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Auto
Things to know before you buy
When it comes to automotive services, CAA strives to help you. That includes bringing you helpful information about purchasing a new vehicle. After all, after a house, a new automobile is undoubtedly the second most expensive purchase the average Canadian consumer makes in their lifetime. With the large number of new high-tech vehicles on the market, it's easy to lose sight of your original needs. That's why it's so important for prospective car buyers do their homework ahead of time.
The first step in buying a new vehicle is to decide what type of vehicle meets your needs. Ask yourself these questions:
- Do you do a lot of driving?
- Do you tow a trailer or haul heavy equipment?
- Is fuel efficiency important to you?
- Are you interested in a luxury vehicle?
Gather general new vehicle buying information from sources like the Consumer Reports web site.
From there, decide what type of vehicle meets your needs and obtain pricing information. Set a budget by determining what you can afford. Consumer Reports offers a finance calculator that can help determine your budget. Remember to factor into your budget:
- Insurance
- Registration
- Maintenance
- Operating costs
Visit the Automobile Journalist Association of Canada (AJAC) web site for new models performance rating.
Selecting the right vehicle
After you've narrowed down your options to a few prospective vehicles, it's time to start your research. Consider:
- Model ratings
- Reliability information
- Owner satisfaction
- Fuel economy reports
Compare like vehicles, weighing their options, pricing, benefits and drawbacks.
Crash ratings
Find out what the vehicle's crashworthiness rating is by visiting the IIHS (Insurance Institute for Highway Safety) and NHSTA (National Highway Traffic Safety Administration's) websites.
Fuel efficiency
Is the vehicle good on gas? Natural Resources Canada provides a comprehensive list of vehicles ranked according to their fuel efficiency. Search by year, manufacturer or type of fuel to find the best fit for you.
Insurance
Once you've narrowed your choices down to three or four vehicles, compare the cost of insurance for each vehicles.
Insurance costs can vary depending on the make, model and features, so it's wise to gather all of the information before making your final purchase. Get a quick and easy CAA Auto Insurance quote.
Test drive
Once you've narrowed your choices to two or three vehicles, take each one for a test drive. Set aside one day, so you can drive more than one vehicle. This makes it easier to compare.
- Be upfront with the salesperson and tell them you're testing several vehicles and likely not making a purchase that day.
- Take a friend with you. They may notice things you don't. It can be helpful to get a second opinion.
A test drive allows you to get a sense of the vehicle's characteristics, handling and options. It should last 30 to 45 minutes and duplicate the types of driving you normally do - including some highway driving. Be objective. Carefully determine whether or not the vehicle meets your needs.
Use the Consumer Reports checklist to keep track. And take along a notepad to jot down your impressions of the vehicle as soon as you're finished the test drive - while your impressions are still fresh.
Taking a test drive can also help you assess the dealership. Their response to your test drive may tell you about their professionalism and help you decide whether you want to deal with them over the life of the vehicle.
Be wary of dealers who do not have demos in a popular lineup of vehicles, or who will only offer you a ride rather than test drive.
Once you're ready to purchase your new car, familiarize yourself with the buying process.
- Learn the pricing terms
- Know your rights when leaving a deposit
- Learn how to negotiate the best deal
Consumer rights
Before signing anything, learn how to protect yourself as a consumer. Signing a sales offer and leaving a deposit represents your commitment to purchase and is legally binding. The dealer has the right to keep your deposit if the deal is not completed in order to cover his costs. If you wish to have your deposit returned in the event the deal falls through, include a statement to that effect on your offer to purchase. A deposit of $500 is adequate.
Extra costs
Familiarize yourself with all costs associated with the purchase. These typically include:
- Taxes
- Pre-delivery inspection
- Freight charges
- Licensing
- Administration fees
Read and understand the contract before signing. Ask questions if you don't understand something.
If you choose any items such as extended warranty, rust proofing, or paint and fabric protection know the extra costs you may have to pay before accepting and remember the cost of these services are all negotiable.
Making an offer
The amount of profit included in the cost to a buy a new car depends on many factors including the type of vehicle, supply, demand and the dealership.
As a rule of thumb, the amount of profit figured into the cost of a new vehicle ranges from five to 15 per cent. There is little room for price negotiation with entry-level vehicles. Negotiation power increases with each step up the ladder from entry level to luxury vehicle. Vehicles in extremely high demand and low supply are often subject to higher mark-ups.
The dealer's cost for options vary considerably. Factory options are commonly marked up 10 to 20 per cent, and dealer-installed options can be marked up 30 to 40 per cent.
Negotiate the price of the new vehicle first, before talking about your trade in or financing options.
A reasonable offer would allow the dealer at least three percent mark-up of the invoice price as profit. Negotiate terms, like the price and interest rates. Make sure you get everything in writing, including all promises made by a dealership.
Remember:
- If a dealer won't talk price, think twice about purchasing a vehicle there.
- Don't fall in love with any vehicle - your objectivity will suffer.
- Learn what the car originally cost the dealer and negotiate up from the factory invoice, if possible. Do not negotiate down from the sticker price.
- Keep the deal simple. Don't confuse negotiations with discussion of a trade-in or financing.
Pricing terms
Know the pricing terms before entering into negotiations.
MSRP - Manufacturer's suggested retail price
The MSRP is set by the manufacturer and is commonly known as the list price or window sticker price. This price includes all factory installed options, preparation and destination (freight) charges.
This is the price the dealer would commonly use as a starting point for negotiations. Although the overwhelming majority of new cars are sold at less than the MSRP, some dealers will hold out for a price on a hot-selling vehicle that is high in demand and limited in supply.
Invoice price
Dealer invoice price, sometimes referred to as the factory invoice price, is the price the dealer pays the manufacturer for the vehicle.
Holdbacks
Many manufacturers offer their dealer holdbacks. This is money that will be remitted to the dealer once the vehicle is sold. These rebates payments may be equivalent to one to three per cent of the vehicle MSRP. This money normally is used by dealers to pay interest on loans used to buy vehicles on their lot or for other business.
Taking delivery
Inspect the vehicle before taking delivery to ensure it is equipped with all the features and options you have selected and its meets your approval. If there are defects, ensure the dealer addresses them to your satisfaction before taking delivery.
Conclusion
In the long run, once you have done you home work, you will be much happier with your new vehicle purchase.
What's your vehicle worth?
Find out with the Canadian Black Book® for used car valuations.
Check a used vehicle's history
With a Carfax used car history report, you get the full story before you buy.
Cost of Vehicle Ownership
CAA makes it easy to calculate the cost to own and operate a vehicle each year – including financing, depreciation, licensing, registration, insurance, fuel and more.
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