According to recent data from the Bureau of Economic Analysis, 17.4 million cars are sold annually in the U.S. This number has been on the rise since a low of 9.2 million cars sold in February 2009. Auto sales are now back to annual levels seen just prior to the Great Recession.
All told, we are now experiencing a steady rise in U.S. auto sales. So, what’s contributing to this increase?
Lower gas prices. The national average price for a gallon of regular gas is now $2.62 versus $3.48 as the same time last year.
Loosening lending standards. According to the latest Equifax Inc. National Consumer Credit Trends Report, new auto loan originations have reached record highs of $1 trillion, a year-over-year increase of 10.5%.
The credit bureau also reported that auto leasing for banks and finance companies has grown to 973,100 bank auto leases and 6.63 million finance company auto leases, a year-over-year growth rate of 12.1% and 19.1%, respectively.
Demand. According to a recent survey from IHS Automotive, the average age of both passenger cars and light trucks have reached 11.5 years in the U.S.
At some point in life most of us face the task of purchasing a vehicle for our households.
If you’re in the market for a new or used vehicle, employing these 8 car buying steps can make your buying experience a breeze.
Step 1. Know what you can afford. When calculating the affordability of a vehicle, the overall sales price, fuel costs, maintenance, repair and auto insurance expenses need to be examined prior to making a purchase.
A general rule of thumb is that total auto loans for one household should not exceed 20% of the net monthly income. So, if the net monthly income is $3,000 per month for the household, the total monthly car note payments should be $600 or less, whether this amount is allotted to one car or three cars.
Edmunds has a helpful calculator that can help you make a good decision. For more information visit: http://www.edmunds.com/calculators/affordability.html
Step 2. Don’t be shocked by insurance premiums. When calculating how much vehicle you can afford, also include the potential annual insurance costs. State Farm has a useful website that compiles extensive claims data and generates annual insurance ratings for specific makes and models of vehicles.
Through their website consumers can see how much a specific make, model and style of car will affect costs. The ratings range from A – E. “A” equals the most savings while “E” means you’ll likely pay a higher premium for this vehicle. For further details visit: https://learningcenter.statefarm.com/auto/vehicle-rating.html
Step 3. Know what others have paid. So, you’ve narrowed your sights to one particular make and model, but you not sure what’s a good price to pay? Visit the following websites that will show either what others have paid for similar vehicles in your area or what the true market value of the car is before making an offer.
Step 4. Pre-negotiate your price. If you have a membership with AAA, Costco or other organizations, there are opportunities to take advantage of prearranged pricing for new and used vehicles. Please see some of their websites below:
- AAA Auto Buying Program
- AARP Auto Buying Program
- National Education Association Auto Buying Program
- Costco Auto Program
- BJ’s Auto Buying Program ®
- USAA Car Buying Service
Step 5. Shop at the right time. If you’re buying a new vehicle consider visiting the dealership:
- The last day of the month
- The last day of a quarter
- The last month of year
- Early in the week and late in the day
- Also, shopping during major U.S. holidays like Labor Day weekend may produce motivated sales negotiations.
Step 6. Don’t be afraid to walk away. If you’re at the point where you’ve found the car you like and you’ve made an offer with the salesperson that’s quickly rescinded without a counter offer, don’t be afraid to walk away from the negotiating table. It’s likely that they’ll have a change of heart in a day or two and will call you back with a new offer. If you don’t hear back from them, it’s best to move on to another dealership.
Step 7. Buy a gently used vehicle from a new car dealership. Another way to save on a car purchase is to investigate if a dealer is selling their courtesy customer shuttle vehicle or demonstration car. These types of vehicles are considered “new” because they haven’t been sold (titled) to a buyer. These types of cars usually have low mileage on their odometer of 5 – 7K miles. Because of these miles you may be able to negotiate a far better deal well below the sticker price.
Step 8. Do these tasks for a used vehicle purchase. When buying a used vehicle the same tactics employed to make a new car purchase also apply with a few additions.
After contacting and speaking with the selling party (either a dealership or private party) it’s imperative to obtain the historical record on the vehicle. CARFAX is a useful website that will provide a vehicle history report for a fee. You will need the Vehicle Identification Number (VIN) to conduct the search and receive the report.
Once you have the report and all looks okay, then request to spend some time with the vehicle, examine it closely and thoroughly, give it a test drive, and if possible have the car inspected by a reputable mechanic prior to purchase. If the vehicle passes these steps then negotiate the best price possible.
Purchasing a vehicle can be a significant financial life event. The experience can be exciting and memorable. I wish you all the best with your future car purchase.
Ms. Dakar is the author of The Busy Person’s Guide to Personal Finance, a primer to help consumers manage their finances so they can build a substantial nest-egg. She also conducts personal finance seminars where she provides concepts to attain overall financial health.
To read other articles written by Amber please visit www.weisseducation.com