TBP Guide to Car Leasing & Buying

I mentioned yesterday morning that I had a) two cars coming off lease at the same time; b) I’ve been doing lots of shopping at various dealers; c) car financing was pretty attractive. This post expands on that discussion.

Allow me to share what I have learned over the past few weeks. I feared car buying was going to be an ordeal, but I discovered it didn’t have to be. To avoid this fate, you must: Do your homework, understand the negotiation process, and be moderately flexible. 

These are my 10 steps to better auto shopping:


1) Set Up Your Online Shopping Identify:

Get a Google Voice account (its free) then get a LeeMail account (its free). These are the only numbers/addresses you use until you decide which car you are getting from which dealer.

Both of these can be easily set to specifically block any emailer or caller — meaning you never hear from them again.

Trust me on this: If you don’t set up both of these up front, you will be harangued by car dealers for the rest of your natural lives (and possibly beyond).


2) Do your homework: Before you ever step foot on a dealer’s lot, you need to figure out a few things:

a) What kind of transport? Are you looking for a minivan, convertible, truck, coupe, SUV, etc.
b) The range of competitive vehicles for that car type
c) Your actual budget (including your “bottom line” monthly price)
d) Buy or Lease? (see #3)

Here is an example: One of our cars must be an AWD 4 door, 5 passenger. We made a flexible list that included: Acura RDX/MDX/ZDX, Audi A6/A7, BMW 535x, BMW X5, Infiniti FX35, Infiniti G, Infiniti M37x, Lexus RX350, Mercedes E350, Range Rover Evoque, Volvo XC90, VW Toureg. All had 4 doors, were available in AWD. Prices ranged from mid $30s on the low end to over $70k fully optioned.


3) Buy or lease? Most people should own, not lease cars. Its better not to pay for just the most expensive years of a depreciating asset.

The exception is if you can lease with pre-tax dollars — if you own (or are senior enough in) a company, than a lease may be a great deal. But without that tax advantage, the numbers favor owning.


4) Know Your Price Range and Approximate Cost of Cars: All of the cars I mentioned have extensive websites where you can build and price vehicles. You end up with MSRP.

With overall rates so cheap, the cost of financing a car for purchase is as low as its ever been. That reduces a key cost of auto shopping.

If you lease, you want to do Sign & Drive. If the car is stolen or totaled, the down payments are also lost — so it pays to roll as much as you can into your monthly fee.


5) Understand Factors Which Impact Pricing: The cost of any given car is a function of its retail price (MSRP), specific programs dealers are running, financing, what is hot or not, and other factors.

Seasonal contrarians take note: Convertibles tend to be more negotiable in December/January/February (they are just sitting on lots) the same is true with AWD trucks in June/July/August.

New/Old Models: When models change, there are deals to be had. A brand new model means there are not a lot of used ones to be sold — and many dealers make more from their used cars than they do from their new ones. For example, this month, Lexus’ new RX350 SUV had really good lease deals (2013 RX350 AWD $429mo/27mos. $3,779 due at signing) — because they want some used ones to sell in 2015.

Also look at cars that are being replaced: Acura’s MDX is being upgraded, so is Infiniti’s G37AWD sedan. The deals: 2013 MDX 6 Speed auto $439 per month for 36 months,$2499 total due at signing; Infiniti G37 Sedan AWD with Premium Package: $299/month Lease for 24 months, $2,699 initial payment. Their sale prices were also significantly discounted.

The hot sellers — Audi A7 — is pretty much full boat. And the leases were even worse. (Pass).

Then there are the klunkers: The overpriced, slow-selling BMW 5 series Gran Turismo is rumored to be cancelled soon; if that happens, they will go on mad sale. A similar BMW 3 series GT  — the shape works much better on the smaller car — arrives this summer. Watch for deals then.


6) Be aware of the sales routine: If you followed steps 1-5, you know the approximate cost of the car, plus the options you want, and how that prices it.

There seem to be three prices: 1. MSRP; 2. A reasonable percentage off of it; 3. Rock bottom price.

My experience has been that 10-12% below MSRP is very doable without wasting too much time. You can probably get to 15% or even more off of MSRP — but its a very time consuming game. My time has value, and I have better things to do with my weekends. The longer you go back and forth with them, the more you can get off.

Why do they start at full MSRP?  The first price is going to be kinda high — its full retail, and the only reason they do this is a surprisingly high percentage of customers accept it. So they always offer MSRP.

Some people hate haggling are embarrassed to look poor. I prefer the opposite tack — I always look at a medium nice car and sigh wistfully: “I wish I could afford that car.” Or: “My wife would never let me buy a car like that.” NEVER show off to a salesperson; instead, always make them feel your pain. (Paying for kids college? Killed in the market? Let them know!)


7) Understand the buying/leasing math: The purchase math is simple: Negotiated cost of car plus financing expenses.

For leases, its more complicated: What you are paying for is your usage of the car (as configured), plus finance costs. And, you have to add in what left over when you return the car — the residual. That is the purchase price if you want to buy it at the end of the lease.

The low rates help drive deals, but as I learned, the manufacturer’s offers have a huge impact. Here are two example’s of similarly priced cars that show how the deals shake out. They are instructive:

2013 Audi A6 3.0 Quattro Premium Plus (Nav) Cold Weather package
MSRP is $57k.
Purchase price = $52k
Purchase 8.88% below MSRP
Lease was $2,166 down, $787/mo 36 months
Total Lease dollars = $30,498
53% of MSRP purchase

2013 BMW Z4 3.5i Navigation Cold Weather package
MSRP is $59k.
Purchase price = $55k
Purchase 6.77% below
Lease was $1,700 down, $633/mo  36 months
Total Lease dollars = $24,488
41.5% of MSRP purchase

The Audi was a better purchase deal (~9% below MSRP) but 53% of the purchase price is way to high for a lease. The Z4 was an okay buy, but as a lease it is a good deal.


8) Use Online Salespersons: I asked several dealers for quotes on cars. If they ignored my request for an emailed quote and called, I held that against them. Different dealers have differing demands for specific cars. Some of the deals were very competitive .

A few years ago, we got a fantastic deal from a Greenwich CT Infiniti.


9) Go to Competing Dealerships: Don’t be afraid to cast a wide net. I looked at the same make cars from dealers in Parsippany, NJ to Greenwich, Connecticut to Smithtown, Long Island. The same marque in tony Manhasset (Nassau County) Long Island was not particularly pleasant or reasonably priced. In blue color Suffolk, in Smithtown, the dealers were pleasant with much better prices. Its about an hour between the two shops.

Some do the idiotic “let me speak to my manager” and leave you there for 15 minutes; others for 2 minutes, others not at all.

It totally paid off shopping far and wide.


10) Use a car buying service:  That was the suggestion for people who are too busy or intimidated or who simply dont want to be bothered. Readers made lots of good suggestions here as to what services they liked.

Leading suggestions: USAA, Credit Unions, and (mulitple recommendations) CostCo.


The bottom line is that when you walk into a dealer without sufficient prep — asymmetric information — it will be advantage dealer. Overcome that disadvantage by becoming knowledgeable. Take advantage of the embarrassment riches the internet offers to even the odds up.


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