The right way to buy a car

It was great to see that Wednesday’s Right Side stirred up quite a few comments. If you didn’t have a chance to read it, you can do so here.

OK, so perhaps I was expecting a heated debate about the average Brit’s newfound propensity for debt, and perhaps a mention of how the car finance industry is extending the national debt fever. But as it happened, the conversation turned to how one should best purchase a car.

And never let it be said that I’m not swayed by you, the reader…

So, you want to know the most cost-effective way to buy a car? Heck – even get free motoring?

As it happens, I have some useful insider knowledge on the subject. You may be very surprised by what you read…

The three-year-old car myth

A couple of years ago, I met a chap called Paul when he came to me with a business plan. I’m always more than happy to listen to a new business plan.

Paul was (and still is) at the cutting edge of the car sales industry. It wasn’t exactly cutting edge – it involved selling cars online, but it gave me a completely new outlook on buying cars. I mean, before I met Paul, I was always of the mind that you should buy a three-year-old car. In fact, judging by the comments to Wednesday’s piece, many Right Siders are of the same persuasion…

A whole glut of cars come off lease arrangements at the three-year stage – and that makes for plentiful of supply at knock-down prices. And for me, one of the greatest benefits has always been that I didn’t have to deal with some smarmy car salesman.

I bought my motors second-hand either privately or at auction. The logic is that after three years, the car has already suffered its steepest decline in depreciation. You can sell it a few years later without a catastrophic hit to its capital value.

But then I met Paul. He told me that he’s “never lost money on a car” – and he’s always bought new! But hey… what about all that depreciation you’re supposed to suffer on a new car?

Let me explain…

You are the dealer’s sales target

We all know that the moment you drive a new car off the forecourt, its resale value comes off by some 20% to 30%. Now, effectively, that’s the dealer’s margin. The dealership has a lot of overheads to contend with – and of course, he needs to make his crust.

If you bought a car, drove it round the block and tried to sell it back to a dealer, he’d probably offer you around 20% to 30% less than you paid. In fact, those margins aren’t actually the most rapacious on the high street.

But the point is, you don’t want to pay this commission… or depreciation – call it what you like.

Now, first off, you can haggle for a better price. And if you accept some fancy ‘extras’ on the car, or maybe a finance package that ends up earning the dealer a big commission, then maybe you’ll get a decent discount. Undoubtedly many punters come away from a dealer thinking they’ve got a fantastic bargain.

The second trick most punters know about is to buy ‘pre-registered’ – that’s where the dealer has effectively bought a car on his own book in order to meet his sales target. These cars are discounted and marketed as ‘new, but not first owner’.

But even then, a dealer is never going to hand away his full commission. That would cannibalise his own market. If you’ve walked into his showroom, he wants to make a commission out of you. He’s not going to let you out the door with a sale that nets him no money.

But here’s the thing. The dealers can and do sell cars at next to no profit. But not on their own turf…

How to get one up on the pros

It’s true that the dealers often have stock they need to shift. But for the reasons I’ve just mentioned, he’s not going to dump it on his own doorstep. Instead, he dumps it on someone else’s doorstep.

This is where internet sales come in. Today, there are a handful of internet brokers that help dealers dump excess stock. The dealers can’t sell the stuff direct and they don’t want to sell it to local traders either – again, that would upset their established market.

The web brokers offer anonymity and a way of releasing the vehicles onto someone else’s turf. Having talked to Paul, it turns out that the biggest problem these brokers face is to ensure professional traders don’t buy from them. They use all sorts of vetting techniques to make sure that these cars go to genuine private punters. At last a genuine deal where the private punter can get one up on the pros!

And the discounts can be significant, often running to 30%. In fact, during the 2008 crisis, discounts of 40% were easy to get. The dealerships were desperate to turnover some cars and online brokers were the best way of dumping them.

Buying at these sorts of discounts mean that you can buy new, often at better prices than the dealership’s second-hand rates!

Simple steps to find that bargain

I must confess, I was quite surprised to learn how the industry works. And yes, I know that many of you will feel uncomfortable spending such a large amount of money online. But don’t fear. In reality, you’re dealing with the dealership – that’s who you pay, and more often than not, they’ll be the ones that deliver the car to your door.

So how do you find these brokers? Just type in some search terms like “buy discount new car UK broker” into your favourite search engine. I don’t want to mention names, but there are three decent, big brokers. All you have to do is phone them up and ask them about their best deals. Play one off against the other, and you’ll almost certainly find a bargain.

As Paul says, there’s actually no need to lose money on buying a car. But don’t tell everyone!

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17 Responses

  1. 22/02/2013, Paul Murray wrote

    This is nonsense…. a made up story, with the help of his big white rabbit – “Paul”. Using this method he’ll still lose money.

  2. 22/02/2013, dr ray wrote

    I’m sceptical too though superceeded models do sell exceptionally cheaply.
    I would recommend buying new as cheaply as possible and keeping the car all its life – after all a second hand car you know has not been cut and shut or abused by its previous owner is worth more to you than to someone else who does not know its history so you lose that premium when you sell it. If you have an interest you can also drive for free if you buy cars which don’t depreciate such as an old Morgan.
    Regarding dealer discounts I found Hyundai are offering a 16% discount to just about anyone with a birthday this year which brings a new car price to 1 year old second hand.

  3. 22/02/2013, Michael wrote

    Bengt is right on this one. We bought our new VW California camper van exactly in this way. We specified exactly what we wanted down to the last detail and we were offered a very large discount. The internet brokers we used are excellent and the people at the supplying VW garage, which was hundreds of miles away, were full of old fashioned courtesy. Our local VW garage has honoured the warranty with no problem. I would do this again, without hesitating, except we so pleased with it we hope to keep it for 15 years.

  4. 22/02/2013, Adrian wrote

    There’s no way that this can match the deals you can get at auction. I bought a 9 month old Volvo S40 with 4k on the clock with extras (RRP £21.5K) for under £10k. I know nothing about cars but with 2 years left on a warranty I feel safe. You need to go a few times to get the ‘feel’ of the auction and remember to have a price and stick to it.

  5. 22/02/2013, David wrote

    I used to buy preregistered but you still lose a shedload after 3 years. I recommend buying 5-8 years old and set a limit of £5k. Last year I bought a 2004 VW Polo 1.4 TDI with 38k on the clock for £3800. I also bought a SAAB 9-3 1.8t Vector convertible with 27k on the clock for £4,850. Up your ante a little and I bought a 2002 ex-RN Defender with 30k miles for £7900. All came with full service history. NONE of these cars will suffer any depreciation over 2-3 years, given care and attention and sensible mileage. Go a little older…..I bought 1998 Fiat Coupe 20v Turbo for £800, yes £800. Even the best struggle to fetch £1500. Of course you have to have the cash in the bank, which most folk don’t have….

  6. 22/02/2013, Ralph wrote

    Just glanced at a couple of examples, comparing new & used prices on Autotrader with sites that came up with the search terms recommended. There are good discounts available on RRP, certainly. Autotrader seems to have new cars (preregistered) for similar prices to the online brokers (sometimes cheaper), while secondhand prices are a bit lower. On the examples I looked at it seemed like you would lose money, but with the good discounts maybe not as much. Can’t see how anyone would “never lose money on a car” with this method, maybe I’m looking at the wrong models?

  7. 23/02/2013, bengt wrote

    Ralph,

    I did say you should phone the broker… the way I understand it, it’s a bit of a game of cat and mouse with the dealers.

    They can’t post the best prices on the website as that would again upset the dealers and/or manufacturers. When they’re convinced you’re a genuine private punter and you’ve had a bit of a negotiation, that’s when you’ll get the best price. Consider the web prices as a starting point.

    Bengt

  8. 24/02/2013, Marek wrote

    Just wanted to say thank you for a really interesting and unexpected insight.

    Not any use to me immediately, but nevertheless increases you in my estimations

    Thank you

  9. 24/02/2013, Steve wrote

    I bought my last two cars at a carsupermarket in the Slough area. They sell ex-holiday rental 6 month old cars with less than 10k miles on the clock. Price for a Ford Focus was about 2/3 the new price, and the car was in good condition. That being said, I assume that the carsupermarket bought them at car auction so the above comment about buying at auction is probably right as the way to get the cheapest almost-new-car.

  10. 25/02/2013, Del Boy wrote

    After 30 years in the motor trade I have yet to find a way anyone can buy a new car and not lose money on it ! Any new car would lose 20% ( the vat) as soon as you drive it out of the showroom .As for quoting 30/40% discounts, this is a figure from manufacturers RRP which nobody takes any notice of anyway !
    Unless you,re able to access the discounts the major companies get ,then that would be the only way you could hope to get your money back!
    Don,t believe everything you read on the Internet !

  11. 25/02/2013, nick wrote

    Michael
    Can you share the broker details with us?

  12. 25/02/2013, clive chafer wrote

    Thanks, as ever, for this fascinating insight into car buying Bengt. Your thoughtful and informative columns always make interesting reading.

  13. 25/02/2013, Devallon wrote

    DelBoy is right. Your article suggests the dealer has a margin of 30 – 40% which is complete nonsense. The manufacturer has such a margin, and often a large part of that is used to subsidise the headline price of the car. But the dealer usually works on about 8% plus bonuses for achieving volume sales targets, customer service levels and property investment criteria. These extra bonuses can sometimes add up to 6% but rarely more.
    Watch out for end of line cars, mis-built cars, odd colours or cars that could have been standing in a field for a year or more.
    There are deals to be had for certain, but you are generally left with the stock they have to pick from. Remember you have a deposit at risk with the seller. Many of these companies appear and disappear so it is not usually good advice to deal with them on anything other than a pay-and-collect basis.

  14. 27/02/2013, Michael wrote

    Nick,

    We bought through Drivethedeal. Another positive about them is that every six months or so I receive an email from them with tempting special offers on cars. As I said above we’re not looking to change, but they must be the only company I have ever given my email address to that doesn’t over use it.

  15. 01/03/2013, bengt wrote

    Delboy

    What you say makes no sense to me. I cannot see why a purchaser loses 20% (immediately thro’ vat) just because he drives a new car out the showroom.

    If he sells his motor, then the VAT is already taken care of. The secondary purchaser doesn’t need to pay it again! (of course they may pay vat on the services of a motor dealer)

    And the article doesn’t suggest that motor retailer margins are 30-40%… Of course that would be ridiculous.

    I mereley (and respectfully) suggest that if a good salesman can make that sort of margin out of a punter, then he will… it’s his best case scenario. In fact, I only mentioned 20% to 30% as a normal margin on a second-hand motor.

    We all know that manufacturers RRP is not the real thing. Be it read in an Argos catalogue, or a BMW show-stopper.

    As always my aim is only to spread the little knowledge I have to as many readers as care to read my musings. I only report things as I see them.

    bengt

  16. 01/03/2013, Martin Edwards wrote

    d. Right now though with such a huge engine, it’s barely run in. Not recommended for commuting though.

  17. Best Auto Loan Banks linked to this.

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