Canadian New Car Buying Tips & Advice

Buying a new car is a big decision, but it doesn’t have to be a difficult one. The average person will buy 10-12 cars in their lifetime. Preparing yourself and doing your homework is the key to being able to make the important decisions with total confidence. Once you’ve decided on the car you will buy or lease, you will need to be able to determine what is a good price. This is where it can get very tricky. Before you sign on the bottom line you need to know how to recognize a good deal when you see one Understanding the Complexity of New Car Pricing in Canada

M.S.R.P. – The Manufacturer’s Suggested Retail Price, commonly known as the List price or window sticker, is the price set by the manufacturer. This is typically the price that the new car dealer would like you to pay. Although the overwhelming majority of new cars are sold at less than the M.S.R.P., some dealers will hold out for this price on a very hot-selling vehicle that is in high demand and limited supply.

Dealer invoice price – Every manufacturer sends an invoice to the dealer for their vehicles as soon as they are delivered to the dealer. The dealer will typically pay for the vehicle via a prearranged line of credit. Commonly, the dealer will start paying interest charges from the first day onwards.

Hold Back – Most manufacturers help subsidize the interest charges and marketing/advertising that a dealer incurs by paying the dealer a holdback amount, after the vehicle has been sold. This amount typically ranges from 2.0% to 2.5% of the invoice amount. Dealers will rarely consider this when negotiating a new car deal

Maximum dealer margin/profit – The difference between the M.S.R.P. and the dealer invoice price is the maximum dealer margin/profit that the dealer has to work with when negotiating a deal.

Dealer and buyer goals – The dealer’s goal is to negotiate a deal as close to M.S.R.P. as possible and the buyer’s (your) goal is to negotiate a deal as close as possible to the dealer invoice price.

Actual dealer margin/profit – The amount over the dealer invoice price that is finally negotiated between the dealer and the buyer (you), is the dealer’s actual dealer profit/margin, before sales and overhead expenses.

Dealer overhead and bottom line profit – From the actual dealer profit/margin amount the dealer has to cover the sales rep and sales manager’s salaries, commissions and bonuses. The remainder goes to the dealership to cover all other expenses, with the final balance representing the actual net profit to the dealership.

Factory-to-consumer incentives – In an effort to stimulate sales, many manufacturers will offer incentives to the consumer (you). These incentives are commonly advertised in the media and can consist of low rate financing/leasing rates, such as 0%, cash rebates, such as $2,000, or a combination of both. If a manufacturer is offering you 0% or $2,000 cash, the emphasis is on OR; which means that you cannot get 0% financing and $2,000. You have to decide between the two. In some cases, you can combine the 0% and $2,000, but not very often.

Factory-to-dealer incentives – Commonly referred to as hidden rebates. Internally these non-advertised dealer incentives can be known as marketing credits, trading dollars, factory cash, dealer cash, dealer bonuses, invoice credits, etc. Many manufacturers will use them as additional stimulus for the dealer to sell more vehicles. In some cases, the manufacturer may not want to advertise that they are offering incentives to avoid tarnishing their image, where others will use these incentives to encourage dealers to carry more inventory and thus sell more vehicles. Most dealers will factor in these factory to dealer incentives when negotiating a deal. Effectively this may allow the buyer (you) to buy/lease a new vehicle for less than the dealer invoice price.

Step 1: Narrowing Down Your Choices . . . One of the most important steps of new car buying is deciding exactly what type of car fits your needs. Do you want a large vehicle with lots of room or a small car that’s very fuel efficient? Whether you’re looking for a practical Dodge Caravan minivan to take the kids to hockey practice or a sporty Mazda Miata convertible to drive through the summer, it’s essential to define your model class and price range.

Step 2: Research. . . Once you have defined the class and price range, the next step is to research features, safety ratings and reviews. There might be ten different cars in the class you are looking at, therefore using existing analysis from expert sources to narrow down your choices can be very useful. There are many places to do in-depth research about new cars (note: many only offer English language websites), including online car magazines such as auto123, TheCarMagazine www.TheCarMagazine.com, Motor Trend www.MotorTrend.com and CanadianDriver www.CanadianDriver.com. Some of the better Canadian car manufacturer websites are www.Honda.ca ,www.Toyota.ca , www.Ford.ca , www.Nissan.ca , www.BMW.ca , www.Mazda.ca and www.Subaru.ca . For reliability rankings try www.Edmunds.com , www.JDPower.com or www.ConsumerReports.org .

Step 3: The Test Drive . . . You should always thoroughly test drive all of your prospective vehicles. No matter what the reviews say, the only way to tell if you feel comfortable in a vehicle is to drive it yourself. Bring the whole family and take it out for at least 20 minutes or the same types of roads that you usually use. Move the seats around, familiarize yourself with the car’s features and the pros and cons of each vehicle will quickly surface.

Step 4: Purchase Strategy . . . The Most Important Step! When you are ready to make your purchase there are a few key elements you should consider in order to have an enjoyable car buying experience. Everyone wants to get a good deal on the car they want. The problem is how do you know you’re getting a good deal? This is where the anxiety really kicks in. If you are debating between two cars priced at $30,000, how do you decide which one to buy? On the first car, you may only be able to get a $500 discount. One the second car may be able to get a $1,000 dealer discount plus a $3,000 factory cash rebate that is not advertised. If you had this information, the decision would be much easier. The car salesperson’s job is to try to sell you the car for the MSRP or Manufacturer Suggested Retail Price. In order for you to get the best price, you need to know what the factory invoice/Invoice Price is and more importantly, you need to know which factory rebates are available on the cars you’re considering. All of this information is included in a CarCostCanada Invoice Price Report. Take the invoice/Invoice Price, deduct all applicable cash rebates. This is the ideal place to start your negotiations, because this is the actual price that the dealer paid for the car from the factory. Considering the potential savings, the cost of buying reports is minimal. It will greatly reduce negotiation time and save you anywhere from $500 to $5000 or more on your new vehicle purchase.

Step 5: No Hassle Purchase. . . After you’ve generated your price reports, make an appointment to speak with a senior salesperson or sales manager at one of our pre-screened dealers or your local dealership. Most dealers will try to make a 10% profit on the car’s selling price. For example, if you are buying a $30,000 car, the dealer may have paid $25,000. Therefore, a 10% profit would be $2,500. That’s a lot of your money going into the dealer’s pocket and not towards the actual price of the car. Fortunately, most dealers are willing to sell their cars for 3%-4% above the invoice price and pass along all factory rebates, if and only if, they feel they have to, when making a deal. Looking at that same $30,000 car again, if the dealer was willing to sell it for a 3% profit, that is only $750 to the dealer. This translates into savings of $1,750 plus the PST and GST on the $1,750 (at 14% tax, it is a total savings of $1,995). That is a lot of money! Once you are in the price discussion mode, show them the report and tell them you are willing to pay a fair price. This will lead to a quick and relatively painless transaction that will make you feel great and get you boasting to your friends about how great a negotiator you are. Join CarCostCanada to get all the information you need click here