For more information on making a great car buying decision, please see: Cutting through complexity: A confidence-building car buying approach
Following a confidence-enabling process is the key to making the best car-buying decision. In the pandemic-impacted world, car prices have increased significantly. Also, some car dealers "fudge" or withhold information found on car marketplaces like TrueCar and Cars.com. (Another example of "the tragedy of the commons!"). This may make comparison shopping more difficult or confusing.
By the way, “sludge” is what behavioral economists call excessive friction that makes it more challenging for people to do what they want to do. Ultimately, sludge reduces consumer welfare. Certainly, an auto dealer purposefully obscuring necessary car-buying information is very sludge-like! Data fudging is a practice I observed with some auto dealers. This certainly does not imply all used car dealers are “sludgy.” It is important to beware.
In our article The subtleties of lending discrimination, we suggest the following approach provides the added benefit of reducing economic discrimination. It is important to appreciate that economic discrimination is not necessarily race-based. Economic discrimination may occur to anyone.
Car buying best practices
Build multiple credible used car purchase alternatives before leaving to inspect cars in person. This is another example of our decision process mantra "The order of operations matters!" The linked car buying workflow and the car decision-making app are good resources to organize your alternatives. Inputting the used car data from marketplace apps is a good starting place. If auto financing is needed, now is the time to line up an auto loan. You should strive to start with around 10 alternatives. See our article: The car purchase - How to think about costs and financing for related information. There is certainly more to buying a car than cost. You will need to trade off or weigh many factors. Such as model type (sedan, SUV, coupe, etc), size of the engine, handling performance, color, storage, technology package, and many others. You may use helpful decision software to help you weigh your alternatives.
Developing BATNAs when negotiating is critical. The BATNA is all about our own negotiating psychology. Knowing we have credible alternatives means we will not feel boxed into a particular car if its benefit turns out to be less than originally believed. In the negotiation process, always: a) let the auto dealer know you will be comparing several cars from several dealers. b) be respectful c) ask lots of questions, and d) most important, be willing to walk away. In this article, we suggest not engaging the car sellers (aka: auto dealers) until step 5. This assumes you can do most of your "data" shopping from your computer or smartphone. Some people are more visual. They feel the need to see the product live to gather information. There is nothing wrong with "just looking" in a dealer showroom or car lot. Keep in mind that you will likely be approached by a salesperson. It is important to say "We are just shopping today, we will be back in touch when we are ready to buy."
Call ahead and validate the key information. This may be a great tell or signal. If the seller is unwilling to provide the information, this is a signal you should walk away and go to the next car. If you get to the seller and the car is not as represented, this is also a signal you should walk away and go to the next car. By the way, be aware if the advertised car alternative is not available, but the seller suggests another. This is a classic “bate and switch.” Yet another tell that you should walk away and go to the next car.
If the car meets your expectations, take it to a trusted mechanic to get a "pre-purchase" inspection. Having a qualified and independent perspective is critical! A pre-purchase inspection provides an itemized and priced list of maintenance needs. If the seller is unwilling to release the car for inspection, this is a signal you should walk away and go to the next car. If the pre-purchase inspection reveals significant defects, still yet another signal to walk away and go to the next car. Now you can see why it is important to have a robust set of alternatives. There could be much walking away! The good news is, you can quickly determine a tell and limit your time investment. Determining defect significance is judgmental. I anchor my judgment by asking the mechanic this revealing question: “Would you buy this car for your son or daughter.” As an example, I have a trusted mechanic I have built a relationship over the years. My younger son and I brought him a car we thought was “the one!” It passed all our criteria up to this point. It turned out, it had been in an accident not disclosed on the car fax. The frame was bent. The mechanic said, “I absolutely would not buy this car for a family member.” Enough said. We went on to the next alternative.
Use the pre-purchase issue costs to negotiate the price. If the pre-purchase inspection defects are not too significant and you are ready to buy, it is still likely the inspection revealed minor deferred maintenance issues needing to be fixed. Use this to negotiate the price with the seller. At this point, my advice is to BE REASONABLE. Used cars do have normal maintenance needs, so the seller may not wish to back off the price for the “standard” life of car maintenance. As a rule of thumb, I seek to split the cost of repairs with the seller as a reasonable middle ground. See appendix 2 for thoughts on auto financing. If financing is needed, this is the step in the process to confirm car funding via your financing source.
Be aware of the used car source. Many new car dealers source their used car inventory from new car trade-ins. Many used car-only dealers source their car inventory from auto auctions, like Manheim. Be careful with auto auction-sourced cars. There are a few challenges: a) The time the dealer has to inspect the car before it comes down the auction line is limited. They may not catch all the defects before they buy the car for their lot. b) These cars are often auctioned from bank repossessions. It is more likely the previous owner of a repossessed car did not take care of it as well as you would like.
Consider Facebook marketplace or other "buyer/seller direct" marketplaces. Buying directly from the previous owner likely provides a higher quality car source. Rarely do repossessions get sold on direct marketplaces.
For help making the best car decision, please see this smartphone app:
