Owner’s Manual

Jetta Sportwagen TDI boasts 42 mpg

Want to save yourself a lot of time and aggravation? Before you begin to look for a vehicle, spend the time necessary to review your budget. Determine a target and maximum payment, and match it to the price of a vehicle that will fall within these ranges. Generally speaking, you’ll spend $20 a month for every $1,000 you finance, so figure out what you can afford BEFORE you go shopping. 

2. DETERMINE YOUR NEEDS

Let me preface this by saying that I’ve made a lot of money in commissions over the years from people who let their emotions rule their decision making process.  Before you go out on the search for the “perfect vehicle,” take time to determine exactly what your NEEDS and WANTS are, and most importantly, be sure to distinguish between the two. Many consumers mistake one for the other and end up purchasing a vehicle that is totally wrong for them. Don’t put yourself into a financial box because you bought more vehicle than you truly need. The “new car smell” fades quickly but the monthly payments go on and on and on….

I’m not saying emotion should have no part in the process; you can and should have fun buying a new car.  All I’m saying is balance emotions with logic.

3. RESEARCH THE VEHICLE

Once you have a general idea of the type of vehicle that will suit you, spend the time to do the background work that will disclose advantages and disadvantages. With over 1000 different models available, you will need to eliminate many very quickly. The information needed for this process is readily available and easy to access. Online, you can make use of free resources such as cars.com, edmunds, AutoTrader and Kelley Blue Book to name just a few, where you can get detailed information on specific vehicles and even request a free price quote.  A word of caution here:  don’t fill out forms on these sites requesting information unless you want to be contacted by a salesperson.  Dealers routinely buy leads from many sources and often consumers will mistake a “free information” resource for a lead generation site.

Don’t get too hung up here.  Once you’ve determined your needs, narrow your research to two or three models or you can easily get bogged down.  Don’t be a victim of “paralysis by analysis”. 

4. CHOOSE THE RIGHT DEALER

There are a number of factors which will determine the ideal dealership for a particular model, including location, service reputation, and price. A mistake here could mean a number of years of frustration and aggravation.  Here’s where many make a huge mistake, thinking the best price is the only consideration.  I hear stories every week from people who mistakenly thought the lowest price was the best deal, then found out after the sale that service is just as important, if not more so,  than price!  That $500 saved on your purchase can be quickly eaten up in the service department – or worse, on rental cars while waiting for your repair.

If you’re like most of us, you have one person you trust for your medical advice, another for financial advice, and yet one other for legal advice.  Why then, would you hop around from dealer to dealer, looking for the perfect car deal?  Why not find one dealer that you can trust and stick with him or her? 

5. BE AWARE OF THE TOTAL COST OF THE VEHICLE

The price of the car is only the beginning. Your total cost will be determined by what you pay for the car plus financing, warranties, insurance as well as repairs and maintenance. Investigate, compare and make certain to get the best deal you can on each!

The lowest price doesn’t always mean the lowest cost.  I like to calculate average cost per mile when determining the actual cost of a vehicle.  It’s a bit lengthy, but it’s a simple formula.  I have it worked into an excel spreadsheet, that I’d be glad to send to anyone requesting it.   

1.  Start with  the total price of the vehicle, including sales tax and any other dealer fees, add the cost of insurance, excise tax (your dealer or town hall can help you with this – in Maine, figure 2.25% of the MSRP or retail value). 

2.  Add the estimated cost to maintain the vehicle.  A newer car will cost less here, but as a general rule of thumb, use .007 of the vehicles mileage for an annual cost to maintain.  Therefore a vehicle with 60,000 miles will average $420 a year in maintenance.  There is no exact formula – .007 is probably closest to reality for most cars  -  but the key here is the higher the mileage, the higher the cost to maintain.  Don’t be fooled by a low-priced, high-mileage vehicle…figure the maintenance costs too.

3.  Determine how long you will keep the vehicle, and what it will be worth at that time.  There is no crystal ball for this, but manufacturer’s and banks publish residual values for calculating leases, and these figures will give you a good idea of your car’s future value.  The average car has a 3-year residual value of 50-57%.  So you can figure that new car will be worth about half of it’s sticker price (residual values are based on MSRP or sticker price) in three years.

4.  Take the total price of the vehicle from #1 and #2, deduct it’s future value and you have the estimated depreciation for the time period.  Now, simply divide the depreciation by the total number of miles you expect to drive during that time period and you have your cost per mile. 

One thing you’ll notice right away.  This should be common sense, but most people I talk to don’t ever consider it:  the longer you keep a vehicle, the lower it’s cost, regardless of whether you calculate cost per mile or per month.  But then, who wants to keep a vehicle forever?  Thankfully, not many, or I’d be out of a job.