How to Buy a Car in 2022 Without Getting Fleeced by a Dealership

Hello folks,

Long time, no post.

Since pharmacy school, I’ve been driving a rusty, old 2006 Toyota Camry that’s been in the family for the last 16 years. I drove this to and from USC and all over Southern California. When I matched to a managed care residency program in Rhode Island, I spent about $1,500 shipping it off to Rhode Island from Southern California. Then, I spent another $1,500 shipping it back to Southern California after I completed my residency. At this point, it had a mileage greater than 200k miles. It wasn’t the nicest looking car, but it had a solid engine that was in phenomenal shape even when I sold it, but that’s a story for another post.

I recently took a job as an MSL, which necessitated not having a beater of a Camry.

This is the first time I’ve bought a car from a dealership, and I learned a lot about the car buying process and how to not get taken advantage of by car salespeople. Furthermore, I took the same tactics that dealers use to swindle people like us and used it against them. I’ll teach you these exact same tactics in this post. It doesn’t take a rocket scientist to understand or execute these tactics, so if you have any qualms, rest assured. Remember, the people selling you cars aren’t typically selling cars as a side hustle because they are neurosurgeons during the daytime. They just had car sales training. If you learn the same strategies and tactics, you’ll be able to get a fair price even in the current marketplace. In this article, I won’t ask you to do anything you aren’t already capable of doing.

I am sharing what I have learned with you if you have the absolute need to buy a car in the near future. The reason I bring up “in the near future” is because I would recommend waiting after inflation settles and this chip shortage resolves, if possible. This is one of the worst times to have to buy a car in recent history as interest rates are at their highest, and car values are elevated by double digit percentages.

Source: https://fred.stlouisfed.org/series/CUSR0000SETA02

If you can wait, do not buy a car right now.

Furthermore, I am hearing whispers that cars are currently getting repossessed at higher rates than usual, which may bring the purchase prices of these vehicles back to sane levels in the near future.

The first and most important rule of car buying is that the negotiation war is won BEFORE you ever arrive at the dealership. This means you should spend the bulk of your time in the pre-work phase, and not in the negotiation, or post-work phase.

For the purpose of this article, since slightly used cars are often a much better deal than new cars, we will be purchasing a used vehicle. Although, in some geographies, due to strange market dynamics with the used car market and certain makes/models, you may find that used cars aren’t much cheaper than new cars. The second reason we are doing this is because this is what I am familiar with since I bought a used car.

DO NOT TRADE IN YOUR VEHICLE AT THE DEALERSHIP. The reason for this is that they will low-ball you and pay you pennies on the dollar. The stingiest buyer on craigslist will often beat any car dealer. If you want to learn how to sell your car at a fair price, you can find that here. Say no to anything that isn’t the car, sales tax, or title. This means financing, trade-ins, anti-theft products, etc. We’ll go over this in more detail in the next section.

Pre-Work Phase

1. Determine the make, model, year, and trim level of the car you want to buy.

2. Determine the maximum that this car will cost you by getting a website appraisal on your desired vehicle with KBB (Kelley Blue Book), NADA guides, and Edmunds. Please note the MSRP may not be the maximum price you will pay in the current market. You want to do this so that you can get pre-approved for a loan from a lender. Don’t worry about the exact mileage of the vehicle; this is not important as of now. You can put zero miles into any online appraisal calculator.

3. Get pre-approved for an auto loan. Shop around different lenders for auto loans. Important things you will need to keep in mind are term (length of the loan), interest rate, and amount financed. I went to around 5-7 lenders to get an idea of what the rates would be. I really dislike Bank of America, but they offered me the most favorable terms on financing. You will want to pick the one with the lowest interest rate. Ideally your interest rate should be well below 5%. Remember, if you have a stable source of income, you’re better off paying the loan as SLOWLY as possible (longer term) if you can secure financing at an interest rate of 2-3%. You can take the extra money you have as a result of a lower monthly payment and invest it into the stock market, which, on average, returns about 7-10% per year over long time horizons. However, this kind of financing is really hard to achieve right now, as Jerome Powell has raised rates by over 2% since I bought my vehicle. Perhaps, this is something to keep in mind when the Federal Reserve interest rate is not so high.

4. Use Autotrader to find your desired car in your local geography.

5. Use KBB and NADA Guides to determine the value of the car that the dealer has listed. I would use the lowest price in the range on KBB. Determine the sales tax that this car would cost in your geography. This is your anchoring out-of-the-door price. We’ll call this your “ideal price.” If you are able to settle in the middle of the KBB range, you are getting a fair deal; we’ll call this your fair price.

My 2015 Toyota Camry LE Ideal Price: $16,200

My 2015 Toyota Camry LE Fair Price: $17,500

For example, I was looking for a Toyota Camry between the 2012 and 2017 years and settled on a 2015 model with 71,000 miles. I know that sales tax in Vegas costs 8.25%, so I simply multiplied the lowest online estimate by 1.0825 to get my out-of-the-door price. Now this is going to be significantly lower than what the dealership will sell the car to you for. It might even be insultingly low. To soften the blow, you’re going to use the same tactics as the dealership. This means being super nice to all of the staff. Do what they typically do to you. Ask them about themselves. Start a rapport. Ask about how long they have been in the business, how long they have lived in the area, etc. In your rapport, be ultra-kind to them, so they aren’t too taken aback when you drop your anchoring price (ideal price) on them. Remember that time when salespeople were really nice to you, and you had an expectation of what the vehicle was going to cost until they dropped a much higher price on you? Same story; different vantage point.

My 2015 Toyota Camry LE Ideal Out-of-the-Door Price: $17,537 (16,200*1.0825)

My 2015 Toyota Camry LE Fair Out-of-the-Door Price: $18,944 (17,500*1.0825)

7. DO NOT use Carmax, Shift, Carvana, or any of these other no-haggle dealers. They already bake in a significant margin into their price, and with a little bit of work, you can save thousands of dollars at your local dealer. They also have a mandatory Doc Fee (Document Fee) of $400, which is a load of baloney. You don’t have to be a master negotiator to acquire a vehicle at a reasonable price. If you have the ability to say “No” and you already did your Pre-Work and know what a fair price is, you can come out way ahead by going to a dealer. You can trade a bit of your time and discomfort for thousands of dollars in savings.

Negotiation Phase

1. Call the dealership ahead of time and ensure that they still have the car and set up an appointment to test-drive the vehicle. Call them again before you head over to ensure the car is ready to test drive. Some car salespeople are sleazy and scummy people who have no business being in sales and will lie to you to get you in the door. Lo and behold, when you arrive, the car is magically not available or is being reconditioned and cannot be driven. I would immediately leave the dealership, and depending on how vindictive you are feeling, let the floor manager/management know about your experience.

This actually did happen to me and I left the dealership. Not only did this happen, but the salesperson kept me waiting 20 minutes for my appointment. I wasted an hour of my life for something that could have been resolved by a 10 second phone call by the dealer’s salesperson.

2. If the vehicle is available, your next step will be to test drive the vehicle. You’ll want to make sure you drive it on the freeway at freeway speeds. Pay careful attention to any kinds of noises that don’t sound quite right - grinding, knocking, whirring, etc. You’ll also want to pay attention to the car when the gears are shifting and ensure that the car is shifting smoothly from one gear to the next. If you hear anything out of the ordinary, you’re probably better off finding another vehicle. I would actually recommend bringing some napkins or a rag with you so you can check the engine oil. You’ll want to watch a quick video about how to do this if you’ve never checked engine oil before. Basically, you pull out the engine oil dipstick. You wipe it with a rag or napkin, and then you stick the dipstick back in. You’ll want to ensure the oil is present on the dipstick somewhere between the empty and full markings. Preferably, this should be close to full if they already reconditioned the vehicle.

You’ll also want to ensure that fluid levels on the vehicle are within a normal range. You’ll want to check the radiator fluid, power steering fluid, and transmission fluid; although, this may be a bit excessive. Any regular dealership should already be ensuring that fluids are topped off. It never hurts to double check, though. Doing a quick 5 minute inspection can tell you a lot about the quality and frequency of maintenance on the car.

3. Also, you’ll want to look at the CarFax (which the dealer should provide for free) that explains if the car is a clean or salvage title (you’ll want a clean title), how many accidents it has been in, and it also tells you about repairs done on the vehicle. You’ll want to ensure there weren’t major repairs on the vehicle like an engine rebuild or any major issues with the engine or transmission. Furthermore, this will also include maintenance on the vehicle. Check to see how frequently the previous owner did oil changes on this CarFax. If the car went 30,000 miles without an oil change, you may want to skip out on the vehicle, or ask the dealer about this. It is entirely possible that the owner did an oil change on their own. This is not necessarily a deal-breaker.

4. Once you’ve determined that the car is in good shape and worth buying, you’ll tell the salesperson that you are interested in purchasing the vehicle. If they ask about financing the vehicle before you talk to them about the car price, tell them you’ll cross that bridge when you get there - after finalizing a price.

When you let them know you are ready to buy, they will present a bill of sale to you. Nothing on this paper is set in stone even if they present it that way. Don’t believe a single word the salesperson says. Every line item on the bill of sale is negotiable with the exception of sales tax, title, and registration.

It is important that you don’t emotionally react to the larger-than-anticipated out-of-the-door price. Don’t be taken aback. You should be excited. This is when it gets fun because you will be clawing back a lot of their sales commission in the next few minutes. The dealership makes plenty of money on car sales; don’t feel sorry for them, but you will make it seem like you are throwing them a bone during the negotiation process to make them feel better about the sale. This is exactly what they do to us when they say that they’re “going to bat for us” by talking to their manager in the back; they’ll leave for a few minutes to talk about the game last night or to talk about the cute new hire. They aren’t doing anything even modestly resembling negotiating in your favor. This is just another sleazy tactic that salespeople use.

Ideally, you should only really be paying for the car, sales tax, and title (usually between $20-40). The title is just a rounding error, which is why we didn’t include it in our calculations above. However, you might see other line items on the bill of sale. If possible, you should not pay for these other items on the bill of sale; the only time these are okay is if they are selling the car to you at a price close to or below your fair out-of-the-door price. The bill of sale may include the following line items:

A. Doc fee (Document Fee): Paper costs about one cent a page, but dealers routinely charge $400-600 for this. They aren’t using gold ink to write down the terms and conditions to have you sign. This is just another asinine dealership fee.

B. Anti-Theft Devices (LoJack): Skip this one.

C. Reconditioning fees: Every single used car needs to be reconditioned when the dealer acquires it as a trade-in from a buyer. This is supposed to be baked into the sales price. The reason they put it on the bill of sale is because these dealerships are scummy. They know you are browsing for cars online, and if you’re like me, you’re going to sort the list from lowest price to highest. If they take the reconditioning fee out of the sales price, their car will pop-up first on auto-trader and other car search engines, which brings more people into the dealership to see the car. Cleaning up the car, replacing brake pads, and doing an oil change is not a fee you should be paying for. This is supposed to be a part of the dealer’s cost of doing business.

D. Advertising: Dealers have a lot of nerve asking you to pay for advertising. You know what business needs to advertise? Literally, every single one. You don’t go to McDonalds and pay $5 for a burger and an additional $2 for their advertising fee. Similarly, don’t pay for this at the dealership. Just explaining this is causing my blood pressure to rise.

E. Nitrogen Tire Fill Ups: The air you breathe is about 80% Nitrogen and 20% Oxygen. Don’t pay for this!

F. ADM (Additional Dealer Mark-Up): This is the dealer’s way of saying, “Give us more money because screw you.” You likely won’t see this on a bill of sale for a Toyota Camry; this is more likely to be found on a bill of sale for a luxury vehicle or rare sports car.

G. Accessories and Cosmetics: Don’t get any of this done at the dealership. Waxing, detailing, etc. These are usually done to sub-par quality because they have a limited time to get the vehicle out-of-the-door. If you really want any of this done, go to a local shop. They’ll often do a much better job for a lower price.

H. Delivery Fee: This should not be paid for on a used vehicle because the vehicle was delivered as a trade-in to the dealership by the buyer. They didn’t have to pay a single dime because it was already delivered to their doorstep. In my opinion, charging a delivery fee on a used vehicle should be against the law and those breaking this law should be subject to fines of at least $1,000 per infraction. However, this law only exists in my imagination where dealerships are fair and reasonable entities.

5. The first thing you’ll have to agree on is the price. To soften the blow, I would start off by saying something along the lines of, “I want both of us to walk away from this transaction happy, and I understand that quite a bit of your income comes from commissions on deals like this. I’d love to be your fastest sale this year, so you can go mark this transaction as a closed win.” Then, you drop your ideal price. If the salesperson says that they can’t do that price, you can try saying something like the following: “We all need to eat, I’m just trying to make sure I don’t end up eating Top Ramen for the next year while you’re eating Filet Mignon. What’s your counter offer?” They’ll drop another price on you, which likely won’t be their final price, but it will get closer to your “fair price.” If the first or second number they come up with is between your “ideal price” and “fair price,” I would agree to the offer and sign next to the agreed price. The next step is to go to financing. However, this is where you will tell them that you are going with your own financier - Bank of America, Chase, etc. Because you are a savvy consumer, you will have gotten a better deal than their financing department can possibly offer.

Secondly, what do you do about those pesky line items if you see them on the bill of sale?

You use them as a negotiating chip.

For example, if you see a “reconditioning fee” or “doc fee” on the bill of sale, you can ask them to lower the price of the vehicle by the same amount. If they are selling you a $16,000 vehicle with a $1,000 reconditioning fee, tell them they can keep that on the bill of sale if they knock down the car price to $15,000. If they are unwilling, ask them again in a different way. If they don’t budge and the out-of-the-door price is well above your pre-determined fair out-of-the-door price, thank them for their time, and try again at another dealership. They’ll either work with you on the price, or let you be on your merry way, so you can try again at a different dealership. At the end of the day, if you can acquire the vehicle for less than or around YOUR fair out-of-the-door price, I would buy the vehicle despite what the bill of sale says.

Post-Work Phase

After you have decided on financing, you are in the home stretch. All you need to do is finalize signing paperwork, and you are ready to go home.

You’ll receive a temporary registration for your geography; the title will be sent off to your financier if you are financing the vehicle, and all you will need to do is register the vehicle (within a week or two) and get insurance (ideally, as soon as possible). Shop around; surprisingly, Geico ended up being the most affordable car insurance for me. Make sure you set up auto-pay with your financier, so that you don’t have to worry about late payments!

Congratulations on getting a fair price on your new or new-to-you motor vehicle!

Buying a car is usually the second biggest purchase people make in their lives. However, car buying is only of tertiary importance compared to understanding how to save and invest. How can you get all of the battle-tested, tried and true knowledge as quickly as possible? I wrote a book explaining exactly this; it's short; it's cheap, and it's written in plain English. You can find it here: https://amzn.to/32PLB3x. You may also want to consider subscribing to this blog by entering your email on the homepage next to the “Never Miss a Post” section and following the podcast “Nondelusional Investing” wherever you get your podcasts.

Is there anything you found useful or that I missed above? Please leave a comment in the comment box below.

Thanks again, and see you on the next one!

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Disclaimer: The article above is an opinion and is for informational/educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. The author has taken care in writing this post but makes no expressed or implied warranty of any kind and assumes no responsibility for errors or omissions. No liability is assumed for incidental or consequential damages in connection with or arising out of the use of this information.