's warranty. If you do and something breaks past the warranty
      period, it will be your responsibility to get it fixed and pay for it
      yourself. Since you will give the car back at the end of the lease, you are
      basically paying to fix someone else's car. So while generally longer lease
      terms will give you lower payments, don't lease past the warranty period.
      Also, don't lease longer than you will think you will want your car. Breaking
      a lease early can be very expensive.

      What is my car worth?

      Whether trading your car into a dealer or selling it privately, getting rid of
      your car can often create major headaches. This stems from the fact that we
      often feel our car is something special so it should be worth more than just
      the average car. In reality, your car is only worth what someone else is
      willing to pay for it, and this amount is usually lower (in some cases, much
      lower) than what we desire. There are, however, resources that can assist you
      in determining what is a fair price for your car. These include Edmunds.com,
      the Kelly Blue Book (kbb.com), the NADA (National Automotive Dealer
      Association) Guide (NADAguides.com) and the Black Book " TARGET="_blank">http://ads.cars.com/adentry/pricing/choose_mym.jhtml?referer=standalone>

      If you are trading your car into a dealer, you can estimate what a fair
      trade-in value would be by looking up your car in one of these guides. There
      are, however, a couple of pitfalls to deal with. First, most dealers in a
      given region will only use one source to value trades. You must find out what
      source they use and look up your car in that source. Second, most dealers will
      not offer more than average (or the equivalent) condition for your car, even
      if your car is in great shape. Finally, what a dealer offers for your trade
      often depends on whether or not the dealer plans to keep the car on their lot
      in order to re-sell the car, or whether to send the car to the wholesale

      If you are selling your car privately, you should average the values from the
      various sites and use this as a starting point. You will usually get more for
      you car if you sell it privately, but you must also deal with having strangers
      drive your car and working out the payment and timing. For most people, this
      is usually too much of a hassle. In addition, while trading in your car will
      usually net you a smaller amount than selling it privately, you will get a
      sales tax advantage if you trade your car in. This is because the trade-in
      value of your car is deducted from the selling price of the new car before the
      sales tax is calculated.
      [Modified by VeeDubDriver, 3:10 PM 4-2-2002]

      [Modified by VeeDubDriver, 9:55 AM 5-7-2002]

    2. Global Moderator David@vwvortex's Avatar
      Join Date
      Oct 7th, 1999
      No. Virginia
      '04 R32/83 Rabbit GTI/13.5 Jetta GLI
      04-02-2002 03:07 PM #2
      Giving credit where credit is due... Thanks for VeeDubDriver for putting this together... very insightful info in there... [IMG]http://**********************/smile/emthup.gif[/IMG] [IMG]http://**********************/smile/emthup.gif[/IMG]

    3. Member VeeDubDriver's Avatar
      Join Date
      Oct 1st, 2001
      Boynton Beach, FL
      '16 Mazda Miata Club / '13 Infiniti G37
      04-02-2002 03:10 PM #3
      Thanks for posting it for me [IMG]http://**********************/smile/emthup.gif[/IMG]

    4. Member
      Join Date
      Mar 20th, 2001
      2007 VW GTI 6MT; 2007 Porsche Cayman 5MT; 2009 VW Passat Highline Wagon 6MT
      04-03-2002 09:17 AM #4
      Does the holdback info apply to Canada too?
      Quote Originally Posted by 20aeman View Post
      No, the real enthusiast vehicle would be the RX8. It combines V12 Lamborghini gas mileage with Hyundai Genesis 4cyl. performance.

    5. Member VeeDubDriver's Avatar
      Join Date
      Oct 1st, 2001
      Boynton Beach, FL
      '16 Mazda Miata Club / '13 Infiniti G37
      04-03-2002 09:40 AM #5
      No, the holdback info is for the US only.

    6. 04-06-2002 12:05 AM #6
      Thank for the tips...it will make my negotiations tip to my side (i hope)...

    7. Member VeeDubDriver's Avatar
      Join Date
      Oct 1st, 2001
      Boynton Beach, FL
      '16 Mazda Miata Club / '13 Infiniti G37
      04-19-2002 05:43 PM #7

    8. 05-06-2002 08:46 PM #8
      nice FAQ but egads please fix the links they totally destroy the fulidity of the thing!!

    9. 06-07-2002 06:10 PM #9
      bump [IMG]http://**********************/smile/emthup.gif[/IMG]

    10. 06-21-2002 05:24 PM #10
      How about some used car purchasing assistance and advice? Like what to look for, is it smart to travel to find a rare car, etc?

    11. Member VeeDubDriver's Avatar
      Join Date
      Oct 1st, 2001
      Boynton Beach, FL
      '16 Mazda Miata Club / '13 Infiniti G37
      06-22-2002 10:24 AM #11
      Used cars are a real crap shoot and there is very little "applies to all" advice I personally can give. I would say that have any used car looked at by both a mechanic and a body shop and get a CarFax check done.

    12. 07-10-2002 08:52 PM #12
      Great Info Guys [IMG]http://**********************/smile/emthup.gif[/IMG]
      Here is another great source

    13. Member VeeDubDriver's Avatar
      Join Date
      Oct 1st, 2001
      Boynton Beach, FL
      '16 Mazda Miata Club / '13 Infiniti G37
      07-11-2002 08:24 AM #13
      I have read that extensively, unfortunately, I think some of his information and tactics are a bit dated.

    14. 07-11-2002 04:48 PM #14
      Some of his stuff can be a bit rough, but It's still a great source of info. I learned a whole lot from that site. Cash Flow Shell Games, Bait & Switch, Payment Padding.
      You guys did a great job with your own car buying tips section.
      You get a big [IMG]http://**********************/smile/emthup.gif[/IMG] from me

    15. Member
      Join Date
      Jun 21st, 2000
      2003 Passat Variant GLS 1.8t 5MT (and a bunch of VWs before that)
      07-14-2002 05:06 PM #15
      carsdirect.com has not been competitive for years. You can get that price by just walking into the dealership and standing around...
      It seems to me that Edmunds does not include advertising, port prep and floorplan fees which run around $280 for VWs. Just one more thing to keep your eyes open for. Also, there is the ever-popular processing fee (can be around $180-$230).

    16. Member VeeDubDriver's Avatar
      Join Date
      Oct 1st, 2001
      Boynton Beach, FL
      '16 Mazda Miata Club / '13 Infiniti G37
      07-14-2002 05:45 PM #16
      Edmunds states that there are always legitimate advertising and other fees that they do not include because they vary from region to region.
      Carsdirect.com is usually competitive, depending on the model and region. Like I said, it should be used as just another bargaining tool.

    17. Member Honda_Appliance's Avatar
      Join Date
      May 4th, 2000
      Niagara Frontier, USA
      07-17-2002 12:25 AM #17
      Sorry if I missed this in the FAQ, but does TMV include tax?

    18. Member VeeDubDriver's Avatar
      Join Date
      Oct 1st, 2001
      Boynton Beach, FL
      '16 Mazda Miata Club / '13 Infiniti G37
      07-17-2002 07:19 AM #18
      No, TMV does not include sales tax since rates vary from state to state. The amount of sales tax paid can also be affected by trade-in value.

    19. Member hotsoup's Avatar
      Join Date
      Jan 8th, 2002
      Monrovia, CA
      02' GTI 1.8T, 02' Duc Monster 620
      07-20-2002 06:03 PM #19
      VDD, correct me if i'm wrong. TMV should be the targer price when we negotiate. However, seems like TMV on brand new cars are always under invoice. How likely is it to get a brand new ride at TMV?

    20. Member VeeDubDriver's Avatar
      Join Date
      Oct 1st, 2001
      Boynton Beach, FL
      '16 Mazda Miata Club / '13 Infiniti G37
      07-21-2002 08:13 AM #20
      TMV is simply a target price that indicates a fair price for both you and the dealer. It is by no means the lowest possible selling price. As for TMV prices being below invoice, I am not sure which cars you are looking at, but right now many makes and models have extra cash incentives on them. This will allow dealers to sell a car below what the factory invoice states, as I am sure you know. Even popular cars like the Honda Accord have over $1000 in incentives on them.

    21. Member hotsoup's Avatar
      Join Date
      Jan 8th, 2002
      Monrovia, CA
      02' GTI 1.8T, 02' Duc Monster 620
      07-21-2002 01:08 PM #21
      Is there any factory incentives on GTI 1.8T? I think there might have been some for Jetta 'cos I've been seeing specials on Jetta, i.e. cheap lease and stuff.

    22. Member VeeDubDriver's Avatar
      Join Date
      Oct 1st, 2001
      Boynton Beach, FL
      '16 Mazda Miata Club / '13 Infiniti G37
      07-21-2002 03:35 PM #22
      Right now, there is $1200 dealer cash on all '02 VW's (except the 337). However, you will not be able to get the special finance or lease rates with this rebate.

    23. Member Honda_Appliance's Avatar
      Join Date
      May 4th, 2000
      Niagara Frontier, USA
      08-27-2002 05:23 PM #23
      how accurate are the invoice prices on Edmunds? are those from the manufacturer or an estimate?

    24. Member VeeDubDriver's Avatar
      Join Date
      Oct 1st, 2001
      Boynton Beach, FL
      '16 Mazda Miata Club / '13 Infiniti G37
      08-27-2002 05:55 PM #24
      The are 100% accurate, but, in the case of VW, they do not include the port prep and floorplan reserve fees that are charged to the dealer and are legitimate additions to the invoice price.

    25. Member haunted reality's Avatar
      Join Date
      Apr 18th, 2001
      Delton, MI
      '15 Jeep Cherokee, '16 Jetta Sport
      08-27-2002 07:05 PM #25
      Just one more thing to keep your eyes open for. Also, there is the ever-popular processing fee (can be around $180-$230).
      I want to try and fight this time around, but I hear it can be difficult. The dealer here charges $289.30 last time I bought a VW from them. I am out of state now and plan to do my own paperwork and paying sales tax, registration, etc. I want to try and not pay this if possible.

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